No sales tax applies on your sale of receivables.

The sale of receivables is a popular way of quickly creating liquidity and reducing your receivables management workload. But what is the tax situation when selling receivables? Whereas the seller is never liable for sales tax, there are a few things that the buyer needs to consider.

Liquidity management and sales tax: Businessmen having a discussion.

For the seller, the sale of receivables is exempt from sales tax.

Let’s start with the good news: As the seller, you are always exempt from sales tax when you sell your receivables. The assignment of non-distressed receivables is considered a service addition, which is exempt from sales tax in accordance with the German Sales Tax Law (UstG). Paragraph 4 Section 8 Sub-section c of the UStG also stipulates that distressed receivables are also not subject to sales tax, also frequently referred to as value-added tax, in the event of a sale of said receivables.

Liquidity management and sales tax: Businessman doing a calculation.

When is a receivable distressed?

In the German tax law relating to the sale of receivables, a distinction is made between distressed and non-distressed receivables. According to the tax authorities, a receivable is regarded as distressed, if, insofar as it is due, it has not been settled in full, or has only been settled to a minimal amount, for more than 90 days. A receivable is also distressed if the contractual arrangement has been terminated or the conditions for termination exist. In the banking sector distressed receivables are also referred to as non-performing loans (NPL). If these circumstances do not apply to the default the receivables are called non-distressed receivables or performing loans (PL).

Sales tax regime for the sale of receivables.

Whereas the seller of receivables is always exempt from sales tax, the imposition of tax on the buyer depends on the nature of the receivables involved. The determining factor is whether the difference between the nominal value and the purchase price paid represents remuneration for services provided by the buyer or not.

In this conjunction the tax legislation distinguishes between three types of receivables purchasing: the purchase of non-distressed and distressed receivables and the acquisition of mixed receivables portfolios:

  • Purchase of non-distressed receivables.
    For the purchase of non-distressed receivables the sales tax law assumes that the purchase for less than the face value is offset by a paid service provided by buyer to seller, for example in the form of a fee for the recovery of the receivable or the assumption of the default risk. This form of receivables purchasing is used above all in the context of factoring and results in a sales tax liability for the purchaser. The amount of the service subject to sales tax is calculated based on the difference between face value and purchase price of the receivables.
  • Purchase of distressed receivables.
    Under German taxation law, a different regulation applies to the assignation of distressed receivables. Since 2015 the German Ministry of Finance has no longer regarded the purchase of these receivables or of non-performing loans to be a paid service. It is important that the difference between the face value of the receivables and the purchase price reflects their actual commercial value. If this is the case this difference does not represent a payment designed to directly recompense the buyer for a service rendered. The buyer of the receivables is therefore not performing an economic activity; the purchase of the receivables is exempt from sales tax for the buyer.
  • Acquisition of mixed receivables portfolios.
    If the receivables package being negotiated contains both distressed and non-distressed receivables, these are separated from one another and evaluated according to the above criteria.
Liquidity management and sales tax: Evaluation of data.

What is the difference between factoring and traditional receivables purchasing?

Factoring providers, also known as factors, specialize in buying non-distressed/performing receivables to then recover them for their clients. This allows factoring clients to quickly turn outstanding but not overdue invoices into cash flow. In return, the factor levies a commission at a rate of around three percent of the invoice amount. Factoring is therefore a service in nature and for this reason is subject to sales tax.

Traditional receivables purchasing, on the other hand, is about the purchase of distressed receivables, for example through a debt collection company like EOS. The purchase price is determined on the basis of the nominal value of the receivables less a risk premium. The seller transfers the overdue invoices and loans to the buyer in their entirety, and in return receives the agreed liquid funds. Under taxation law, the sale of distressed receivables is exempt from sales tax from the perspective of the seller.

For more information please go to: What is the sale of receivables?

 

Learn more about selling receivables:

  • What does the sale of receivables involve: Businessman sits in lobby drinking coffee.

    What does the sale of receivables involve?

    Learn here how the sale of receivables works and what different kinds of receivables there are.

    Learn more
  • Receivables sale and costs: A couple of staff members look at a calculation for a receivables purchase.

    Sell your receivables completely free of charge.

    It costs nothing to sell your receivables to EOS. All that matters is the purchase price. Read here how it is calculated.

    Learn more
  • Legal aspects of selling receivables: Businessman signs a receivables purchase agreement.

    The legal aspects of selling receivables.

    From assignment agreement to lack of recourse: All you need to know about the legal aspects of selling receivables.

    Learn more

Consent Banner

We use cookies on our website to enable you to have the best possible website visit. These include cookies that are necessary for the operation of the website, those that are only used for anonymous statistical purposes, cookies that are used for comfort settings and cookies that are used to provide you with personalized, interest-based content. You can decide yourself whether you want to allow the use of statistics, comfort, and marketing cookies. In addition, you can change/withdraw your consent at any time by clicking on the Change Cookies settings on the bottom of the website. Further information can be found in our Privacy Policy and in our Imprint.

Necessary

We use necessary cookies. These cookies are necessary for the operation and the basic functions of the website. In particular, they enable the security-relevant functioning of our website.
You can read about which cookies we use here.

Comfort

If you allow comfort cookies, we can make use of our site easier for you. If you visit our website again to use our services, it will automatically be recognized that you already visited us and the entries and settings you made will automatically be recognized so that you do not have to enter them again. For example, through this, you will not have to reenter your user data every time, but rather you can access the data already entered when you visit the website again.
You can read about which cookies we use here

Statistics

We use statistical cookies to improve our offering and ensure a needs-based design and the continuous optimization of our website. 
For this, we collect anonymized data for statistics and analytics, for example, to determine site traffic and user behavior and to adapt and improve our content and the website experience. 
You can read about which cookies we use here

Marketing

We use marketing cookies so that we can provide you with relevant and interest-based content when you visit our website.  
You can read about which cookies we use here.