VAT on business transactions abroad
➢ Cross-border supplies between businesses within and outside of the EU
➢ Cross-border supplies to privates within and outside of the EU
➢ Cross-border supplies outside of the EU – special provisions
➢ Cross-border supply of goods within the EU
➢ Cross-border supply of goods outside of the EU
➢ How can I verify whether my contract partner is a business?
➢ What small businesses need to know in international business transactions
In the case of cross-border supplies and other services, a distinction must be made as to whether domestic VAT must be invoiced, essentially whether these are made to other entrepreneurs or to private individuals. It should also be noted that non-EU countries are sometimes subject to different rules than EU countries.
An entrepreneur is any self-employed or commercial person, regardless of whether he or she is a small business owner or exempt from VAT for other reasons, provided that the delivery or service is part of his or her business activity.
A private person/non-entrepreneur is the person who considers the supply or service to be part of his or her private life and does not claim it for tax purposes.
An association without a UID number is not an entrepreneur.
An association with a UID number is to be treated as an entrepreneur.
A further distinction must be made between supplies and other services:
- Supplies generally refer to objects, e.g. a work of art.
- Other services refer to everything that is not a delivery, e.g. the work of a director or musician.
In order to find out whether domestic VAT must be charged for cross-border supplies of goods and services it is important to distinguish whether these goods or services are supplied to other business operators or to privates. Moreover, please be aware that partly different rules apply to non-EU countries than to EU countries.
Cross-border other services between entrepreneurs within and outside the EU
In principle, VAT must always be invoiced by the company providing the service. This does not apply in the case of cross-border services, if the service is provided to a foreign company. In this case, the so-called "general clause" comes into force, which states that other services provided to a company based abroad (B2B - business to business) are deemed to have been performed at the place from which the recipient of the service operates his or her business (place of receipt principle).
In this case, Austrian VAT law is not applicable, therefore Austrian VAT is not charged. Reverse charging (transfer of tax liability) then applies according to which the obligation to pay VAT is passed on to the foreign business. The supplying business will simply issue an invoice for the net amount to the customer (no VAT being invoiced). The invoice must state the VAT numbers of the supplier and the recipient (if EU) as well as a note that the amount is not taxable in Austria owing to the system of reverse charging being applied (for instance: “This amount does not contain VAT, since it is not taxable in Austria owing to reverse charging.“).
The Austrian business operator does not need to declare turnovers that fall under the reverse charging procedure and were supplied to another country, neither in the preliminary tax return nor in the annual tax return, however, these turnovers must be reported to the fiscal administration (via FinanzOnline) in a summary report (“Zusammenfassende Meldung, ZM”).
If an Austrian business is a recipient of a cross-border supply which is taxable at the place of supply, i.e. in Austria, following the general clause, it must declare this turnover in the preliminary tax return and self-assess the applicable Austrian VAT. At the same time, it may deduct input tax, which evens out the amount of VAT payable and deducted input tax with no tax liability arising.
An Austrian musician who is liable to pay VAT, composes the stage music for a play for a German theatre. This is a transaction between two businesses, and according the general clause (B2B) the place of supply principle is applicable, meaning that the Austrian musician charges a net fee to the theatre and indicates in the invoice that reverse charging is applied. He must indicate his own VAT number as well as the VAT number of the German theatre on the invoice. This turnover does not show up in his preliminary VAT return and annual VAT return, however, he must report it to his tax office in a summary report (“ Zusammenfassende Meldung“).
An Austrian theatre group, equally subject to VAT, buys the rights of use for a production from a German director who is also subject to VAT. Again the B2B general clause is applicable, meaning that the German director issues the invoice for the net amount. The Austrian theatre group is responsible for taxation, i.e. it must calculate the amount of VAT (13%, as this is an artistic activity) and include it in its preliminary VAT return. As it is entitled to deduct input tax, it may at the same time deduct the same amount as input tax in the preliminary tax return, so that the resultant tax liability is zero.
Cross-border services to privates within and outside of the EU
According to the general clause, services provided to private customers resident abroad (B2C - business to consumer) are deemed to have been performed where the domestic entrepreneur operates his or her business (entrepreneur location principle). The Austrian entrepreneur must therefore - as with invoices to domestic customers - invoice Austrian VAT and pay it to the tax office. Such sales must be included in the advance VAT return and the annual VAT return in the same way as domestic sales.
However, there are a number of exceptions where the place of performance, and thus the tax liability, is not at the entrepreneur's place of business.
Place of activity services:
An exception here is cultural, artistic, scientific, educational, entertainment or similar services provided to
non-entrepreneurs (private customers), which are not performed in Austria but abroad. For these services, the place of performance is the place where the activity is performed or exploited, either exclusively or to a significant extent (place of activity principle). (place of activity principle).
