VAT-refunds in Germany for non-EU business entities

Foreign business entities sometimes have to pay German Value Added Tax (VAT) even though they are not tax resident in Germany. This may be VAT on deliveries and services received in Germany which are shown on invoices of German suppliers or service providers or import-VAT. Because the regular VAT-rate of 19% is quite severe it is of importance to know how a foreign business entity can reclaim German VAT that has been paid.

In general deliveries or services of German business entities to foreign business entities will be charged without VAT. This is for example the case if goods are exported or delivered to another EU-member state. These supplies are both tax-free. Most services are not taxable if the receiver of these services is situated outside of Germany. However there are exceptions. Here are two examples:

• A foreign company buys a machine in year 01 from a German manufacturer and stores it in Germany. The machine will be exported in year 02. The foreign company does not carry out any taxable sales in Germany in year 01. The German supplier charges 19% VAT.
• A foreign company plans to build a new office building in Germany. It uses a German building planning bureau as architect and for other services relating to the building site in the year 01. The foreign company does not carry out any taxable sales in Germany in year 01. The German building planning bureau charges 19% VAT.

The foreign company must fulfill the following preconditions to be able to claim a refund. It must be a foreign taxable person (entity). This is every person (entity) which has no seat of business operations or fixed establishment in Germany. In addition to that the foreign company should not carry out any taxable sales or intra-community acquisitions in Germany. Taxable items are also tax-free supplies or services. However, if the foreign company carries out only tax-free international transports or certain other transactions it is entitled to use the VAT-refund procedure.

Note: If the foreign company carries out taxable transactions (except only the above mentioned exemptions) in Germany it has to register for VAT purposes, file VAT returns and fulfill all VAT relevant obligations in Germany. In cases like this the foreign company is entitled to deduct German input-VAT and import-VAT in its VAT returns.

Non-EU business entities must fulfill an additional criterion. They must be situated in a country which does not levy a tax similar to EU-VAT or this country grants German companies the right of refund of a similar tax (Principle of Reciprocity). On the list of countries which do not fulfill the principle of reciprocity are countries like Brazil, the People’s Republic of China (but not Taiwan) and India.

The application period for a refund is between three months to one calendar year. The period can be shorter than 3 months if it is the remainder of the calendar year. The foreign business entity must apply by submitting the application electronically. In exceptional cases it can file and hand in a paper application form. The application has to be submitted to the Federal Central Tax Office. The foreign business entity has to provide the Federal Central Tax Office with a certificate of its domestic tax authority confirming that it is registered for tax purposes (VAT or a similar tax).The form is called USt 1 TN. The minimum amount for a refund is 1,000 Euro. If the application period is the calendar year the minimum amount is 500 Euro. The foreign business entity has to hand in the original invoices or customs import documents showing German input- or import-VAT.

Note:

1. The application form and the accompanying documents have to be at the Federal Central Tax Office on 30 June of the year which follows the year of transaction (supply, service, import). This is a deadline and can in general not be extended.
2. Special rules apply for business entities from other EU-member states.

Glossary

Author: Peter Scheller, Tax Adviser, Master of International Taxation

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