Watch out for VAT - Pitfalls for international online education providers in Germany
Digitalisation has revolutionised the education sector; these days, language classes, continuing education programmes or entire courses of study can be provided completely online via streaming. A great opportunity has thus opened up for private and state schools as well as universities to also reach German pupils and students. However, this also harbours considerable VAT risks. Moreover, foreign education providers must likewise comply with the German Distance Learning Protection Act (Fernunterrichtsschutzgesetz, FernUSG).
An overview of the VAT treatment
Since 1.1.2025, online teaching that is made available virtually via streaming, or in another way, is subject to the VAT regulations at the place where the pupil or student is domiciled or habitually resident. If the online educational service is provided to a business (B2B), then this would be the place where the recipient of the services runs its business. Consequently, considerably more foreign education providers than before will now fall within the scope of applicability of German VAT.
In Germany, educational services are generally exempt from VAT, most notably according to Section 4 no. 21 or no. 22 of the VAT Act (Umsatzsteuergesetz, UStG), although this is only under certain conditions; foreign education providers will likewise have to satisfy these.
- Requirement under Section 4 no. 21 a) bb) UStG - A certificate from the competent federal state authority stating that the educational institute provides services in the form of school teaching, university teaching, vocational training, advanced training or vocational retraining (cf. current outstanding issues with respect to the certification procedures in the PKF magazine, April 2025, Tax exemption for educational services - New rules as of 2025 have resulted in legal uncertainties).
- Requirement under Section 4 no. 22 a) UStG - Applicable solely to specific legal entities, such as, for example a legal entity under public law, adult education centres (Volkshochschulen) or non-profit organisations. Furthermore, the income has to be used mainly to cover costs.
However, online education providers should furthermore note that the German fiscal administration does not generally allow these tax exemptions if the education services are provided in electronic form (i.e., with only minimum human involvement) (Federal Ministry of Finance [Bundesministerium der Finanzen, BMF] circular of 8.8.2025, margin nos. 5 and 13). Consequently, the fiscal administration treats educational services that are provided via learning platforms with pre-recorded teaching content and solely electronic learning success controls as being subject to VAT; this has been markedly criticised by trade associations and experts. However, the fiscal administration takes a different view of live streaming by human teachers; this is deemed to be a normal tax-privileged form of teaching.
If it is the case that no VAT exemption applies to educational services provided in Germany, then it would be necessary to check if, instead of the standard rate of VAT at 19 %, the reduced rate of VAT at 7% needs to be applied. However, this can only be considered, under further conditions, for the services of non-profit, charitable or church organisations.
If foreign educational institutions provide taxable educational services in Germany, it will also be possible for them to claim an input tax deduction.
Distance Learning Protection Act (FernUSG)
Apart from the VAT, the Distance Learning Protection Act (FernUSG) needs to be taken into account. It has to be applied if, cumulatively,
- the educational service is subject to a charge,
- teachers and learners are mostly or entirely physically separated, and
- the learning success is monitored by the provider or a contractor (e.g., through tests, feedback, or Q&A sessions).
It is still the subject of legal dispute as to when physical separation should be deemed to exist. However, among other things, it is considered that teaching in a live streaming format takes place synchronously, i.e., it would happen without physical separation. By contrast, on the basis of a more recent Federal Court of Justice ruling of 12.6.2025 (case reference: II ZR 109/24), the conclusion must be that the possibility for learners to be able to ask questions or get feedback can already be considered as monitoring the learning success within the meaning of FernUSG.
If FernUSG is applicable, then foreign educational providers will likewise have to obtain a licence for their courses from the State Central Office for Distance Learning (Zentralstelle für Fernunterricht, ZFU). If there is no licence, then the underlying agreement would be null and void (i.e., invalid from the outset) and the participants would be able to claim a refund of the payments already made to the education provider. Regardless of this, the provider would be at risk of being fined and of potentially suffering reputational damage.
