German businesses generate significant revenue from cross-border services. According to Deutsche Bundesbank, Germany’s service revenue from foreign transactions amounted to approximately €458 billion in 2025. However, when providing services across national borders, businesses must comply with numerous value-added tax (VAT) regulations.

In this article, you’ll learn what constitutes a cross-border service under VAT law and when cross-border services are subject to German VAT. We’ll also explain the VAT rules for B2B and B2C services within the EU, as well as for services involving third countries (i.e., non-EU countries).

Key takeaways

• The place of supply determines whether a cross-border service is subject to tax in Germany or is attributed to another country for VAT purposes.
  
• For B2B services within the EU, the reverse-charge procedure often applies, under which the recipient of the service is liable for VAT in the respective member state.
  
• For services provided to private individuals in other EU member states, the place of supply is often the registered office of the business providing the service.
  
• For services involving third countries, the VAT treatment depends on the type of service, the recipient, and the regulations of the respective country.
  
• German businesses must properly document cross-border services and, depending on the circumstances, comply with documentation, reporting, and record-keeping requirements.
  

What is considered a cross-border service under VAT law?

A cross-border service occurs when a German company provides a service to individuals or businesses in another country or receives a service from a company in another country.

Under Section 3(9) of the German VAT Act (UStG), “other services” are services that do not constitute a supply of goods. These include, among other things, IT, advertising, brokerage, and legal services, as well as tax and management consulting, translation, marketing, and design services, and the granting or transfer of rights and licenses.

For VAT purposes, the decisive factors are what service is provided, who provides it, and who receives it, as well as which country’s VAT law classifies the service.

When are cross-border services subject to German VAT?

Whether German VAT applies to a cross-border service depends on where the service is deemed to have been performed under VAT regulations. Pursuant to Section 1(1)(1) of the UStG, fee-based services provided by a German company within Germany are generally subject to German VAT. For “other services,” the place of supply is determined in accordance with Section 3a of the UStG.

The place of supply is the decisive factor

In determining the place of supply, the key factors are who receives the service and what type of service is being provided. VAT law distinguishes between services provided to businesses (B2B) and services provided to private individuals (B2C). Different basic rules apply in each case. In addition, Section 3a of the UStG stipulates special rules regarding the place of supply for certain types of “other services.” The specific VAT treatment, therefore, depends on the individual case.

If the place of supply is in Germany, the service is normally subject to tax in Germany and might be subject to German VAT. If the place of supply is abroad, German VAT generally does not apply.

How do you determine the place of supply for a cross-border service?

When determining the place of supply, one must first check whether a special place-of-supply rule applies under Section 3a, Paragraphs 3 through 8 of the UStG or a supplementary provision of the UStG, such as Section 3b or Section 3e. If this is not the case, the general provisions of Section 3a, Paragraphs 1 and 2, of the UStG apply.

Special rules apply, for example, to real estate services, passenger transportation, event services, food and beverage services, and the short-term rental of vehicles. Section 3a of the UStG also contains specific provisions for certain services supplied to recipients in third countries. These special provisions could result in the place of supply being located in a country other than Germany. Whether VAT applies there depends on the respective national regulations. In such cases, the German business must not charge German VAT. If no special provision applies, the general statutory requirements apply.

Which VAT rules apply to services in the B2B and B2C sectors?

If a German company provides services to another company, the place of supply is generally where the recipient company has its registered office. If the service is provided to a permanent establishment, the location of that establishment might be the place of supply instead. If, for example, a German company invoices a French company for a digital service, such as setting up a cloud solution, the place of supply is in France. In that case, no German VAT would be shown on the invoice. For services provided to businesses in other EU member states, the reverse-charge procedure generally applies.

In the case of services provided to private individuals, however, the place of supply is most often the registered office of the business providing the service. If a German company provides consulting services to a private individual residing in France, Germany is considered the place of supply. The company therefore generally charges German VAT.

What VAT rules apply to services within the EU?

Within the EU, different VAT rules apply to cross-border services, depending on whether the recipient is a business or a private individual.

Services provided to businesses

For cross-border B2B services within the EU, the reverse charge procedure generally applies. Under this system, the tax liability is transferred to the receiving business. The German company generally issues the invoice without German VAT and includes the legally required notice stating, “Tax liability rests with the recipient.” The receiving company must calculate and remit the VAT itself in accordance with its own national regulations.

