Rights of use

When artists based abroad grant rights of use (miscellaneous services as described in Section 3 (9) UStG) to licensees in Germany, the question of whether the licensees are businesses/entrepreneurs (B2B: Business to Business) or private individuals (B2C: Business to Consumer) is significant.

As with all cross-border transactions, it is necessary to determine the country in which value added tax must be paid (where) and who must pay this tax (who).

Please note: EU – third country (outside the EU)
When artists based abroad grant rights of use to licensees based in Germany, it makes no difference whether the foreign artists reside in an EU Member State or a third country (outside the EU).

B2B refers to a delivery or miscellaneous service performed by a business person in return for a fee as part of his or her business. Theatres, concert organisers and artists are also usually businesses/business persons.

If licensees based in the EU do not use a VAT ID number in transactions with artists, the artists can generally assume that the licensees are not business persons unless informed otherwise (Section 3a.2. UStAE).
In this case, the explanations regarding Business to Consumer (B2C) transactions apply.

A VAT ID is assigned to any business person within the EU upon request (only in his or her own country of residence) and is regarded as an attribute of a person's entrepreneurial status. The VAT ID must be checked at the time of delivery.

In which country must value added tax be paid (where)?

Three distinct principles apply when determining the place of performance: the Registered Place of Business principle, the Place of Supply principle and the Place of Performance principle. The Place of Supply principle is significant with respect to B2B transactions.

Place of Supply principle

When an artist based abroad grants rights of use to a business person in Germany (B2B), the place of performance is determined by the location in which the recipient of the service operates his or her business (Place of Supply principle, Section 3a (2) UStG).

Who has to pay value added tax (who)?

When granting rights of use in the B2B sector, the recipient of the service, i.e. the licensee, must pay the value added tax (cf. Section 13 b (5) UStG). Accordingly, the recipient of the service is the tax debtor. This procedure is called the reverse-charge procedure.

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Note on invoicing:
No value added tax is listed on the invoice. The author should list her own VAT ID (or if she is based in a third country, i.e. China in the above example, comparable proof of her entrepreneurial status), the theatre's VAT ID and a note referencing the reversal of the tax liability (reverse-charge procedure). The recipient of the service in Germany should therefore request a VAT ID so as to be able to provide this number to the service provider (the artist) (section 3a.2. UStAE). 
Otherwise, the artist providing the service runs the risk of having to pay the value added tax again in her country. The VAT ID must be checked for validity at the time of the event.

Sample wording regarding tax liability:
According to Section 3 a (2) UStG, the place of performance is Germany. This invoice is issued without value added tax, as in this case the reversal of tax liability pursuant to Section 13 b (5) UStG applies (reverse-charge procedure). The value added tax must be declared and paid by the recipient of the service (tax liability of the service recipient).

Notes on the small business regulation:

• It does not matter whether the recipient of the service is a small business owner pursuant to Section 19 UStG, cf. Section 19 (1) sentence 3 UStG. He or she must pay the value added tax for the performance in Germany by the artist based abroad regardless of his or her status as a small business owner. The recipient of the service must request a VAT ID from the Federal Central Tax Office for this purpose. Applying for the VAT ID does not automatically lead to the loss of one's small business status.
• Until 31 December 2024, it is also irrelevant whether the artist uses the small business exemption in his or her country, as only German VAT law applies and thereafter the small business regulation only applies to artists and businesses established in Germany (cf. Section 19 (1) UStG).
• From 1 January 2025, the small business exemption will also apply to artists and businesses based in other EU Member States, provided that their total turnover in the European Union (turnover from third countries is irrelevant) does not exceed 100,000 euros per year. However, the national thresholds in the respective member states in which the delivery or service is performed must be observed. In Germany, this will be 25,000 euros from 1 January 2025. This new regulation is referred to as the EU small business regulation. It can then no longer be utilised if the amount exceeds 100,000 euros per year. There will be a procedure for utilising the EU small business regulation. It is expected that EU-based small businesses will have to register in an electronic procedure that each member state will regulate itself. Turnover will then probably have to be reported quarterly to ensure that the EU-wide turnover limit of 100,000 euros is not exceeded. 
• To invoke the EU small business regulation in Germany, the national thresholds in the respective member state in which the delivery or service is performed must also be observed. In Germany, the threshold will be 25,000 euros for the previous year and 100,000 euros for the current year from 1 January 2025. This means that small businesses from abroad may have a maximum VAT-exempt turnover of 25,000 euros in Germany. Presumably, it will then be the case that the reverse charge procedure (Section 13b UStG) won’t apply at all if the turnover of the small business owner from abroad in Germany doesn’t exceed 25,000 euros. In terms of procedure, it is still unclear when, for example, the recipient of the service can invoke the small business status of the person providing the service in the reverse charge procedure. It is also still unclear whether the turnover of the previous year, which must not exceed 25,000 euros, must be submitted by the supplier or whether there will be an automated procedure or a verification procedure at the Federal Tax Office (BZSt) which can be utilized by the service recipient.  
• From 2025, this will mean that artists based in Germany who do not have to pay VAT in Germany themselves because they are small businesses (or because they are exempt under Section 4 No. 20a UStG) may no longer have to pay VAT as service recipients when they buy services by so-called EU small businesses from other EU countries.

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In which country must value added tax be paid (where)?

Registered Place of Business principle

When an artist based abroad grants rights of use to a private individual in Germany (B2C), the place of performance is determined by the place where the artist is based (Registered Place of Business principle, Section 3a (1) UStG).

Value added tax therefore does not have to be paid in Germany and is governed by the tax law of the country in which the artist is based.

Who has to pay value added tax (who)?

The reverse-charge procedure does not apply to the B2C sector. In B2C transactions, the private individual does not have to pay value added tax in Germany. However, the artist based abroad must observe the value added tax regulations of his or her country of residence.

The question of whether value added tax must be paid depends on Swedish law. 

Note on invoicing:

The photographer issues a "regular" invoice which lists the value added tax applicable in Sweden.
In other words, in a B2C transaction, the place of performance remains where the artist is based – regardless of whether the country of residence is a Member State or a third country.

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