Companies that provide educational services are confronted with a number of different VAT issues. Different rules apply to educational services with regard to VAT exemption and the determination of the place of supply. In addition, business education providers require a certificate from a specific state authority in order to invoice their services without VAT. A particular complexity arises when the supplies are provided electronically or online and/or fall under the Distance Learning Protection Act (FernUSG). After a long period of legislative calm, the new legal regulations coming into force on 1 January 2025 have shaken up the entire education sector.
The following questions are relevant for educational services:
Does the content constitute an educational service?
Who is the education provider and do they have the necessary certification from the state authorities?
Is the supply subject to authorisation pursuant to the Distance Learning Protection Act?
Is the supply provided purely digitally (e.g. via an app) or is recorded content transmitted?
Where is the place of supply?
Reforms from 1 January 2025
The Annual Tax Act 2024 (JStG 2024) has reformed the VAT exemption for educational services pursuant to sec. 4 no. 21 of the German VAT Act (UStG). The new regulation is closely aligned with EU law (Art. 132 sec. 1 lit. i and j of the VAT Directive). Supplies by public or private institutions with the aim of teaching, with the exception of private lessons given by private teachers acting in their own capacity, are VAT exempt. Private-law institutions with a profit-making purpose still require a certificate from the state authorities. Certificates issued before 1 January 2025 remain valid in the opinion of the tax authorities. However, new certificates must contain the current wording of the law.
What is an eligible education service?
Eligible education services are those directly related to: school and university education, vocational training or vocational retraining. However, the supplies must not be provided solely for leisure purposes in order to be exempt.
School and university education
The term ‘school and university education’ follows the very strict jurisprudence of the ECJ. Specialised education is not exempt. A supply is considered ‘too specific’ for exemption if, although it is also taught in public schools, the institution only offers a single subject and not a broad range of subjects. This applies even if the content is of general interest, as was decided in the case of swimming lessons. At least private tuition and homework supervision can still be regarded as school and university education.
Vocational training and retraining
Vocational training and retraining provide skills for a profession. This includes formal training or preparation for examinations, such as that provided by music schools, dance schools, ballet schools or in the artistic sector. Vocational relevance may also arise in connection with riding lessons/riding schools and tennis lessons/tennis schools, with language schools, etc.
Professional development
Professional development improves skills in an existing profession and promotes professional competence.
Not for recreational purposes
Services for recreational purposes are excluded from VAT exemption. The distinction depends on the individual case. The subject matter and the group of participants play a crucial role.
What are the practical grounds for VAT exemption?
The tightened jurisprudence only applies to ‘school and university education’. The services of education, training or vocational retraining are to be defined much more broadly. They include training measures with a direct professional connection and –this is the loophole – any training measure that serves to acquire or maintain professional knowledge. The duration of the measure is irrelevant. Individual courses and lectures can also be exempted.
Often, courses can only be exempted from VAT if a link to professional use can be established. If courses are designed to prepare students for a university entrance examination, for example, the VAT exemption may be granted. A so-called educational concept is important here. If such a concept exists, all parts (the entire course sequence) can be VAT exempt. In the case of music schools, for example, the ‘music garden for children aged 3 and above’ can also be exempted if the provider has an overall concept that is designed to prepare students for college. This also applies to tennis schools, riding schools, dance schools, ballet schools, etc.
Who is an education provider?
Education providers can have different legal forms. The term ‘institution’ within the meaning of sec. 4 No. 21 sentence 1 letter a UStG is neutral in terms of legal form and includes providers both with and without a systematic intention to make a profit. Public institutions are schools and universities under public ownership. These are initially treated as equivalent to non-public institutions with comparable objectives and state recognition, such as schools and universities within the meaning of the Framework Act for Higher Education. In addition, the large sector of private-law education providers is also eligible, such as private tutoring institutions, dance and music schools, and various vocational training and retraining institutions.
Example:
An independent lecturer teaches participants in person and receives remuneration from the organiser for this. The participants have concluded a contract with the organiser for the teaching services and pay a participation fee directly to the organiser.
In the example, the organiser is the provider of the educational service. Provided that it does not intend to make a profit, it can invoice VAT exempt pursuant to sec. 4 no. 22 letter a UStG. If the organiser aims to make a profit – as is usually the case with private-law providers – he can (only) invoice VAT exempt pursuant to sec. 4 no. 21 letter a double letter bb UStG. The prerequisite for the application of sec. 4 No. 21 letter a double letter bb UStG is the existence of a certificate issued by the state authorities.
The lecturer in the example case is not the provider of the educational measure. He acts as a subcontractor for the organiser. He can only invoice VAT exempt under the conditions of sec. 4 No. 21 letter b double letter bb UStG. This means that the organiser, i.e. the lecturer's client, must have the state authority certificate.
Special features of online educational offerings
Nowadays, education services are very often offered online. ‘Online offering’ is a term used to describe all formats in which content is made available via the Internet. This includes, for example:
Educational apps
Online lectures/courses that take place live
Online lectures/courses that take place live, where a recording of the lecture is provided
Online lectures/courses that are only available as recordings
According to the tax authorities, education services are excluded from VAT exemption if they are recorded or provided purely electronically. This applies to apps, online lectures/courses that take place live and where a recording of the lecture is provided, with online lectures/courses that are provided exclusively as recordings.
The VAT liability for online educational services applies even if the provider has a certificate from the competent state authority.
What role does the Distance Learning Protection Act play?
Education providers that do not operate exclusively in person must also comply with the Distance Learning Protection Act.
Distance learning within the meaning of this Act is:
on a contractual basis,
for consideration,
where the teacher and the learner are exclusively or mostly separated by distance and
the teacher or his representative monitors the learning progress.
The question of what constitutes exclusive or most of the time being in a different place is really up for debate. A licensing requirement under the Distance Learning Protection Act may also apply to live courses if they are recorded.
In addition to questions regarding the general application of the Distance Learning Protection Act, it is key for VAT purposes that, in the event of a licensing requirement under the Distance Learning Protection Act, the Central Agency for Distance Learning (ZFU) in Cologne is the competent state authority within the meaning of sec. 4 no. 21 UStG. After approving the individual courses, it issues a corresponding certificate. Certificates issued by other state authorities are irrelevant under substantive law. This leads to problems if the provider has not recognised the licensing requirement under the Distance Learning Protection Act.
The strict requirements of Distance Learning Protection Act must also be observed under civil law. This is because contracts concluded in the past without the necessary approval are invalid (Sec. 7 para. 1 FernUSG). In such cases, there is a risk of civil law rescission of the contracts and thus repayment of the course fees to the customers.
How is the place of supply determined?
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