The reverse charge procedure is generally applied only in a B2B context. This means that the recipient of the service must be acting in the capacity of a business. German service providers should therefore verify that the customer qualifies as a business entity. This can be done using a VAT identification number (VAT ID), which must also be included on the invoice. In addition, specific record-keeping, documentation, and reporting requirements might apply.

Services provided to private individuals

In general, the reverse charge procedure does not apply to cross-border services provided to private individuals within the EU. Normally, German companies are required to show German VAT on their invoices in such cases.

However, different rules apply to certain services. These include, among others, electronically supplied services, for which Section 3a(5) of the UStG defines special rules regarding the place of supply. For such services, the place of supply might be determined based on the individual’s place of residence or habitual location. For the German company, this could mean that it must apply the VAT of the EU member state where the individual resides.

To simplify the processing of VAT, the One Stop Shop (OSS) procedure was established within the EU. This allows eligible companies registered in Germany to centrally report and pay VAT owed in other EU member states—pursuant to Section 18j of the UStG—via the Federal Central Tax Office (BZSt), rather than filing separate VAT returns in each member state for sales covered by the OSS.

For certain cross-border B2C sales, including electronically supplied services, an EU-wide revenue threshold of €10,000 applies. If this threshold is not exceeded in either the previous or current calendar year, the relevant sales might, under certain conditions, continue to be taxed in Germany. If the threshold is exceeded, or if the company chooses not to avail itself of this exemption, VAT is generally due in the member state where the service is used. Through the OSS procedure, businesses can centrally report and pay this VAT without having to register separately in each member state for the transactions covered by the procedure.

What VAT rules apply to services provided outside the EU?

Different legal requirements apply to VAT on cross-border services provided outside the EU than those provided within the EU. However, it’s also important to distinguish here between services provided to businesses and those provided to private individuals.

Services provided to businesses in third countries

If a German company provides a service to a business in a third country, the place of supply is generally the location of the recipient company’s registered office. The service is therefore not subject to German VAT. Whether and in what form a tax liability arises in a third country depends on the regulations in effect there.

Regulations in some third countries are comparable to those within the EU. For example, in the case of certain cross-border B2B services provided to companies in the UK or Switzerland, the tax liability can be transferred to the recipient company. In Switzerland, this mechanism is known as “acquisition tax” (Bezugsteuer). In other instances, the German company might be required to register for VAT in the third country or to comply with the tax regulations in effect there. Therefore, the national regulations of the respective recipient country are always the decisive factor.

Services provided to private individuals in third countries

For services provided to private individuals outside the EU, the general rule applies initially: the place of supply is the registered office of the German company providing the service. In this case, the German business charges German VAT. However, Section 3a(4) of the UStG provides for an exception for certain services. For example, if consulting, legal, advertising, translation, or data processing services are provided to an individual in a third country, the place of supply is the individual’s place of residence.

In such cases, no German VAT is due on the service; instead, VAT might apply in the third country. German companies must therefore assess on a case-by-case basis whether they’re required to charge and remit VAT or a comparable excise tax in the destination country. Unlike within the EU, there are no uniform regulations governing this.

What are the requirements for VAT reporting and documentation?

When providing B2B services in other EU member states, German companies must first verify that the recipient of the service is a business. To do this, they should verify and document the customer’s VAT ID. In addition, cross-border “other services” subject to the reverse charge procedure (where the tax liability shifts to the recipient) must be reported in the recapitulative statement pursuant to Section 18a of the UStG. Invoicing must comply with the provisions of Section 14 of the UStG as well as the specific requirements for intracommunity services under Section 14a of the UStG.

Special documentation requirements might also apply to services provided to private individuals, particularly if the place of supply is not the German company’s registered office. For electronically supplied services reported through the OSS procedure, businesses must retain the evidence necessary to determine the place of supply. Under Section 22 of the UStG, German companies are also required to maintain records that allow for a clear and complete review of the treatment of VAT.

The general retention obligations for VAT documents are set forth in Section 147 of the German Fiscal Code (AO). According to these provisions, companies are generally required to retain invoices, accounting records, and other tax-related documents for a specified period of time. Careful documentation is key, particularly for cross-border transactions, as companies should be able to provide verifiable evidence of their selected VAT classification.

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FAQs about value-added tax (VAT) on cross-border services