VAT mistakes stay invisible for years. Then the bill arrives.

You sell a service or a product for EUR 5,000, the customer pays, and you are pleased. Three years later the tax office points out that those EUR 5,000 contained 19% VAT that you never remitted. Multiply that by a hundred customers a year, add interest, add criminal proceedings. Few subjects generate as many errors as VAT, across every sector, and almost never through dishonesty. The cause is that nobody explained that consulting, an online course, a physical product, mentoring and a live event are entirely different things for VAT purposes.

The one principle that explains everything.

VAT is not complicated. It only appears so because most people start with the exceptions rather than the rule. The rule is that VAT arises where the supply is made for tax purposes. The law calls this the place of supply, and it has nothing to do with where you sit, where your server stands or where your company is registered. It depends on two questions.

The first question is what you sell: an automated digital service, a personal service, physical goods or an event. The second question is to whom you sell: a business or a private individual. From those two questions it follows, in every single case, which country receives the VAT, and only once you know that can you sensibly think about exemptions or foreign companies. Anyone who cannot answer those two questions is selling blind, and anyone selling blind is either lucky or in trouble.

Your products are not all the same.

Practically every consultant, service provider, seller or coach has some form of five product types, and each is treated differently. The overview below applies to private customers; the rules for business customers follow in the next section.

Digital or personal: the decisive feature

With recorded videos, e-books, templates or software the customer buys, receives access, and you are not personally involved. The law calls this an electronically supplied service, and its defining feature is that it runs essentially automatically with minimal human involvement. For such supplies to private customers, VAT arises where the customer lives: 19% German VAT for a customer in Germany, 20% Austrian VAT for a customer in Austria, whatever the location of your company.

A consulting engagement, a one-to-one call, a group coaching session with you live on Zoom, or the work of a designer, marketing consultant or freelancer is, by contrast, not an electronically supplied service even though it takes place over the internet. Wherever you actually work as a human being and the customer does not simply retrieve something, the basic rule applies to private customers: VAT arises where the supplier is established. If your company is in Germany, that is 19%. If it is in Dubai with real substance, no German VAT arises because the place of supply is Dubai.

The bundle

Then there is the case almost every online provider has: a programme for EUR 6,000 consisting of videos, a community, weekly group calls and two one-to-one sessions. The tax office asks what the principal supply is, meaning what the customer is actually paying for. If the videos are the product and the calls an extra, it is an electronic supply. If the personal guidance is the product and the videos are preparation, it is a consulting service. If both carry equal weight, the tax office may apportion.

Business or consumer: the second question.

With business customers it is simpler, but there is a trap here too. Where a business acquires the service for its business, VAT on services of every kind arises where the customer is established. If the customer is in a different country from you, the customer owes the tax. That is the reverse-charge mechanism: you issue an invoice without VAT noting that the tax liability passes to the recipient, and the customer declares the tax in his own country and deducts it as input tax in the same breath. For him it is a zero-sum exercise. This applies to the online course, to consulting, to coaching and to every other service; with foreign business customers the product type is irrelevant. Supplies of goods to businesses within the EU work similarly, as exempt intra-Community supplies with their own evidential requirements. The trap is that you must be able to prove that your customer really is a business. Within the EU that is done through the VAT identification number, which you verify and document. If you treat as a business a customer who is in truth a consumer, you owe the tax, not the customer. And one more point: a consultant who helps an employee change jobs is selling to a private individual. A consultant who helps a self- employed person scale a business is selling to a business. The same service, two different VAT worlds. Anyone who mixes the two and writes every invoice the same way is guaranteed to have part of it wrong.

The foreign company: what it changes and what it does not.

Can you sell services and products without VAT through a company in Dubai? Yes for part of your offering, no for another part.

What works

Personal services to private customers, meaning consulting, one-to-one coaching, live group coaching, mentoring or agency work. If your company is in Dubai, is actually managed there and delivers the service from there, the place of supply is Dubai and Germany has no right to tax. In the Emirates, in turn, services to customers outside the UAE are as a rule zero-rated. This is the arrangement that works lawfully and that many consultants and coaches use. Services to business customers under the reverse charge work equally well from Dubai as from Germany.

What does not work

Automated digital products to private customers in the EU: the online course, the e-book, the software, the membership area. Here VAT arises in the customer's country regardless of where you are based. Your Dubai company must register under the One Stop Shop scheme in an EU country of its choice and declare and remit VAT there for all EU customers, at 19% for German customers and 20% for Austrian ones. There is no threshold below which this does not apply; for non-EU providers the liability begins with the first euro. Physical goods to EU consumers cannot be sold tax-free either, because VAT arises where the goods arrive and a warehouse in the EU obliges your foreign company to register in that country. Virtual events for private customers have followed the same rule since 2025, and live events in Germany or Austria are always taxable at the venue.

Anyone who ignores this does not have a VAT exemption; they have undeclared German VAT. And the German tax office can assess that tax against a Dubai company too, through the platforms, through the payment providers and through the reporting obligations imposed on platform operators since 2023.

