German VAT: Non-resident suppliers may be obliged to register for VAT if they supply goods with installation in Germany

Traditionally, Germany did not require non-resident suppliers to register for VAT when supplying goods with installations to German VAT taxable persons, as the requirement to pay VAT was shifted to their customers. However, on 10 October 2020, Germany’s Federal Ministry of Finance (MOF) published a letter restricting the concept of “supply with installation” to only apply to situations where suppliers install goods they do not own. This new rule entered into force as from 1 January 2021. Consequently, non-resident suppliers providing supplies with installation that do not fall within the amended definition must now register for VAT in Germany, file German VAT returns, and charge German VAT to their customers. Suppliers should check whether these changes affect them.

The EU VAT Directive provides different rules regarding the location of taxation for the supply of goods. A specific rule applies for the supply of goods with installation—this supply is deemed to be located where the installation is finished. When taxable persons perform these supplies in another Member State than the one in which they are established, they must, in principle, register for VAT in that Member State.

However, the EU VAT Directive allows Member States to foresee that the payment of the VAT is shifted from the supplier to the customer when the latter is a VAT taxable person, pursuant to the so-called (domestic) reverse charge rule. This implies that non-resident suppliers are relieved from their obligation to register for VAT in the Member State where the installation takes place.

This derogation is at the discretion of each Member State; for example, Luxembourg has not implemented it.
In accordance with a German Supreme Court decision, the MOF’s letter has restricted the concept of supply with installation. It is now limited to the manufacturing process of an item that does not belong to the manufacturer. Plus, it must also involve the use of self-procured materials for the installation that are not just ingredients or other secondary materials. Therefore, the concept will only cover the two following situations:

a) When suppliers process an item that is not their property. This type of work is usually known as “werklieferung” (i.e., “travail à façon” or “work delivery”).

b) When a fixed connection between the item procured by the supplier and an item belonging to the client exists.

Possible examples include constructing a building on a property that belongs to the client—or installing fixtures in a building that belongs to the client—when the connection cannot be easily severed. This is especially the case if the item would be destroyed, damaged or altered if this connection were severed. The fact that a supplied item installed at the customer's site cannot be moved due to its size and weight does not automatically result in a fixed connection.

Accordingly, the treatment or processing of the supplier's own goods does not result in a supply with installation.

As from 1 January 2021, non-resident suppliers of goods with installations to customers in Germany will have to register for VAT in Germany and charge German VAT to their customers when these supplies do not meet the abovementioned two situations. This could be the case when, for example, a Luxembourg supplier sells a machine or IT equipment to a German VAT taxable person and installs it on their client’s premises. Therefore, suppliers should review their operations in Germany and check if they may be required to register for VAT in Germany, file German VAT returns, and charge German VAT to their customers.

The Deloitte Luxembourg indirect tax team remains at your disposal to discuss the potential impacts of this decision for your organization.