What is a service?
Entrepreneurs can offer services or sell products – or both.
Here we reveal what is actually meant by this and what different types there are.
Definition of service: what is meant by it?
The handyman who installs the dishwasher for the homeowner, the hairdresser who cuts the client’s hair, and the lawyer who defends her client in court. All of these are services. The defining characteristic of this activity is that one or more persons perform the service for others. In return for the service, the service provider receives a Payment or Compensation.
Services, therefore, are intangible goods. They can neither be stored nor do they have a value in themselves. Material goods, such as certain machines or raw materials, have this value in themselves.
The Uno-actu principle:
This principle states that the service is consumed when the service provider provides it. Production and consumption thus run in parallel.
The haircut is “consumed” at the moment when the customer sits in the barber’s chair and quietly watches the barber cut the hair. Alongside production and industry, services form another, the tertiary, sector of the economy.
Who or what provides services?
A service can be provided either by natural persons, such as doctors, lawyers or hairdressers.
But also legal entities, such as associations or corporations can offer them.
What is the right VAT rate for services?
In principle, the regular tax rate of 19% applies to all services in Germany.
Creative services, on the other hand, are taxed at 7% according to Section 12 (2) UStG. These are “the granting, transfer and exercise of rights arising from copyright law”.
It only becomes difficult with services where the boundary between each other is very imprecise to define.
As an example: the design for a new website is charged at 7% as a creative service. However, the commissioning of this website belongs to a service with 19% tax.
What are the types of service?
The types can be distinguished according to, among other things, what type of qualification the service provider requires:
Primary service
Secondary service
The different forms
Here there are other criteria that lead to the fact that even more forms can be subdivided:
Personal service
Material service:
Produktbegleitende Dienstleistung:
- Pre-Sales-Services: Before the customer buys the product, there is this service. For example, consulting sessions or information videos on specific products are considered pre-sales services.
- After-Sales-Services: These start when the customer has already purchased the product. Typically, these are maintenance work, repair services or the procurement of a spare part free of charge.
Origin service:
The different types of contracts
Customers can contract with service providers from two different types. The type of contract has different effects:
Contract for work
If the customer and the service provider conclude a contract for work and services, the latter undertakes to deliver a specific “work”. A work in this sense can be, for example, that the service provider elaborates a social media strategy that brings its client 10,000 additional followers. The contract for work is not fulfilled until the customer can actually record 10,000 more followers as a result of the strategy. With a contract for work and services, the service provider therefore also always undertakes that his performance will be successful.
Service contract
In this case, the client and contractor simply agree that a certain service will be provided. To stay with our example, the customer is to receive a new social media strategy. Whether the strategy is successful, i.e. whether the customer gains 10,000 more followers, is irrelevant in a service contract.
