Non-taxable sales are sales that are calculated for a service in which the executing company is based in a different country than the customer.
What are non-taxable sales?
According to topbbacolleges.com, non-taxable sales occur when a service provider and a service recipient are not based in the same country.
For example, if the service was provided for a Swiss customer in Switzerland, but the company performing the work is based in Germany, no sales tax will be charged.
Even if there is no sales tax with this special form of business, the invoice amount is of course still counted towards the income of the executing company. This in turn means that the corresponding sums have an impact on other types of tax, for example trade tax. It is helpful to use a sample for the invoice to Switzerland .
Strictly speaking, sales tax is also incurred in connection with non-taxable sales, but not in Germany. Because in almost all EU countries, payments are made to the same place where the service is provided. The client is then responsible for paying the sales tax in another country. However, if the customer is a private person, this rule does not apply. The reverse charge procedure ensures that the sum in question is actually still paid in the country in which the service was provided .
However, there are other terms that play an important role in connection with non-taxable sales.
If sums for services or deliveries are received between different parts of a company, these fall into the area of internal sales. Classic example: doing business between the different branches of a company. But: if, for example, a company’s affiliated companies are located abroad, there is no question of internal sales. There is no sales tax in connection with internal sales. Conversely, the corresponding amounts cannot be deducted from input tax.
Where are non-taxable sales indicated in the sales tax return?
Non-taxable sales are shown in Appendix UR. If you have provided a service that is exempt from sales tax, simply fill out the form.
Non-taxable sales do not only play an important role for large companies. The self-employed are also repeatedly confronted with this special regulation. In the following you will find some classic examples that show the context in which non-taxable sales can occur in everyday life.
Input tax deduction for non-taxable sales
A topic that is often discussed: the input tax deduction for non-taxable sales.
The general rule is that tax-free sales in accordance with the regulations in Section 15, Paragraph 2, No. 1 (Sales Tax Act) may not be deducted. But: this regulation does not include the input tax amount listed in Section 15, Paragraph 3, No. 1 Letters a and b of the Sales Tax Act.
Accordingly, it is often possible to claim an input tax deduction in connection with tax-free sales. This mainly affects:
- intra-Community supplies
- Revenues generated in connection with aviation and shipping
- Deliveries of gold sent to the central banks
- tax-free brokerage services
The list of exceptions is much longer. If in doubt, it is therefore always important to check the current legislation and, if necessary, to ask the tax advisor for help.
Non-taxable damages – sales tax
The legal regulations in connection with the payment of sales tax for damages are sometimes complicated because it must first be found out whether the case in question is “real” or “fake” damages. But what is the difference here?
The following applies here: genuine compensation is then given if there has been no exchange of services between the two parties involved. Classic example: paying a contractual penalty.
The legislation speaks of spurious compensation if person A has damaged the property of person B, but the latter offers to repair the damage incurred cheaply – for example on the basis of their own skills and appropriate training. The invoice (to person A) is then issued with sales tax and is therefore not included in non-taxable sales.
Non-taxable sales for small businesses
Many small businesses are also active both nationally and internationally. The question that arises again and again in this context: do only the taxable sales have to be taken into account when it comes to being below the “magic limit” of 17,500 euros in sales per year? Or is it important to add the non-controllable buzzers as well? A look at the current legislation will help here. Because in § 19 UStG it can be seen that taxable sales may be reduced by special tax-free sales when calculating.
The decisive factor here is whether the sales in question are taxable domestically, but may possibly be assessed tax-free on the basis of a delivery in the European Community. In this case, the said sales would have to be added to the total. However, if it is a question of a turnover, in the context of which the place of the corresponding other service is in his own country, the small business owner does not have to add the sum to his total.
Definition – tax-exempt sales
The general rule is that services performed by an entrepreneur within Germany are taxable. The only exceptions are tax-free services. If objects are imported into the country, the import sales tax applies. Depending on the service or object, a different tax rate may apply.