As a freelancer living in Germany, you should be prepared to primarily service German-based clients through your work. However, you may also want to sell some of your products or services abroad, particularly if you have strong networks or existing clients in another country that you wish to keep on your books. If you’re new to Germany, new to freelancing, or have just started a little side hustle in addition to your main occupation, it can take a while to set up a presence and find opportunities to attract domestic clients. Thankfully, you’re allowed to service clients outside of Germany as well.
Even if you only make a few sales outside of Germany, you’re obliged to account for them correctly. The tax laws and regulations relating to invoicing and charging VAT outside of Germany and the EU are complex, and the below summary should be taken as a guide. If things get too hairy, Accountable can help you find a certified tax consultant to help you.
What if all of my clients are outside Germany?
As long as you’re paying your taxes in Germany, it’s okay if all of your income is generated through clients outside of Germany. However, in order to establish a successful career in the long run, it’s a good idea to grow your local network and build a client base within Germany as well.
It also helps your case if you need to apply for a freelance visa. By showing that you have existing or potential clients in Germany, you demonstrate that there is local demand for your services, which supports your application.
Do I need to charge VAT to international clients?
VAT or “Umsatzsteuer” does play a role when you work for a client from abroad. However, how you treat it depends on whether your client is a company or a private person, and whether they are within the EU or a country outside of the EU.
VAT within the EU – businesses and the reverse charge procedure
If your client has a business outside of Germany, but still within the European Union, both you and your EU-based client must have a VAT identification number, and the sale of goods or services is considered intra-community trade. In this case, it’s the buyer – your client – who is obliged to pay VAT on the goods or services received, and thus you do not need to charge VAT on your invoices. This is classified as the reverse charge procedure, and must be indicated as such on your invoice.
💡 Tip from Accountable: If you create an invoice for a client within the EU via Accountable, the reverse charge procedure is automatically noted on the invoice. You can also use our free invoice template for this.
You must still report sales that fall under the reverse charge procedure in your VAT returns, although you don’t collect VAT from them. This helps to ensure that your client does indeed pay VAT in their own country on the goods or services they have purchased from you.
VAT within the EU—private individuals
If the recipient of your goods or services does not have a VAT identification number, either because they are a private individual (as opposed to a business) or are otherwise exempt from the reverse charge rule, your invoice should include the VAT rate applicable to you according to German tax law.
VAT outside of the EU
If your client is based in a country that is not a member of the European Union, VAT is generally not charged. Some countries have a tax treaty with Germany that is similar to the reverse charge procedure in principle. There are few other considerations to be aware of, depending on the country.
Clients in the United Kingdom
Brexit poses a challenge for companies when it comes to what trade between the United Kingdom and the EU will look like in the future. Until December 31, 2020, it’s still possible for freelancers in Germany to carry out services for clients in the UK without charging VAT, as per the intra-community trade classification and reverse charge procedure described above. However, from 2021, this will no longer be possible.
From 2021, the United Kingdom will be considered a non-EU country, and the sale of goods or services to clients in the UK will be considered so-called third country deliveries. Although you, as the seller, are exempt from collecting VAT tax from clients in third countries, your client may be obliged to pay an import sales tax. Both you and your client may be subject to special documentation requirements. The exact regulations for trade with the United Kingdom are yet to be announced.
Clients in the United States of America
If you want to invoice a client based in the USA, things get a little more complicated. This is because the USA has different tax rates depending on the state, and because there are goods and services classifications that can become quite complex. We recommend you seek advice from a tax advisor who is familiar with U.S. tax law before you engage in business with a U.S.-based client.
Clients in Switzerland – the reverse charge procedure
Although Switzerland is a bordering country to Germany, it is not a member of the European Union, and is thus considered a third country. However, there is an agreement between Germany and Switzerland that relates to the reverse charge procedure. This means that when it comes to invoicing a Swiss client, you do not need to collect VAT. Your client must report the VAT paid to the responsible Swiss tax office, and you must also declare this in your regular VAT returns, although you have not charged VAT. Your invoice should also note that it is a “non-domestic taxable service”.
How do I declare income from international clients?
There are specific sections for you to report each different type of foreign income on your VAT and income tax returns, and you must declare income from all sources. Make sure to check when your VAT and income tax returns are due to avoid any late fees.
💡 Tip from Accountable: If you’re feeling overwhelmed, generate an automatic VAT return using the Accountable app.
How can international clients pay me?
There are a number of options available to you when it comes to receiving payment from a client in a country outside of Germany. Clients within the EU can simply transfer to your German bank account using your IBAN.
Third country clients, or clients in non-EU countries, can either make an international transfer through their domestic bank account, or utilise the services of a third party platform such as Paypal, Transferwise, or Payoneer.
Waiting for outstanding invoices to be paid? Here are your options.
The world is your client.
The world is becoming more global by the minute, so it only makes sense that as a freelancer, as long as you’re paying taxes in Germany, you can service or deliver goods to a client anywhere around the globe. If you find that you’re still a bit unsure about how to create a compliant invoice for a client in a third country, our team is happy to help you. We work closely with experienced tax consultants and can advise you or assist you in finding a certified tax consultant.
