Taxes » Value Added Tax » VAT on foreign transactions

Value added tax on foreign transactions

When artists and creative professionals work internationally, they are faced with the question of which activities require them to pay value added tax in which country. Those who invite, commission and collaborate with artists (e.g., organisers, other artists, customers, clients) also often have to deal with questions concerning the payment of value added tax:

Does the reverse-charge procedure apply? Does it make a difference whether a work of art is delivered to a country inside or outside the EU? Does a small business owner (Kleinunternehmer) who hires a dancer from abroad have to pay value added tax? Under what conditions are performances by musicians from abroad exempt from value added tax? Does it make a difference whether an artist from Germany sells a painting to a private individual or a gallery abroad? When should a value added tax identification number (VAT ID) be indicated on the invoice?

These and other questions will be answered in this section.

Deliveries of works of art (hereinafter referred to as Delivery) and miscellaneous services that an artist or a creative person provides in his or her role as a business person in return for a fee within the scope of his or her business are generally subject to value added tax (information on the basics of value added tax in Germany can be found here).

In the case of cross-border transactions, you must check in which country value added tax must be paid (where) and who must pay this tax (who).

Artists and creative professionals must gather information about the customer and determine whether he or she is acting as a business or a private individual. Whether the customer or artist resides in an EU Member State (hereinafter referred to as Member State) or in a country outside the EU (hereinafter referred to as Third Country) may also make a difference.  

In which country must value added tax be paid (where)?

Pursuant to German value added tax law, the performance/delivery carried out by an artist, organiser etc. is only subject to value added tax in Germany (i.e. VAT only has to be paid to the tax office in Germany) if it is provided in Germany, i.e. if the place of performance/delivery is Germany.

The place of performance/delivery is determined by the applicable statutory provisions, which in turn are not always determined by the place where the performance/delivery was actually carried out.

 

Distinction between delivery and miscellaneous services

When determining the place of performance, German law distinguishes between a delivery pursuant to Section 1 (1) No. 1 Alt. 1 UStG and miscellaneous services pursuant to Section 1 (1) Alt. 2 UStG

If a physical object (an item) is being delivered, this is deemed a taxable delivery. Such items may include works of fine art.

Miscellaneous services include all other exchanges of services such as services, performances, granting of rights of use etc.


Place of delivery

When determining the place of delivery, it is necessary to ascertain

  • whether the item is being delivered from Germany to a Member State or a Third Country (information here) or
  • from a Third Country or a Member State to Germany (information here).


Place of supply for a miscellaneous service

For miscellaneous services, three distinct principles are used to determine the applicable location: the Registered place of business principle, the Place of supply principle and the Place of performance principle. 

Miscellaneous services supplied to businesses (B2B) are generally performed where the recipient of the service operates his/her business (Place of supply principle, Section 3a (2) UStG). The same applies if the recipient of a service is a non-entrepreneurial legal entity with a value added tax number (i.e. a legal entity that does not generate any income). This is referred to as Business to Business (B2B).

Example:
Performances for businesses (performance by a Greek actor at a theatre in Germany; granting of rights of use to a publisher in Germany by an author living in Italy).

 

Miscellaneous services supplied to non-businesses (B2C) are generally performed at the place from which the business (providing the service) operates (Registered place of business principle, Section 3a (1) UStG). This is referred to as Business to Consumer (B2C).

Example:
An artist living in France grants a private individual living in Germany the rights to use a photograph; a designer from Germany grants a private individual in Spain the rights to use a website.

 

In the case of artistic services (e.g. music, performing arts), special rules often apply regarding the Registered place of business principle and the Place of supply principle. In such cases, the place of performance is the place where the service is actually provided (Place of performance principle Section 3a (3) No. 3a/No. 5 UStG).

Examples:
Performances/concerts for non-business customers (usually weddings or birthday parties); sale of tickets by the artist himself/herself to businesses and non-business customers (if the artist is also the organiser).


Detailled information can be found here:

Who has to pay value added tax (who)?

As mentioned above, once the place of performance/delivery has been identified, it is necessary to determine who must pay value added tax.

 

Taxation in Germany

In the case of taxation in Germany, i.e. if the place of performance is in Germany, it is necessary to check who must pay the value added tax pursuant to Sections 13 a ff UStG. In principle, the person who delivers the item or provides the miscellaneous service and issues the invoice is liable to pay the value added tax (Section 13 a (1) No. 1 UstG). 

Example:
An author who lives in Germany writes a play for a theatre in Germany. The author issues the theatre an invoice listing German value added tax and pays this tax to the German tax office.

Particularly in the case of international transactions, the recipient of the delivery or miscellaneous service (as a business) is often responsible for paying the value added tax (e.g. Section 13 a (1) No. 2 UStG, Section 13 b (5) UStG). This process is also referred to as the reverse-charge procedure.

Example:
An author who lives in Greece writes a play for a theatre in Germany. The author issues the theatre an invoice without value added tax (but includes a reference to the reverse-charge procedure). The theatre pays the value added tax applicable in Germany to the German tax office.

 

Taxation abroad

In the case of taxation abroad, i.e. if the place of performance is not in Germany, the tax law of the respective foreign country applies. Accordingly, the respective national value added tax rates apply. The tax rates of the EU Member States can be found on the website of the European Commission website at www.ec.europa.eu.