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The 1996 Tax Act included provisions sharply restricting VAT refunds to entrepreneurs resident outside of the European Union. The German tax authorities have now issued a directive interpreting the new provisions (BMF-Schreiben vom 7.02.1996 - DB 1996, 404). We therefore take this opportunity to review the procedures for VAT refunds to non-residents in general before reporting on the details of the new directive.


In all countries of the European Union, the VAT owed by an "entrepreneur" (a term of art essentially designating persons required to charge VAT with respect to goods and services they provide) is in principle arrived at by subtracting VAT charged to the entrepreneur from VAT charged by him. Furthermore, if VAT charged to an entrepreneur exceeds VAT charged by him, he is generally entitled to a refund of the difference.

Non-resident entrepreneurs are frequently in this position, e.g. because they have been charged German VAT in connection with a business trip or a trade fair. An often-asked question is therefore, "How do I get my refund?"

German VAT law has two basic refund procedures: the normal procedure and the summary refund procedure (Verguetungsverfahren). The normal procedure is that used by resident entrepreneurs to report their VAT liabilities or refund claims on a current basis. The summary refund procedure is, on the other hand, limited to non-resident entrepreneurs. Non-resident entrepreneurs are not, however, permitted to choose the procedure they wish to use. The VAT law and the relevant administrative regulations (sec. 59 - 61 UStDV) prescribe the applicable procedure. This being said, the summary refund procedure is applicable to the majority of non-resident entrepreneurs.


A non-resident entrepreneur is an entrepreneur without domicile, registered office (legal seat), place of management, or branch office in Germany (including certain areas with special customs status - sec. 51 par. 3 UStDV). The term "branch office" (Zweigniederlassung) is narrower than that of "permanent establishment" (Betriebsstaette), although many permanent establishments are also branch offices. A branch office should be entered in the Commercial Register.

A non-resident entrepreneur is subject to the summary refund procedure if he has no VAT liability for transactions in Germany during the relevant summary refund period (except for import VAT and certain international goods transport services). The summary refund procedure thus applies basically to foreign entrepreneurs who have supplied no goods or services and made no intra-community acquisition in Germany during the refund period.

The summary refund procedure is also applicable to non-resident entrepreneurs who have supplied goods and services in Germany within the relevant period if these transactions were subject to the VAT withholding procedure (sec. 51 ff. UStDV). The VAT withholding procedure applies primarily to all services rendered in Germany by non-resident entrepreneurs and to supplies of goods coupled with significant related services (e.g. installation) under a single contractual relationship (so-called "work deliveries"). Under this procedure, a reversal of the normal VAT roles takes place in that the recipient of the goods or services (if an entrepreneur) is required to withhold and remit VAT with respect to the transaction. The recipient may, however, elect not to do so as long as the non-resident supplier has not issued an invoice showing German VAT and provided the recipient would have been entitled to deduct such VAT as input VAT had it been separately shown. This election not to apply the VAT withholding procedure is itself known as the "zero procedure". In deciding whether the summary refund procedure applies, the relevant question is whether the transaction was subject to the withholding procedure as a basic matter, not whether the recipient has availed himself of the zero procedure (a sub-procedure of the withholding procedure) in a particular instance.

If a non-resident entrepreneur has performed supplies subject to the withholding procedure, then he must include with his VAT refund application a statement from the recipient of the supplies certifying that the recipient has either remitted VAT or opted for the zero procedure.

The filing deadline (date of receipt, not date of mailing) is June 30th of the year following that in which the refund claim arose. An official form must be used for the refund application (Form USt 1 T), which must be filled out in the German language. English-language instructions exist which assist in filling out the form, however. The various invoices and input VAT amounts are listed in an appendix to the form which the taxpayer may duplicate (e.g. using a spreadsheet program). The application must specify a refund period of at least three consecutive calendar months unless it is being filed for the rest of a calendar year, in which case it may be filed for November and December or December only. The refund period may not exceed an entire calendar year.

The application will only be processed if certain minimum refund amounts are met. These are DM 50 for refund periods comprising an entire calendar year or all remaining months of a calendar year and DM 400 for other refund periods. These minimum amounts increase to DM 500 and DM 1,000 respectively for non-resident entrepreneurs located outside of the European Union.

The entrepreneur must submit a certificate of entrepreneur status from the competent authority in his state of residence showing his tax ID number in this state.

