I am a registered freelancer based in Germany. I am providing medical illustration services to a company based in the United States. I have been trying to get a clear understanding of whether or not I should be charging VAT to these services provided to a US company. If not, is there a statement I should print on the invoices explaining why no VAT has been charged? Any assistance would be greatly appreciated.
There is no national/federal sales and use tax in the US. However, most states and local governments levy sales tax on the production, use or consumption of goods and selected services. These states do not levy sales and use taxes: Alaska, Delaware, Montana, New Hampshire and Oregon.
The sales tax is a transaction tax and usually imposed on retail sales of tangible personal property and selected services in the state. A sales tax is generally imposed on the seller; the seller collects it from in-state purchasers and remits it to the state unless the purchaser provides an exemption certificate (e.g. certificate for resale). The seller has to itemize the amount of sales tax on the invoice.
The use tax is generally imposed on out of state sales, i.e. transaction that would have been subject to the sales tax if both the seller and the purchaser were situated in the same state. It is imposed on the use, storage or consumption of tangible property in the state. It is often imposed when a company makes a purchase from an out of state vendor that is not required to collect sales tax in the purchaser ´s state. In this case the purchasers is responsible for remitting use tax to the state. The seller is not required to itemize any tax on the invoice. As far as I know is stating a note such as "no sales tax charged" optional.
That means, charging of sales tax is only required, if 1. The service provided is taxable in the state where the recipient of the services is established, and 2. You have a nexus in the same state. The definition of nexus may vary from state to state. Generally, a merchant has a nexus when it has a strong connection and systematic contacts with that state, mostly through employees, property such as an office or warehouse. If there is a nexus, the merchant is obliged to register with the tax authorities.
More information about state governments, links to state tax authorities that provide legal basis, compliance (filing, record keeping) and tax rates can be found on the IRS website.
Source: Germany Trade and Invest
- Gesellschaft für Außenwirtschaft und Standortmarketing mbH
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Mai 2019
