Reverse Charge Procedure in Germany [2025 Guide]

Key takeaways

• You don’t charge VAT in cross-border B2B transactions within the EU. Instead, the customer declares and pays the VAT in their own country. This system is called the reverse charge procedure.  It is regulated under § 13b UStG.
• You are responsible for verifying the customer’s VAT ID. Suppose it turns out that your customer’s VAT ID is invalid. In this case, you are liable to pay the VAT even if you didn’t collect it.
• The “reverse charge procedure” helps reduce the administrative work of businesses and the tax office, and prevents VAT fraud.
• The “reverse charge procedure” only applies to business customers, not private individuals.
• If your business uses the small business regulation (Kleinunternehmerregelung), you can’t use the “reverse charge procedure.”

This is how you do it

• Issue a net invoice—do not charge VAT.
• Write your and your customer’s VAT IDs on the invoice. Without both VAT IDs, the invoice is invalid.
• Clearly mention “Reverse Charge” or “Tax Liability of the Service Recipient” on the invoice.
• Submit the sale as a cross-border transaction in your VAT return.
• You can create a reverse charge invoice using accounting software. We find the following accounting software to be the best in Germany: Sevdesk* (English, German), Lexware* (German), Wiso (German), and Accountable* (English).

Table of Contents

What is the Reverse Charge Procedure for Self-employed in Germany?

As a business owner in Germany, you are responsible for collecting VAT from your customers and paying it to the tax office (Finanzamt). However, you can transfer this responsibility to the customer in certain situations. This is called the “reverse charge procedure” (Reverse-Charge-Verfahren).

You can implement the reverse charge procedure if your transaction meets the following criteria.

• You sell products or services to another business with a valid VAT ID.
• Your customer (another business) is outside Germany but within the EU.
• The product or service you sell is taxable in Germany.

The reverse charge procedure in Germany is regulated per § 13b UStG.

NOTE: The reverse charge procedure applies only to B2B transactions. For cross-border B2C transactions, learn about OSS (One Stop Shop).

Example

Suppose you are selling a SaaS product. It costs 1000€. You are selling it to another business owner in Austria.

Usually, you charge your customers 1000€ + 19% VAT = 1190€.

However, as your transaction meets all the reverse charge procedure criteria, you don’t have to collect the 19% VAT from your Austrian customer. This means you’ll issue a net invoice of 1000€.  

In this case, your Austrian customer must declare and pay the VAT to the Austrian tax office. 

As you can see, the responsibility of paying VAT to the tax office is reversed. Instead of you, your customer pays the VAT to the tax office. Hence, the name “reverse charge procedure.”

Why is the Reverse Charge Procedure implemented in Germany?

We must work with an example to understand the rationale behind the reverse charge procedure. Before we start, you must know how to calculate the VAT you owe to the tax office.

The VAT you owe to the tax office = VAT you collected from your customers – VAT you paid when buying products or services for your business (input tax(Vorsteuer)).

The above rule applies to all the business owners in the EU. 

Let’s continue with our previous example.

You are selling a SaaS product to Sarah (an Austrian business owner) that costs 1000€. Here are four ways it can play out.

Case 1: You collect and pay VAT in Germany

• You issue an invoice of 1000€ plus 19% VAT = 1190€ to Sarah.
• Sarah pays you 1190€. 
• You keep 1000€ and pay 190€ to the German tax office.
• Sarah deducts 190€ from the “VAT due to the Austrian tax office”. 

It’s business as usual for you and Sarah. However, the Austrian tax office is not happy about this.

Here is why.

You paid 190€ (VAT) to the German tax office. On the other hand, Sarah claimed 190€ (VAT) from the Austrian tax office, which means she had a refund of 190€.  

In short, the Austrian state paid 190€. This 190€ ultimately goes to the German tax office. 

Now you can understand why the Austrian tax office was not happy.

In other words, money flows from one state to another during cross-border trade, and no EU state wants this. Let’s check another scenario.

Case 2: You collect and pay VAT in Germany, and your customer claims VAT from the German tax office.

• You issue an invoice of 1000€ plus 19% VAT = 1190€ to Sarah.
• Sarah pays you 1190€. 
• You keep 1000€ and pay 190€ to the German tax office.
• Sarah claims 190€ from the German tax office.

In this case, the VAT is paid to and claimed from the German tax office. Thus, the initial problem of money flowing from one state to another is solved.

However, to claim VAT from the German tax office, Sarah must register for a VAT ID and make a VAT return in Germany. 