Non-entrepreneurs are both private individuals and legal entities without a VAT number (associations), among others.
The place of performance for admission tickets for events, is where the event takes place.
EU One Stop Shop (EU-OSS)
Other services to non-entrepreneurs whose place of performance is in another EU country. Up to an annual turnover from such revenues of up to 10,000 euros, can submit their invoices with Austrian VAT. If this limit is exceeded, however, there are two possibilities, one of which must generally be chosen, since switching back and forth is not possible.
- It is possible to register for tax in each country in which services are taxable and to invoice with the respective VAT. The sales tax must then be reported and paid to the tax office of the respective country.
- It is possible to register in the EU-OSS and to invoice with the VAT of the respective country. The sales tax is reported and paid to the Austrian tax office.
An Austrian author who is liable for VAT writes an article for the club magazine of a German club that does not operate as a business. According to the general clause B2C, the place of business principle is applied, i.e. the turnover is taxable in Austria. The author issues the invoice including VAT to the German association and pays this to the Austrian tax office.
An Austrian music group subject to VAT is hired to play at a wedding celebration in Germany. This is an artistic service that is performed abroad, so the place of activity principle is applied rather than the place of business principle. The place of performance is therefore Germany, so the performance is taxable in Germany. The music group issues the invoice with German VAT and reports this via the EU-OSS. to pay the German VAT. The Austrian music group has to invoice this to its German customers and subsequently pay it to the German tax office. In return, the input tax incurred in the course of the trip to Germany (hotel bills, meals, ...) could be deducted.
If, on the other hand, the Austrian music group does not play at a private party in Germany, but is booked for a concert by an organizer subject to VAT, the B2B general clause comes into effect again, even if the service was provided in Germany. The German organizer must calculate and pay the German VAT, but can deduct the amount again as input tax, so that no payment burden arises.
Cross-border supplies outside of the EU – special provisions
For supplies to private customers outside of the EU, the same basic rules apply that within the EU: the place-of- business principle, and the place-of-activity principle for some supplies.
A defined catalogue of cross-border supplies to a non-EU country is however subject to the place-of-supply principle also for private recipients. From this catalogue, the following is relevant for artists: granting, assignment and exercise of rights resulting from copyright provisions.
No Austrian VAT needs to be charged here, however, make sure to comply with the VAT laws of the recipient country.
Cross-border supplies within the EU (intracommunity supplies)
Also in the case of supplies of goods (e.g. sale of works of art) to customers abroad, it makes a difference with regard to VAT whether the recipients of the supply are entrepreneurs or private individuals.
In the case of cross-border deliveries between entrepreneurs, the place-of-receipt principle applies, i.e. the delivery is tax-exempt in Austria and must be taxed by the recipient abroad. The VAT number of both companies must be stated on the invoice, along with the note that the delivery is a tax-exempt intra-Community delivery. It must be documented that the goods have arrived from Austria to another EU country (e.g. freight documents).
For deliveries (mail order) to non-entrepreneurs within the EU, the destination principle has applied since 01.07.2021. The sale is generally taxable in the country to which the item is shipped. An exemption limit of 10,000 euros applies. Up to this amount can be taxed at the entrepreneur's place of business; above this amount, the entrepreneur must either report to the EU-OSS or pay the VAT in the respective country of destination.
If the delivery is made to a foreign private individual, the entrepreneur location principle applies, i.e. the turnover is taxable at the place of the supplying company - i.e. in Austria. The supplying company must invoice the foreign buyer for Austrian VAT and pay it to the Austrian tax office.
Only in the case of deliveries above the so-called delivery threshold (which are defined and must be observed separately for each EU country) does the destination principle apply, with mandatory tax registration in the country of destination. For Germany, for example, the delivery threshold is 100,000 euros per year, for many other EU countries the delivery threshold is 35,000 euros per year (e.g. Slovenia, Portugal, Spain, Greece, Italy).
Cross-border supplies outside of the EU (exports)
Sales and supplies of goods to non-EU countries are always tax-exempt domestically, regardless of whether they are delivered to privates or businesses. However, it is important to prove that the goods have been actually exported to the non-EU country by way of an export certificate.
If a customer from a non-EU country buys goods in Austria, the invoice is provisionally issued including VAT. When exporting this good later, the VAT paid can be reimbursed.
A gallery in the US buys some photographs from an Austrian artist. The artists ships the works directly to the gallery to the US, he can therefore issue his invoice without charging VAT.
