There is a difference between services and goods. Economically services are seen as intangible assets, which in contrary to goods and materials, can not be stored and physically shipped. Another characteristic is that the production, provision and consumption of services happen at the same time e.g. a visit at a hair dresser, a taxi ride, the designing of a website etc. Due to the above mentioned points services are treated differently to goods when it comes to invoicing services to clients outside of Germany.
We wrote another tax guide on how to invoice the delivery of goods outside the EU.
If your client is based outside the European Union (EU) the first thing you have to check is whether your customer is a private individual or a business.
Invoicing a private person
Since services are intangible assets it is important to know where the service was provided i.e. where the service is taxable. In general the place of performance is where your office is registered and you have performed the service. This means your invoice is usually with the German value-added-tax (VAT) rate.
If you are a small business owner (Kleinunternehmer), you are exempt from VAT and should refer to §19 UStG on your invoice.
Invoicing a business
In the case your customer is another business based outside the EU the place of performance shifts to where your client has his or her registered office. However, it is more difficult to assess the situation because, unlike in the EU, there is no uniform legal basis and the tax systems differ considerably from country to country. Though in some cases a practice similar to the Reverse-Charge system is used, too (e.g. Switzerland).
Thus, in general, you do not have to collect and pay VAT. Yet it may change when you are passing a specific threshold set by the other country.
Here is one example: Your client is based in South Carolina, United States (US). This state has set its threshold to $100,000 or more than 200 transactions in the previous or current calendar year. After exceeding one of these limits you are legally obliged to collect and remit VAT (called sales tax in the US) to that state.
What should I write on the invoice?
In addition to the details required on a regular invoice, your invoice has to include the following details:
- Your net invoice amount and no VAT
- It is not mandatory but recommended to indicate that the transaction is not taxable in Germany, e.g. "Service not taxable in Germany" / „Nicht im Inland steuerbare Leistung“
In addition, since the place of performance shifts to your client's country the invoice should be formally issued according to the rules there.
Keep in mind that this is a general rule and that there are some cases in which the VAT should be charged in the country where the service was performed.
Sorted tax guides are provided without liability and do not replace a tax advisor.
To get an accurate answer for your specific case, please consult a tax advisor.
You can always ask one of tax advisors on the Sorted platform.