The German government has enacted the EU Value Added Tax (VAT) Directive into national legislation by passing the Annual Tax Act 2009. This amendment will have several effects on German VAT law. For example, Sections 3a and 3b of the German VAT Code (Umsatzsteuergesetz, UStG) have been redrafted and several other sections have been significantly amended.

The most important change is the new regulation for determining the place of the delivery of services. With effect from 1 January 2010, a distinction will be made between the provision of services to consumers and those to businesses. While the business to customer area remains largely unchanged, the place of supply of services to businesses shall be deemed to be the place where the recipient is established.

As before, different provisions will apply to business to business services in connection with immovable property and services relating to artistic or cultural activities. These activities will be taxed where the property is located or where the activity is carried out, respectively. In regard to services of an intermediary nature, the transport of goods or work performed on movable property or long-term rentals, the new place of delivery will be the location where the recipient is established.

A further effect of the shift away from the destination principle is an expansion of the German “reverse-charge” system which provides that VAT for goods and services delivered within Germany by a foreign company is owed by the recipient of the goods and not by the foreign service provider/supplier. Under this provision, it is not allowed for VAT to be charged on invoices to the recipient; rather a clear statement must appear on each such invoice indicating that the recipient is responsible for the payment of VAT and the recipient must calculate, report and pay the VAT to the appropriate German tax authority. The VAT may, however, be recoverable if the recipient is VAT registered.

In a further amendment to the VAT law, additional statistical filing requirements will be introduced for businesses providing intra-community services in order to combat fraud.
Another important amendment regards the filing for VAT refunds. Under the previous regulation, the VAT refund application had to be made in the member state where the VAT was paid. This involved problems with foreign languages and foreign tax authorities. Under the amended law, VAT refund applications will be facilitated in a number of ways and it will be possible to file an electronic refund application in the member state of establishment.

Furthermore, the refund itself, the processing of which currently can take up to several years, will become due after four months or, if further inquiries by the revenue authorities are needed, after eight months and interest will be payable to the extent that the affected member state does not meet these deadlines.