Imagine if Sarah also buys products or services from businesses in Switzerland, the Netherlands, and Italy.  In this case, Sarah must register and make a “VAT return” in all these EU countries.

This is a lot of admin work, and no business owner wants this.

Case 3: You collect and pay VAT in Austria

• You issue an invoice of 1000€ plus 20% Austrian VAT = 1200€ to Sarah.
• Sarah pays you 1200€. 
• You keep 1000€ and pay 200€ to the Austrian tax office.
• Sarah deducts 200€ from the VAT she owes to the Austrian tax office.

In this case, the situation is reversed.

Now, you must register in all the EU countries where you sell your product or service and make a “VAT return”. Again, a lot of admin work, and you don’t want it.

In short, none of the above three scenarios is practically feasible. This is why the EU introduced the reverse charge mechanism. Let’s see it in action.

Case 4: Your customer pays VAT in Austria (Reverse Charge Procedure)

• You issue a net invoice of 1000€ to Sarah.
• Sarah pays you 1000€. 
• You keep 1000€ and declare this sale a cross-border trade to the German tax office.
• Sarah declares and pays the VAT she owes to the Austrian tax office.

In this case, everyone is happy.

• The money didn’t flow from one state to another.
• Sarah only has to deal with her tax office.
• You only have to deal with your tax office.

This is why the reverse charge system is so effective.

When does the “reverse charge procedure” apply?

You can implement the reverse charge procedure if your transaction meets the following criteria.

• You sell goods or services to another business with a valid VAT ID. In short, a B2B transaction.
• Your customer (another business) is outside Germany but within the EU.
• The product or service you sell is taxable in Germany.

The reverse charge procedure is also used within Germany for transactions with certain businesses (construction and cleaning services) due to the increased risk of VAT fraud. 

Does the reverse charge procedure apply to startups under “small business regulation”?

Companies that opt for “small business regulation” don’t charge VAT to their customers. The tax authorities offer this provision to reduce the administrative work of startups.

The table below summarizes how the VAT and reverse charge procedure work based on your customer location.

The customer is	Do you charge your customer VAT?
	Customer with a valid VAT ID	Customer with no VAT ID
In Germany	No	No
Outside Germany but within the EU	No. You can’t treat it as the “reverse charge procedure”.	No
Outside the EU	No. You don’t charge VAT to non-EU customers regardless of “small business regulation”.

The table below summarizes how the VAT and reverse charge procedure work when the roles are switched, i.e., you are buying products or services from a company.

The service provider is	Do you pay VAT when buying goods or services for your business?
In Germany	Yes
Outside Germany but within the EU	Yes You don’t pay VAT to the service provider; you pay directly to the German tax office. The service provider will use the “reverse charge procedure.”
Outside the EU

Benefits of the reverse charge procedure

The reverse charge procedure offers several advantages for businesses and tax authorities within the EU.

• With the reverse charge procedure, you don’t have to register in every EU country where you sell your products or services. The recipient of your product or service is responsible for paying the VAT to their local tax office.
• Easier VAT return. As a business, you can deduct the VAT you paid (input tax) from the VAT you collected. The reverse charge procedure makes it easier to file a VAT return for the following reasons.
  • You only deal with your local tax office. 
  • Calculating the VAT you owe is easier. You only need to know the VAT charged in your home country (Germany) instead of learning the VAT charged in Austria, Italy, and other EU countries. 
• Prevent VAT fraud. The reverse charge procedure prevents MTIC (Missing Trader Intra-Community) fraud.
• Less admin work for the tax authorities. Like you (the business owner), tax authorities must deal only with the businesses operating in their country instead of enforcing VAT claims in other EU countries.

How do you create the invoice correctly when using the reverse charge procedure?

As a business owner, you must add the following information when issuing the reverse charge invoice.

• VAT ID of both you and your customer.
• Verify the buyer’s VAT ID. As a seller, you are responsible for verifying that the buyer has a valid VAT ID. If it turns out that your buyer doesn’t have a valid VAT ID, you are liable to pay the VAT even if you didn’t collect it. 
• Mention that the reverse charge procedure applies. You must add the following sentence in your invoice: “Tax Liability of the Service Recipient” or “Reverse Charge”.
• Issue an invoice with the net amount. You must not charge the customer VAT on your invoice.

Besides the above-mentioned particulars, your invoice should include the mandatory information listed in Section 14 of the UStG. They are:

• Your full name and address
• Full name and address of your customer
• Invoice date
• Date of delivery of the product or service
• Unique invoice number
• Quantity and type of products or services
• Payment details – where the customer can make the payment