If you conduct business on an international basis, you are required to issue invoices to residents from a variety of countries. In order to ensure that you are always acting in accordance with tax law and that you can always have clear conscience in the event of an extensive company audit there are a few rules that need to be observed. In this paper I intend to demonstrate to you which of these are applicable to billing in other European countries.
In which cases are you required to issue invoices?
Generally speaking you must and should always issue invoices – both for services provided to businesses (B2B) and for services provided to end consumers (B2C).
What time limits need to be observed in the process?
If you are subject to an invoicing obligation, i.e. you are required to issue invoices, you must do so within six months of providing your service.
If you are conducting intra-Community supply, i.e. delivering to another company within the rest of Europe, you must have issued the invoice by the 15th of the following month.
In which cases should VAT be stated on the invoice?
If you are selling products or services to individuals, you must state the VAT at the VAT rate of the country in which the individual is a resident. The respective country's threshold for VAT registration should however be noted. In this regard we draw your attention to our paper...
If you are selling to a company, you are not required to state any VAT because the tax liability is transferred to the service recipient in this case. This must be indicated on the invoice, e.g. by adding the statement "VAT payable by service recipient".
There are however exceptions to this for example when it comes to telecommunications services, broadcasting and TV as well as electronic services within the one-stop-shop approach (link to our paper). Refer to a tax consultant in case of any doubt.
If you have opted for the small business regulation exempting you from any VAT payment, this must be indicated on invoices. Caution should however be exercised here too: if you are deemed a small business in your country, this does not necessarily mean it is the case in another EU country. It must be checked on a case-by-case basis whether you are required to register for VAT.
In which cases do I need to indicate my customer's VAT ID number on invoices?
There is one case in particular where you must indicate your customer's VAT ID number:
namely when the transaction is an intra-Community supply, for which your customer must be taxed in its own country of residence.
What details need to be included in an invoice?
The following details are obligatory in invoices worth more than € 150:
- Section 14 (4) No. 1 to 10 of the VAT Act (USt) verbatim
These details need not however all be incorporated into a single document. An invoice may consist of more than one document if these have all been generated by the invoice issuer, i.e. you.
Furthermore, the other associated documents must be clearly designated in the document which summarizes the invoice amount and the amount of tax payable on this (e.g. using names, numbers or the date of the document).
Only the following details are necessary for invoices worth less than € 150, (so-called small-amount invoices):
- Name and address of the company providing the service
- Quantity and standard trade name of the object of the delivery or the nature and volume of any other service;
- The charge and the tax amount for the delivery or other service in a sum total;
- The rate of VAT or indication of tax exemption;
- From January 1st, 2004 onwards there will also be a requirement to mark the date of issue of the invoice.
- The VAT charged need not be stated separately in this case. The date on which the service was provided and details of the service recipient are not necessary either. If the the company providing the service issues several invoices for one single service, each equating to less than € 150.00 or € 100.00 as the case may be, this is not regarded as a small-amount invoice. For the input tax deduction the service recipient must split the invoice amount into the charge for the service and the tax amount (VAT).
Reducing the amount of information should be avoided in the interests of process reliability.
What should be noted when it comes to summary invoices?
If invoices are repeated because they are part of a continuing obligation agreement, you are not required to list all items of information in every invoice. Including this information in the agreement should suffice.
What are the consequences of missing out information or unintentionally providing misinformation?
If you have forgotten any information or made a mistake in the invoice, for example, failing to check the customer's VAT ID number, it may be that you have to cover the costs of the VAT yourself (if the service recipient is liable for the tax payment) or that you are unable to draw input tax, i.e. you are not refunded the input tax..
Is a credit note also regarded as an invoice?
A statement issued by your customer (the service recipient) can also be regarded as an invoice if this has been agreed beforehand and provided that the document bears the title "credit note". In this case the same principles apply to the credit note as to invoices, i.e. it must contain all the necessary information. However, the credit note will become ineffective if you disagree to it. Then you would then have to issue your own invoice.
Do invoices require a signature to be valid?
No, invoices are valid even without a signature.
How long do invoices need to be retained for?
You are required to retain your invoices for ten years.
Do I need to issue an invoice if I am supplying myself?
Yes, even in cases where goods are delivered to another EU member state within the same company (dependent branch), a "pro-forma invoice" must be issued and the purchase must be taxed in the other EU country. This process of transporting an object is transacted as an intra-Community supply and purchase as regards VAT.
What else should be noted when invoicing abroad?
When it comes to invoices with a foreign element, the basic facts should always be discussed with a tax advisor because there are still quirks such as VAT chain transactions with the associated problem of shifted supply or triangular VAT transactions.
Who can I approach with any further questions?
Your tax advisor should be your point of contact in case of any uncertainties regarding the issue of invoicing. You can also find information of the websites of the respective tax authorities and chambers of industry and commerce.
I would be only too happy to help you on this issue or to put you in contact with the right person.
Author: Heinz Potthast
Heinz Potthast ist Steuerberater und Wirtschaftsprüfer mit einem großen Erfahrungsschatz durch seine langjährige Tätigkeit bei namhaften Gesellschaften wie KPMG und PKF. Er ist das Gesicht, das übergeordnete Kontrollgremium und der Leiter unserer Kanzlei. Er betreut jeden unserer Kunden persönlich. Heinz Potthast is tax consultant in Germany with an huge international network to help companies all over the world.