An internationally operating company is always faced with the task of issuing invoices to customers abroad. When issuing invoices to companies in other EU countries without VAT, there are special requirements to be observed, because normally every entrepreneur is obliged to pay VAT. In this article, you will find a summary of all the important information using Germany as an example.
Last Updated on 3 December 2020
Issuing invoices to other EU countries (3 cases)
When issuing invoices to other EU countries, we distinguish between three cases where we deliver products or services to a company in another EU country. In this case, the delivery address of the goods is also in the EU.
You and your client are both businesses/entrepreneurs (B2B)
If both you and your foreign customer have a VAT identification number, VAT must be paid in the country where the so-called place of performance is located. In the case of transactions across national borders, the place of performance is shifted to the location of the recipient of the goods.
When we talk about the place of performance in connection with VAT, this means that VAT must be paid where the products or services are consumed. The reverse-charge procedure that applies in the EU avoids companies having to pay VAT in all the countries in which they do business.
Since in each state a registration with the respective tax office is required and different laws must be observed, this rule simplifies trade within the EU immensely. Through this rule, your customer abroad is therefore obliged to pay VAT to the tax office in his country of residence for the purchased goods or services.
You are a business, your client is not (B2C)
If you sell goods or services to small businesses, freelancers or private individuals, the place of performance remains at the location of the seller. So you proceed exactly the same way as with a domestic sale and pay the VAT yourself. The goods or services are taxed at the standard tax rates.
You are a small business owner
As a small business owner you fall under the small business regulation and therefore you do not have to pay VAT, no matter if you deliver to Germany or to other EU countries. Whether your customers are small businesses, private individuals or entrepreneurs is also irrelevant in this case.
However, there are also situations in which the delivery address or the company headquarters of the customer is not in another EU country but in Germany. We will now also take a closer look at these two special cases.
Goods are delivered domestically – invoice goes to other EU countries
If a customer from another EU country buys services or goods from you, but does not export them across national borders, the principle of the place of performance applies again.
No distinction is made between domestic and EU invoices, as the products are used in the same country where they were purchased. The usual tax rate then applies to these products (so in Germany either 19% or 7%).
This case occurs, for example, if a company from another EU country orders products from your German company for one of its branches in Germany. You write the invoice to a company in another EU country, but the purchased goods are only delivered and consumed within the national borders.
Goods are delivered to other EU countries – invoice issued locally (to Germany)
The next case is the exact opposite. In this scenario, the goods are ordered by a domestic company, but are meant for a foreign EU country, e.g. an outpost of a company based in Germany.
Again the principle of the place of performance is relevant. As the service is performed for a company from the domestic market, the tax rates of 19% and 7% VAT applicable in Germany are applied.
Invoice without VAT to other EU countries: Here’s how it works
In principle, every company in Europe must pay VAT first. The place of performance or the movement of goods of the products is used as a decision factor to understand who has to pay VAT.
However, as you have certainly noticed, there are several scenarios where an invoice is issued without VAT. The most common reasons for this scenario are the small business regulation and the reverse charge procedure.
Small business regulation
In the case of the small business regulation, the facts are quickly explained. Since you as a small business owner do not have to pay VAT in Germany, it is also not necessary to invoice the customer for this.
NOTE: Small business regulations can differ from EU member state to member state.
Every company that is not covered by the small business regulation in Germany is obliged to pay VAT and to show this on every invoice. The invoicing party is also obliged to pay the VAT to the tax office. The customer, for his part, can claim the VAT on the purchased product or service as input tax and thus reclaim it from the tax office.
In the reverse charge procedure (reverse debit), the tax liability is transferred from the invoicing party to the invoice recipient. In this case, you record the net amount on the invoice and the VAT is then declared in your customer’s advance VAT return. Normally, your business partner can deduct the tax directly as input tax.
The reverse charge procedure helps to avoid errors and limits tax abuse. The procedure also offers advantages for your customer. Since your business partner is not billed the tax directly, he does not have to pay the tax in advance, which saves the invoice recipient’s liquidity. Furthermore, the invoicing party does not have to register with a foreign tax office. This simplifies the process for both sides.
Sample invoice for EU foreign countries without VAT
If you are a small business or if you use the reverse charge method, you may not include VAT on your invoice because you do not pay any. Also, be sure to include your VAT ID and that of your customer on your invoice. Note on the invoice that the reverse charge procedure or the small business regulation has been applied.
In general, this information should be included on every invoice within the EU:
- personal data (name and address of your company)
- personal data of the business partner
- both VAT IDs
- a sequential invoice number
- the invoice date
- type of product / type of service
- delivery date
Please always create English invoices when sending them abroad! >Here< you can find an invoice template.
Issuing invoices to other EU countries without a VAT identification number
In general, a VAT ID must be indicated on every EU foreign invoice. The only exception to this rule are companies or private individuals that fall under the small business regulation. As these groups of persons do not have a VAT ID, they are not obliged to state it on the invoice.
Invoices in other EU countries without VAT are generally executed in two cases: The small business regulation is applied or the reverse charge procedure applies. If one of the two cases occurs, stick to the sample invoice and note the particularities in questions of VAT.