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 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.
In general, intracommunity services are subject to what is called the “general clause“. This means that depending on whether the service is rendered for another foreign business operator or a private person, the “place of service provision“ is determined. From that, the legal provisions according to which the service must be taxed are derived:
- If the place of service provision is in Austria, Austrian VAT law (Umsatzsteuergesetz) is applicable.
- If the place of service provision is abroad, the provisions applicable in the country in question are applicable.
With intracommunity supplies of goods and services a differentiation is necessary as to whether the transaction is between business operators or with a private person.
Cross-border supplies between businesses within and outside of the EU
As a general rule, the company which provides the goods or services must invoice VAT. This does not apply to cross-border supplies of goods and services if the recipient is a company abroad. This is where the so-called “general clause“ comes into force, according to which a service provided to a business based abroad (B2B – Business to Business) is considered to have been performed at the place from which the beneficiary operates (place-of-supply 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 rendered to private customers abroad (B2C – Business to Consumer) are considered having been performed at the place where the business has its operations (place-of-business principle). Similar to invoices issued to national customers, the Austrian business therefore has to charge Austrian VAT and pay it to the tax office. Such turnovers must be included in the advance VAT return and in the annual VAT return similar to domestic turnovers.
Cultural, artistic, scientific, entertainment or other services to privates and customers (B2C), which are performed abroad and not in Austria are an exception. Here, VAT arises at the place where the activity is exclusively or overwhelmingly performed (place-of-activity principle).
An Austrian author who is subject to VAT writes an article for a magazine of a German association which runs no business operations. According to the B2C general clause, the place-of-business principle is applied, i.e. the turnover is taxable in Austria. The author issues an invoice including VAT to the German association and remits the VAT to the Austrian tax office.
An Austrian music band that is subject to VAT is booked to play at a wedding in Germany. This is an artistic activity that is performed abroad, which is why the place-of-activity principle is applied instead of the place-of-business principle. The place of performance is Germany, therefore German VAT needs to be paid. The Austrian music band must invoice its German customers VAT and then remit it to the German tax office. As an offset, the input tax which accrued in the course of the trip to Germany (hotel bills, food and drink,…) may be deducted.
If, however, the Austrian band does not play at a private party in Germany, but is booked by a concert organiser who is subject to VAT, the B2B general clause applies, even if the activity was performed in Germany. The German organiser must calculate and pay German VAT, but may deduct this amount as input tax, with no tax liability arising.
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)
With supplies of goods (e.g. sale of works of art) to customers abroad, there is a difference in terms of VAT whether the recipient is a business operator or a private person.
With cross-border supplies between businesses the place-of-supply principle is applicable, i.e. the supply is tax-exempt domestically and must be taxed by the recipient abroad. The invoice must state the VAT numbers of both businesses and include a note stating that this is a tax-exempted intracommunity supply. You must document that the goods were shipped from Austria to another EU country (e.g. shipping documents).
If the goods are supplied to a private person abroad, the place-of-business principle applies, i.e. the turnover is taxable at the place where the supplying business has its place of business, which is Austria. The supplying business must charge Austrian VAT to the foreign buyer and remit the VAT to the Austrian tax office.
Only with supplies in excess of the so-called supply threshold (which is determined separately for each EU country and must be observed) the place-of-supply principle applies, which means that tax registration in the country of destination is obligatory. For Germany, the supply threshold has been set at EUR 100,000 per year, for many other EU countries, the threshold is EUR 35,000 annually (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 find out whether domestic VAT must be invoiced, you need to clarify whether the foreign customer acquiring the goods or service is a business or a private person.
If the client comes from another EU country, he can prove his status as business by his VAT identification (UID) number. If he comes from a third country, he has to prove his status as a business operator by other suitable documents (e.g. submission of a certificate of entrepreneurial status issued by a foreign fiscal administration). However, foreign businesses are considered as privates if they acquire the service exclusively for private purposes. In case of doubt, make sure to get a written confirmation that the goods or services are actually supplied for business purposes.
In order to verify the validity of a VAT number indicated by a business partner, there is a European VAT number validation tool at available.
What do small business operators have to observe with cross-border supplies of goods and services
The provision that small businesses do not have to invoice VAT applies also if they supply goods or services abroad. Again, it is sufficient to add a note confirming your status of small business operator on the invoice.
The situation is more complex, if Austrian small businesses receive goods or services in cross-border supply of goods and services. Here the following applies:
In cross-border supplies of services, small business operators do qualify as businesses in VAT terms. If they enter into a business relationship with a foreign business, they have to apply for a VAT number with the tax office (see further down) and share this number with their foreign business partner. The B2B general clause applies and, according to the reverse charging principle, tax liability is shifted to the domestic customer. This means that the domestic small business operator must calculate domestic VAT for the net amount invoiced and remit it to the Austrian tax office. Since small business operators are not allowed to deduct input tax, they may not – unlike other businesses – deduct the amount as input tax and will therefore not be refunded. In this case, the VAT constitutes an additional cost burden.
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.