The reverse charge procedure is a VAT regulation in which the service provider (seller) does not pay the VAT, but instead the service recipient pays.
Reverse-charge procedure for companies selling products to customers:
Reverse charging is a procedure whereby businesses that sell products to customers pay the value added tax (VAT) to the tax office rather than to the customer. Companies that use it are not required to charge VAT to the customer. However, the customer must receive a tax certificate from the seller indicating the amount of VAT that he must pay to the tax office.
VAT is paid to the tax office with an advance VAT return (please contact your local tax office if you have any questions).
Advantages
The reverse-charge procedure offers enormous potential for simplification, as the supplying entrepreneur no longer has to declare the transaction separately to the tax office. The procedure is particularly useful for cross-border transactions, as the foreign supplier no longer needs to contact the German tax office.
The concrete advantage for the entrepreneur receiving the service is that, under the reverse charge procedure, he must pay the VAT for the respective acquisition, but at the same time he can claim the same amount via the input tax deduction. The resulting simplification is not only a relief for the entrepreneur, it also prevents fraud.
Who can use the reverse charge procedure
In order to apply the reverse charge procedure, the buyer must be either a company or a legal entity under public law. The most important condition is that the service is provided in another EU country. The reverse charge procedure is normally used when customers order from another EU country and have a VAT ID. Thanks to this procedure, customers pay VAT directly in their own country, which is a convenient solution for both sellers and buyers and protects both sides.
The supplier and the recipient must both operate a taxable business.
In order to be entitled to input tax deduction and thus to the reverse charge procedure, an entrepreneur must pay the regularly received VAT to the tax office. To obtain this entitlement, a VAT ID is required
Reverse charge procedure for companies selling products to businesses (B2B)
In order to implement the reverse charge procedure correctly, the data entered is matched with the tax data during a B2B booking. For example, when company A claims a digital product from company B in another EU country. When the booking is made, the relevant data is transmitted and matched with the tax data to ensure that the VAT is correctly remitted in accordance with the reverse charge procedure. As a result, Company A assumes responsibility for paying the VAT instead of Company B invoicing it. The procedure ensures the smooth and correct handling of VAT in cross-border transactions between companies.
Important. The reverse charge procedure only applies to digital products. No reverse charge procedure applies to services.
§ 13b para. 6 no. 4 UStG (D)
§ Section 19 (1) sentence 2, Section 3a (6a) UStG
Example
The company "XYZ Electronics" based in Germany wants to buy electronic components from a supplier named "TechComponents" from France. Both companies are registered as entrepreneurs.
According to the rules of the reverse charge procedure, "XYZ Electronics" as a customer with an address in Germany is responsible for the payment of the VAT, not "TechComponents" as a seller.
Example calculation:
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