19% VAT trap for freight-forwarding subcontractors

The Federal Ministry of Finance (BMF) has implemented the VAT application decree amendment in adherence to the ECJ ruling C-288/16 of 29 June 2017. Following a non-objection rule and a transition period, since 1 January 2022 it has been mandated that logistics companies may only claim a VAT exemption when invoicing directly for their own transport services when shipping goods to a third country, if they have been commissioned directly by the consignor or consignee of the goods.

This means that subcontractors or logistics companies not directly commissioned by the consignor or consignee are now obliged to charge VAT on their invoices or to issue reverse charge invoices if transporting freight to another EU country. This also applies to airlines commissioned to carry third-country transports as a sub-carrier.

If, for example, a company based in Germany commissions a German forwarder to transport goods from Germany to Switzerland, the forwarder's transport service is still tax-exempt as it applies directly to goods for export and is provided directly to the consignor of the goods.

If, on the other hand, the freight forwarder commissions a subcontractor for the transport, the transport service provided by the subcontractor is no longer tax-exempt and must include 19% VAT on the invoice, or the invoice must be issued or as a reverse charge invoice to the freight forwarder.

The above example demonstrates the imminent risk of issuing invoices which will not be compliant with the law and will result in a 19% VAT liability and tax consequences from the tax office. Immediate action is required. Logistics companies must change their invoicing systems and train their employees to avoid the risk of the tax office levying VAT on incorrectly issued invoices.

We are of course at your disposal for any further questions and support.