All You Need to Know About VAT in Germany
It’s essential for any business operating in Europe’s economic powerhouse to stay up to date with the latest value added tax (VAT) regulations and requirements. Whether you’re trying to understand German VAT rates or how to register for VAT in Germany, the whole process can be difficult to wrap your head around. In this post, we take a closer look at the German VAT system, exploring its rates, registration process, compliance, ecommerce rules, and more.
Understanding German VAT rates
If you’re doing business in Germany, you need to familiarize yourself with the ins and outs of the country’s VAT system, including the various tax rates. The applicable VAT rates in Germany are divided into two main categories: the standard rate and the reduced rate.
The standard rate, currently set at 19%, applies to most goods and services, while the reduced rate of 7% and the zero rate are applicable to specific items.
Standard VAT rate: 19%
The standard German VAT rate of 19% is applied to a vast array of taxable goods and services. From clothing and gasoline to pharmaceutical products and alcoholic beverages, the standard rate is the backbone of Germany’s VAT system.
Essentially, if a product or service does not fall under the reduced rate or an exemption, it’s subject to the standard rate of 19%. As a business operating in Germany, it’s crucial to account for this rate in your transactions and tax filings. VAT becomes due at the tax point but is VAT payable between the day after the end of the reporting period and the due date to submit and pay the VAT return.
Reduced VAT rate: 7%
In contrast to the standard value added tax rate, the reduced VAT rate of 7% targets a specific set of goods and services. These include most food products, plants and animals, books and newspapers, works of art, and entrance fees to cultural sites. The reduced rate aims to promote the affordability and accessibility of essential items and cultural experiences.
Zero VAT rate: 0%
Certain goods and services (for example, basic food items, medical and healthcare services, cultural services) are subject to a zero-rate VAT of 0%. Zero-rated goods and services are treated as exempt from VAT, but the suppliers can still recover the VAT they have paid on inputs.
Being aware of the reduced and zero rates and their application is vital for businesses dealing with these particular goods and services, as it directly affects pricing and tax obligations.
Registering for VAT in Germany
Whether you’re a local or foreign company, registering for VAT in Germany is an important step in ensuring tax compliance. The registration process varies depending on the type of company, but the end goal remains the same: obtaining a German VAT number and adhering to the country’s tax regulations. VAT registration in Germany is based on EU directives, as the country follows VAT legislation set by the European Union.
Let’s break down the registration process for both local and foreign companies.
VAT registration for local companies
Local companies in Germany are required to register for VAT if their annual turnover exceeds €22,000. To complete the German VAT registration, businesses must submit an application, registration certificate, and information regarding the directors, the form of organization of the company, the company’s activity, and expected turnover, all in compliance with German VAT law.
Upon completion of the registration process at the Federal Central Tax Office (BZSt), the company will receive a VAT registration number, which is essential for tax filings and compliance. This registration also entitles companies to deduct VAT paid on initial services required for production, highlighting the importance of adhering to VAT regulations to avoid economic burdening on the company's profit margin.
VAT registration for foreign companies
Foreign companies conducting taxable transactions in Germany must also register for VAT. While the registration process and requirements are similar to those for local companies, there are some key differences. For instance, the small entrepreneurs' exemption, which applies to some local companies, does not extend to non-resident taxpayers.
For businesses distance selling into Germany, the VAT registration threshold is €10,000.
To register for VAT, foreign companies must submit the necessary documents to the tax authority, such as the registration form and documents substantiating their activities and transactions. Failure to register for VAT in Germany can result in fines and other penalties.
Non-EU companies without a fixed establishment in Germany are usually required to appoint a fiscal representative. The fiscal representative will act on your behalf regarding VAT obligations, communications with tax authorities, and other related matters.
The German VAT number
A German VAT number is commonly known as "Umsatzsteuer-Identifikationsnummer" or "USt-IdNr" and consists of the following components:
- The country code: The two-letter country code for Germany is "DE" (for Deutschland).
- The nine-digit numeric identifier: This identifier is unique to each business or individual and is assigned by the German tax authorities.
Overall, a German VAT number has the following structure: DE123456789.
VAT compliance and filing deadlines
Once registered, businesses must adhere to the German VAT compliance rules and meet filing deadlines. This includes submitting VAT returns, paying VAT on time, and adhering to monthly or quarterly deadlines.