However: If an American customer were to buy and take with him a painting from an artist in Austria the invoice would have to include VAT. Only when the customer exports the painting to the US he may have this VAT being refunded by the seller. The customer should obtain an export certificate at the airport from the customs authorities, if possible submitting the invoice.
How can I verify whether my contract partner is a business?
In order to determine whether domestic VAT must be charged, it must be clarified whether the foreign customer is purchasing or using the service as an entrepreneur or as a private individual.
If the customer comes from another EU country, he or she identifies himself or herself as an entrepreneur on the basis of the VAT identification number (UID number). If he or she comes from a third country, the entrepreneurial status must be proven by other suitable documents (e.g. by presenting an entrepreneurial certificate from the foreign tax authorities). However, foreign entrepreneurs are also considered non-entrepreneurs if they obtain the service exclusively for private purposes. In case of ambiguity, it is therefore advisable to obtain a written declaration that the supply or service is actually obtained for entrepreneurial purposes.
An EU-wide UID confirmation procedure is available for checking the validity of the UID number provided by a business partner.
Swiss UID (entrepreneur identification number) numbers are also considered proof of entrepreneurship and can be checked in the Swiss business register.
UID numbers from the UK continue to be considered as proof of entrepreneurship and can be checked at this link: https://www.tax.service.gov.uk/check-vat-number/enter-vat-details.
For the application of the reverse charge procedure with companies from non-EU countries, proof of entrepreneurship from the foreign tax office must be provided or if not possible, then at least an extract from the commercial register.
What do small business operators have to observe with cross-border supplies of goods and services
Small business operateurs/entrepreneurs are only subject to VAT exemption in their own country. As long as the place of performance is in the own country, an invoice can be issued without VAT and with reference to the small business exemption.
In the case of B2B services with transfer of tax liability (reverse charge procedure), a VAT number must be applied for when issuing the invoice without the small entrepreneur opting into VAT. If, for example, a small entrepreneur from Austria issues an invoice to a German entrepreneur, the invoice will be issued with reference to the transfer of tax liability and both UID numbers. The Austrian entrepreneur will have to submit a recapitulative statement to the tax office and a VAT return at the end of the year.
The provision that small entrepreneurs do not have to charge VAT also applies if they make deliveries or provide services abroad. Here, too, it is sufficient to indicate the small entrepreneur status on the invoice.
The situation becomes more complicated when Austrian small entrepreneurs act as recipients of services in the cross-border exchange of goods or services. The following regulation applies here:
- Acquisition of services
Small entrepreneurs are considered entrepreneurs for VAT purposes in the cross-border exchange of services. If they enter into a business relationship with a foreign company, they must apply to the tax office for a VAT number (see below) and communicate this to their foreign business partner. Thus, the B2B general clause applies and the tax liability is transferred to the domestic customer according to the reverse charge procedure. This means that the domestic small business owner must calculate the domestic VAT on the net amount invoiced and pay it to the Austrian tax office. However, because small entrepreneurs are not entitled to deduct input tax, they cannot - unlike other entrepreneurs - claim the amount as input tax and thus cannot be reimbursed. Thus, in this case, the sales tax is an actual cost factor
An Austrian event organiser, who is a small business operator, contracts a Dutch puppet player who is subject to VAT for a three-day workshop. The agreed fee is EUR 1,000. The organiser must apply to the Austrian tax office for a VAT number and notify the puppet player of this number. The latter will then issue his invoice without charging VAT. The Austrian organiser must add domestic VAT in the amount of 20% to the fee and pay those EUR 200 to the fax office. There is no reimbursement via input tax deduction. In fact, the organiser will actually have to pay EUR 1200 EUR for the services contracted.
of supplies (goods)
If small business operators acquire goods from the EU area and if they do not exceed the so-called “supply threshold“ (meaning that the goods acquired from the EU area do not exceed an amount of EUR 11,000 in the current calendar year) they are treated as private customers in other EU countries. This means that the foreign supplier charges foreign VAT on the invoice which is then payable.
following applies, if this threshold of EUR 11,000 is exceeded:
The small business operator must apply for a VAT number from the tax office (see below) and share it with the EU supplier. The latter will then issue a net invoice, the small business operators must himself calculate Austrian VAT from the net invoice amount and remit it to the tax office, input tax deduction is not possible.
VAT number for small business operators
Small business operators who are VAT exempt generally do not have a VAT number. If they acquire services from EU businesses or if they have exceeded the EUR 11,000 threshold when buying goods from other EU countries, they must apply for a VAT number with the tax office. To apply for a VAT number, use the form U 15, which is available for download on the website of the Federal Ministry of Finance.
On the form, you need to explain why you need a VAT number.