The application must generally be accompanied by the original invoices and any original import documents. VAT must be separately shown on the submitted invoices except for small invoices (amounts up to DM 200), for which the applicant can calculate the associated VAT himself. The invoices must be made out in the applicant's name except for small invoices (which need not specify the recipient - sec. 33 UStDV) and invoices in connection with business trips, for which it is sufficient if the applicant can show from its records that the invoice was incurred in connection with a business trip undertaken by its employees and that they were reimbursed for their outlay by the applicant (A. 196 par. 4 UStR). With respect to business travel costs (food, lodging, use of employee's private car), it is also possible to claim a refund based on the standard deductions allowed for these items for income and wage tax purposes (by filing Form USt 1 TE; does not apply to non-EU entrepreneurs, see sec. 3.2 below).

The application should be submitted to the Federal Finance Office at the following address:

Bundesamt fuer Finanzen
Friedhofstrasse 1
D-53225 Bonn

The application can under some circumstances instead be addressed to a local tax office which has discretion to accept jurisdiction.


The German 1996 Tax Act has introduced the following limitations for entrepreneurs not resident inside the European Union (non-EU entrepreneurs) retroactive to 3 June 1995. All limitations apply only to refund applications submitted under the summary refund procedure.

1. Requirement of reciprocity

Refund of input tax to non-EU entrepreneurs under the summary refund procedure is now conditional upon reciprocity. This means either that the applicant's country of residence grants a refund of VAT to German resident entrepreneurs under similar circumstances or that this country has no VAT or comparable tax.

2. Prohibition on refunds for lump-sum travel costs and fuel bills

The refund prohibition applies to travel costs not supported by specific invoices and to all fuel costs for motor vehicles and aeroplanes.

3. Higher minimum refund amounts

The higher minimum amounts for non-EU entrepreneurs are explained in sec. 2 above. They apply for refund periods which include the month of June 1995 or later months. The directive issued by the tax authorities states that the new limits will not be applied to refund periods ending with the month of June 1995.

4. Directive issued by tax authorities

Firstly, the directive makes clear that the new restrictions for non-EU entrepreneurs only apply for purposes of the summary refund procedure. In other words, if a non-EU entrepreneur is not subject to this procedure, e.g. because he supplies goods and services in Germany which are not subject to the withholding procedure, then he is entitled to a refund of VAT under the normal VAT reporting procedure whenever his input VAT exceeds his VAT liability (subject only to the exceptions which apply to all entrepreneurs).

Secondly, the directive creates an exception to the new restrictions for non-EU entrepreneurs claiming input VAT which relates to supplies of goods and services which are subject to the VAT withholding procedure described under sec. 2 above. It makes no difference whether the recipient actually remitted VAT or elected not to do so under the zero procedure. For instance, if a non-EU entrepreneur performs a service subject to VAT in Germany without submitting an invoice separately showing German VAT and the recipient of the service applies the zero procedure, the non-EU entrepreneur can file an application for refund of the input VAT associated with the services it performed even if the reciprocity requirement is not met. There is, however, an exception to this exception: it does not apply to input VAT on fuel or with respect to travel costs not supported by specific invoices. (A similar exception and exception-to-the-exception apply with regard to bus transport of persons into Germany from non-EU countries.)

Finally, the directive contains a list of countries as to which the reciprocity requirement is fulfilled (24 countries including Hungary) and not fulfilled (82 countries including Russia and Eastern European countries other than Hungary). A copy is available upon request. The USA and Japan are expected to be added to the list of countries meeting the reciprocity requirement.

This article treats the subjects covered in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. Specialist advice must be sought with respect to your individual circumstances. We in particular insist that the tax law and other sources on which the article is based be consulted in the original, whether or not such sources are named in the article. Please note as well that later versions of this article or other articles on related topics may have since appeared on this database or elsewhere and should also be searched for and consulted. While our articles are carefully reviewed, we can accept no responsibility in the event of any inaccuracy or omission. Please note the date of each article and that subsequent related developments are not necessarily reported on in later articles. Any claims nevertheless raised on the basis of this article are subject to German substantive law and, to the extent permissible thereunder, to the exclusive jurisdiction of the courts in Frankfurt am Main, Germany. This article is the intellectual property of KPMG Deutsche Treuhand-Gesellschaft AG (KPMG Germany). Distribution to third persons is prohibited without our express written consent in advance.