Electronic filing of VAT returns
German VAT returns must be filed electronically using the ElsterOnline platform, the electronic filing system of the German tax authorities. The process is straightforward, making it easier for businesses to submit their tax returns both on time and maintain compliance with the tax office.
Remember, timely submission of VAT returns is crucial to avoid penalties and maintain a healthy relationship with tax authorities.
VAT return deadlines
The deadlines for submitting VAT returns in Germany depend on the company’s net VAT due in the previous calendar year. Companies with net VAT due below €7,500 are required to submit quarterly returns, while those with net VAT due below €1,000 are only required to submit an annual return. If your company's VAT liability is over €7,500, VAT returns must be submitted monthly.
The tax period for which the payment is made needs to be taken into consideration when submitting your VAT returns. The deadline for doing so is the 10th day of the month following the indicated VAT return period. Staying on top of deadlines and submitting returns on time is essential for maintaining compliance and avoiding penalties.
Special VAT rules for ecommerce and marketplaces
Ecommerce and marketplaces are subject to special VAT rules in Germany, owing to the unique nature of their transactions and the rapidly evolving digital landscape. As a business operating in this sector, it’s essential to understand and adhere to these rules. These include regulations on stock location, distance selling thresholds, and the One Stop Shop (OSS). The Import One Stop Shop (IOSS) is particularly relevant for ecommerce businesses as it simplifies the declaration and payment of import VAT on goods imported into the EU.
For example, the distance selling threshold for VAT registration in Germany is €10,000, which means you must register for VAT if your business’s annual turnover on cross-border trade exceeds this amount. You’ll also be required to VAT register your business if you store products in Germany.
Intra-community VAT transactions
Intra-Community VAT transactions play a significant role in the European Union's trade landscape. For businesses in Germany, understanding these transactions and the reverse charge mechanism for B2B transactions between Germany and other EU countries is essential. The reverse charge mechanism shifts the responsibility of VAT payment from the supplier to the buyer, ensuring smoother transactions and reducing the risk of tax evasion.
This mechanism is beneficial for both buyers and suppliers, as it simplifies the process of VAT between the EU's 27 Member States.
Recovering VAT in Germany
For businesses operating outside of Germany, recovering VAT can be a complex and time-consuming process. However, to be able to recover VAT efficiently, it’s important that you understand the procedure and submit the necessary documents. Companies must submit an application form, along with a list of invoices, to the local tax authorities.
Being proactive and staying on top of the recovery process can help maximize your returns and minimize financial losses.
EORI registration and its importance
The Economic Operators Registration Identification (EORI) system is an essential aspect of conducting business within the European Union. This unified system allows customs authorities from all EU countries to identify and monitor economic operators transiting their territories.
Companies and sole proprietors in Germany conducting business activities abroad must apply for an EORI number. This is a critical piece of information needed for any company trading outside the country. You can apply for an EORI number in Germany or, if your business is not based in Germany, the EU Member State where your business is registered.
Conclusion
From registration and compliance to special rules for ecommerce and intra-community transactions, staying informed and proactive about German VAT is key for anyone doing business there. As the global business landscape continues to evolve, adapting to new regulations and requirements will ensure your company remains competitive and compliant.
Do you need help with your VAT compliance? Book a free call with one of our VAT experts to find bespoke solutions for your business, optimize your VAT costs, and reach millions of new potential customers.
How much is VAT in Germany?
The German VAT standard rate is 19%, with a reduced rate of 7% for certain goods and services.
What is zero-rated VAT in Germany?
Zero-rated VAT in Germany applies to certain supplies of goods and services that are subject to 0% of VAT but still enable the supplier to deduct the incurred taxes.
This means that the supplier can still claim back the taxes they have paid on their purchases, even though the goods or services they are selling are not subject to any VAT.
Do you charge VAT on sales to Germany?
VAT on sales to Germany depends on the seller's location and buyer's status. EU-based sellers charge VAT if cross-border sales exceed €10,000 annually, or zero-rate for B2B with a valid VAT number. Non-EU sellers charge German VAT for B2C sales, using the IOSS for goods under €150, while B2B sales usually apply the reverse charge mechanism.
How do I register for VAT in Germany as a foreign company?
To register for VAT in Germany as a foreign company, you must submit the necessary documents such as the registration form and relevant documents to substantiate your activities and transactions.
These documents must be submitted to the German Federal Central Tax Office (BZSt). The BZSt will then review the documents and decide whether to approve the registration. Once approved, the company will be issued a VAT number.
