An intra-community delivery occurs when goods move between different countries within the borders of the European Union.
Tax-free intra-community deliveries
If you have a German company and trade in the internal market, you have to mark this intra-Community tax-free delivery accordingly in the invoice. The mandatory information on the invoice includes a reference to the tax exemption and the reason why the delivery is tax free.
Intra-Community delivery is legal in §§ 4 No. 1b UStG and 6a of the Sales Tax Act (UStG) and in Sections 17a to 17c of the Sales Tax Implementation Ordinance (UStDV). For the correct interpretation of the legal situation there is the sales tax application decree (UstAE), in which the Federal Ministry of Finance explained the regulations and supplemented them with detailed information. In particular, the legal requirements for intra-Community delivery are clearly explained here. This includes the formal legal claims to an intra-community delivery as well as the documentary and accounting obligations with which you provide evidence that it was actually an intra-community delivery.
What is the prerequisite for tax-free intra-community delivery?
If there is a proper intra-Community delivery, this is exempt from sales tax. The following requirements must be met for this:
- The goods were delivered by an entrepreneur. This means that only those who have formally and officially registered their trade or professional activity can make tax-free intra-community supplies.
- The goods must have been delivered or received within the business activity. The delivery was made from one company to another.
- The delivery must be made from one EU country to another country within the European Union.
Checklist for checking the requirements for the tax exemption of the delivery
According to THEINTERNETFAQS.COM, the Frankfurt am Main Chamber of Commerce and Industry has drawn up a comprehensive checklist based on the statutory provisions and supplementary information from the Federal Ministry of Finance. You can use this to check whether the legal transaction is an intra-community delivery within the meaning of the VAT Act.
The checklist comprises seven points that you can understand in an ongoing process.
- First of all, it is checked whether the delivery is subject to sales tax in Germany. If this is not the case, it must be determined whether sales tax would be incurred in the destination country. If there is no sales tax liability in Germany, the check ends at this point. If the delivery is subject to taxation according to the Value Added Tax Act, the next step is to determine whether
- The above conditions for an intra-community delivery are met. Please note the following:
- The delivered goods must have reached another EU member state across borders.
- The fact that the recipient of the delivery is an entrepreneur is proven by a foreign sales tax identification number. This must be valid at the time of delivery. It is advisable to have the validity confirmed together with the name and current address of the holder of the VAT identification number. These confirmations are made by the Federal Central Tax Office. You can apply for it online. By specifying the sales tax identification number, the recipient of the goods indicates that he wants to purchase the goods for his business activity.
- This is a further prerequisite for the existence of an intra-community delivery. The supplier can assume that the goods have been purchased for the customer’s company if the customer appears with a valid VAT identification number, as explained above, and if the type and scope of the goods purchased do not give rise to any justified doubts about their use for his company surrender. If this is not the case, the test is terminated at this point. There is no intra-community delivery.
- The customer’s valid sales tax identification number signals the existence of a further prerequisite: The delivery of goods must be subject to sales tax in the destination country and the customer must be obliged to pay sales tax. This is always the case if a member state has issued a VAT identification number.
Before doing this, however, it must be checked whether any special regulations apply. These exist, among other things, for a delivery by an institution without entrepreneurial status, for the delivery of new vehicles to a private person or for contracts for work and services.
How does an entrepreneur provide evidence that there is an intra-community delivery?
- The seller must provide documentary and accounting evidence that the prerequisites mentioned under point two actually existed for the given delivery. Otherwise, VAT must also be paid retrospectively. Evidence must be provided in particular for the following facts: a. With a certificate of arrival or proof of shipment, the customer confirms that the goods delivered have actually reached another country in the European Union. As an alternative to the confirmation of arrival, a confirmation from the shipping company, a confirmation of receipt from the postal service provider, a dispatch protocol, the consignment note and some other documents mentioned in the VAT Implementation Ordinance are used as evidence. If the goods were processed by a service provider commissioned by the customer before they were shipped to other EU countries, further evidence is required.
- The accounting proof of intra-Community delivery is provided by the above-mentioned confirmation of the sales tax identification number by the Federal Central Tax Office.
- The tax office also makes numerous requirements for the outgoing invoice, which are regulated in the sales tax execution decree.
- If billing was carried out in a foreign currency, this must be converted into euros for proof.
- Depending on the scope of the deliveries to other EU countries, the supplier must provide information about his income to the tax office at different intervals. These declaration and reporting obligations are regulated in the Value Added Tax Act.
- The tax exemption for intra-community deliveries does not exclude input tax deduction. The entrepreneur can therefore assert the input tax expenses incurred by him in connection with the delivery for tax purposes.
What are the consequences of the intra-community delivery for the entrepreneur?
If there is an intra-community delivery, there are various consequences:
VAT exemption for the supplier
The delivery is exempt from sales tax. A proper accounting is essential. Monthly or quarterly you have to submit a “summary report” about the income from intra-community deliveries to the Federal Central Tax Office in Bonn.
Acquisition sales tax liability for the customer
In terms of taxation, it follows from an intra-community delivery that you have to pay the purchase sales tax. However, you can deduct this as input tax in Germany, provided you are entitled to do so. If, in the case of a delivery to a private person in another member state, a special regulation applies, according to which there is an intra-Community delivery, the taxation can either take place in the country of origin or in the member state of the recipient.
How is the tax exemption to be proven?
You have to be able to prove the tax exemption at all times. So you have to prove the receipts that are in your possession and must be kept for at least ten years. Furthermore, you have to be able to show proof of the book. So you have to prove the requirements of the tax exemption in the books.
When booking invoices and receipts in connection with intra-community deliveries, you must specify the applicable sales tax regulation. A clear description and specification of the sales tax rate (19% or 7%) are essential. Since the sales tax burden is claimed as input tax at the same time, there is in fact no sales tax.
Example of an intra-community delivery
An entrepreneur from Germany delivers fabrics worth 10,000 euros to a textile manufacturer in Spain. The German entrepreneur does not claim sales tax and does not have to pay sales tax to the tax office. For the Spanish entrepreneur, however, the acquisition tax has to be paid to the Spanish tax office.
Small business and intra-community deliveries
The small business regulation according to § 19 UstG does not apply to intra-community deliveries, as this regulation does not exist in all countries. Therefore, the small business owner must first adhere to the more complicated standard taxation. It is best to ask your tax advisor before you sell your goods to a foreign customer.