The platform question

Many people sell through Digistore24, Elopage, CopeCart, Amazon or similar providers. For electronic supplies and for certain sales of goods the platform acts as the seller and remits the VAT. That is convenient, but it applies only to precisely those transactions. Anyone selling personal consulting or coaching through the platform must still assess the VAT themselves. Anyone who believes the platform takes care of everything usually has exactly half of their offering wrong.

The substance question

Finally, the point that decides everything: the Dubai company must actually be in Dubai. If you live in Hamburg and run the company from Hamburg, the place of supply is Hamburg, whatever the Dubai register says. You then have a German VAT liability, a German corporate tax liability and criminal proceedings. The foreign company works for people who have actually emigrated. For everyone else it is an accelerator on the road to a tax audit. Our article on tax liability after emigration explains what a departure that holds looks like.

The German company with an education exemption, the ZFU and the trap behind it.

Not everyone wants to emigrate. For those who stay in Germany and impart knowledge, whether as a coach, a trainer or a consultant with their own courses, there is a second route to a VAT exemption. It is legitimate, but it comes with conditions.

German VAT law exempts educational services. Since the reform of 1 January 2025, school and university teaching, vocational training, further training and retraining are exempt where they are provided by an institution certified by the competent state authority as properly preparing for a profession or an examination. For distance learning courses, and an online programme is in many cases legally a distance learning course, the route to that certificate runs through approval by the State Central Office for Distance Learning, the ZFU. A provider whose course is approved there and who obtains the certificate can offer the service free of VAT.

Three things need to be understood. First, the exemption is for education, not for personal development, motivation or lifestyle. A programme that trains people to become online marketing consultants is education; a programme that helps people become more self-confident generally is not. Second, VAT- exempt also means no input tax recovery. Everything you buy in advertising, software and technology becomes more expensive because you can no longer recover the VAT contained in it. On an advertising budget of EUR 20,000 a month that is EUR 3,800 lost. The exemption therefore has to pay for itself, which it usually does with private customers at high prices and rarely with business customers, for whom VAT merely passes through anyway.

Anyone considering ZFU approval is therefore not only thinking about VAT but about whether their contracts hold at all.

The small business scheme, briefly and honestly.

Since 2025 the German rule is that anyone whose turnover did not exceed EUR 25,000 in the previous year and does not exceed EUR 100,000 in the current year may opt out of VAT. What is new is that since 2025 the scheme can also be used in other EU countries, provided EU-wide turnover stays below EUR 100,000. In Austria the national threshold has been EUR 55,000 since 2025.

For someone charging EUR 5,000 per engagement or programme, the German threshold is reached after twenty customers. The small business scheme is therefore something for the start, not a strategy, and it is available only to businesses in the EU; a Dubai company cannot use it. The most common mistake is that the threshold is crossed during the year and nobody notices. From the transaction that breaches the limit, every invoice is subject to VAT, not retrospectively for the year, but from exactly that moment.

The five mistakes we see every week.

• Treating all products alike. Consulting, online course, product and live event run through the same invoice template with the same VAT logic, and at least one of them is wrong.
• The Dubai company sells online courses or goods to German consumers without

1. 1

   registering. That is not an exemption; it is evaded German VAT.

• Treating consumers as businesses. The customer says he is self-employed, the VAT number is not checked, and the invoice goes out net. If the customer is not a business, the seller owes the tax.
• The sales page says one thing and the contract another. The page promises personal guidance, the contract says platform access, and the tax office takes whichever is worse for you.
• Assuming an exemption without holding the certificate. Anyone who sells "education" and therefore charges no VAT, but has neither the certificate nor ZFU approval, has no exemption but an undeclared tax.

The consequence of all five mistakes is the same. VAT is the tax for which the tax office has the least sympathy, because it was never your money: you collected it from the customer and failed to pass it on. That means back payment for up to ten years, interest and, above a certain amount, criminal proceedings that do not end with a modest fine.

How to do it properly.

1. 1

   Product catalogue

   Every service and product is assigned to one of the five types: automated digital, personal service, physical goods, in-person event or virtual event. Bundles are classified by their principal supply, and the sales page is written to match that classification.

2. 2

   Customer catalogue

   Private and business customers are recorded separately, with verification and documentation of business status, and there are two invoice templates instead of one.

3. 3

   Location decision

   Anyone staying in Germany examines the education exemption with certificate and ZFU approval and weighs the loss of input tax against it. Anyone emigrating builds a company with substance in the destination country and understands that digital products and goods sold to EU consumers are still taxed in the EU.

4. 4

   Contract review

   Every online programme is tested against the distance learning protection act. Either it is not a distance learning course, and that conclusion is reasoned, or it obtains ZFU approval. A programme without this review is one whose contracts can be unwound at any time.

5. 5

   Ongoing compliance

   VAT returns, OSS filings, recapitulative statements for reverse-charge supplies and monitoring of the small business threshold, monthly rather than at year end.

Set it up this way and you sell with peace of mind. Fail to set it up and you are selling on borrowed time. For consultants, service providers, online sellers and coaches, VAT is not a side issue. It is the issue on which most business models fail when it matters, not because the tax is high but because it goes unnoticed for so long.

Frequently asked questions.