Germany VAT Guide

Introduction

Though a separate country, Germany commemorates the EU-wide VAT legislation enacted to harmonize the VAT principles of all EU Member States and remove conflicts. Thus, most German VAT rules align with EU VAT Directive 2006/112/EC.

Should you collect VAT in Germany?

You must collect VAT in Germany if you are doing any taxable transaction, which includes the following:

1. Supply of Goods: Supply of goods means transferring the right to dispose of a tangible property as owner.
2. Intra-EU acquisition: Acquiring or purchasing goods within Germany from another EU Member State, as a VAT-registered person (typically known as the Reverse Charge Mechanism).
3. Supply of Services: Supply of services covers any transaction not covered in the supply of goods.
4. Import of Goods: Any transaction that imports goods from a non-EU state to an EU Member State.

For more details, refer to the German VAT Act. Further, since the VAT laws of most EU Member States are harmonized with the overall EU VAT law (i.e., Directive 2006/112/EC), you can refer to Articles 14-30 of the EU tax directive for detailed information on taxable transactions.

When should you register for VAT in Germany?

The VAT is generally charged on a destination basis (owing to place of supply rules – discussed separately in the One Stop Shop article), which means every person (whether registered anywhere or not) making any taxable sales into Germany must register for VAT. Below is the concise list of transactions that would require a VAT registration in Germany:

• Supply of Goods or Services in Germany to non-taxable persons: Seller must register in Germany and pay VAT only if they have not opted for One Stop Shop (see Notes 1 and 2 below).
• Supply of Services in Germany to a taxable person: The recipient of services must register and pay VAT in the country if the supplier is not established in Germany (under Article 196 of the EU VAT Directive (pg.39)).
• B2B Acquisition of Goods: Where the goods are sold by a taxable person from any EU Country to a taxable person in Germany, the buyer should register for German VAT (reverse charge basis under Article 197 of EU VAT Directive (pg. 39)).
• Import of Goods in Germany: The importer must pay and register for VAT (if not covered in the Import One Stop Shop–see our OSS article for details).
• Export of Goods/ Services: Exporting goods/ services to non-EU countries would require a VAT number.

Important Note 1: When you supply goods to consumers (i.e., non-taxable persons) from other EU Member states to Germany, and your total annual sales (goods/ services) in the EU are more than EUR 10,000, then only the goods/ services will be taxed in Germany, and you would require German VAT registration; otherwise, they should be taxed in the supplier’s member state. This is based on the EU-wide VAT threshold specified for TBE services and distance sale of goods. Refer to our EU One Stop Shop Article for more details on the EU-wide VAT threshold and distance sale of goods.

Important Note 2: The cases where you have opted for EU One Stop Shop registration are no longer required to be registered separately for German VAT. These cases include the B2C sales made by taxable persons from other EU countries to Germany of over EUR 10,000 and the import of goods below EUR 150. Visit our EU One Stop Shop article for more details.

“Example 1: Company A, a Spain-based company, sells goods to a non-taxable buyer B in Germany. Company A’s total annual sales exceed EUR 10,000 in the EU, excluding Spain sales.”

Company A must either register for German VAT (if it does not opt to register for One Stop Shop) or the One Stop Shop.

Germany VAT Threshold Summary

*Total annual turnover in the preceding calendar year didn’t exceed EUR 22,000 and is not expected to increase to EUR 50,000 in the current calendar year. To read the official guidance, click here.

How can you Register for VAT in Germany?

You must submit a VAT registration form either through an online portal or manually to your responsible tax office. Your application is then automatically sent by the tax office to BZSt, and it can take a couple of weeks. However, the online application is processed faster. The VAT application must be accompanied by the following details:

• Name, address, and nature of business.
• Details of Offices/ facilities including branches, warehouse, etc.
• Bank Account details.
• If a Company is registered elsewhere (or in another EU Member State), the tax office and VAT number under which the Company is registered must be provided.
• Articles of Association.
• Certificate of Incorporation.
• VAT Certificate.

For application forms and additional information about registration in Germany, kindly visit the official website of the Federal Ministry of Finance (BZSt). The registration process can sometimes become cumbersome, so you can use TaxDo’s streamlined software and you do not have to go anywhere else. Just fill out the required information on our software, and we will do the rest.

How should you collect and calculate VAT in Germany?

VAT is applied to all taxable transactions (described earlier in this article) except those that are otherwise exempt. VAT is generally charged on a destination-based principle (see the place of supply rules described in detail in the OSS Article); thus, the VAT Rate is applied to any sales made to Germany.

VAT Rates

You must charge the VAT Rate of 19%, other than the products/ services you are supplying that are covered under the reduced rate of 7%. Below is an illustrative list of items covered under the reduced VAT Rate:

• Rearing/ keeping of Livestock.
• Services of Dentists.
• Admission to theatres, concerts, museums, circus performances, etc.
• Transactions related to the operation of swimming pools or administration of SPAs.
• Transport of passengers by rail, trolleybuses, traffic taxis, etc.
• Books, newspapers, periodicals, or any other similar type of product when provided in electronic format.

To learn the complete list of reduced-rate goods/ services, visit the official website.

Certain conditions may apply to the reduced rates, which is where things get trickier. TaxDo is here for you! Our professionals are experts and well-equipped with VAT laws and will resolve all your concerns.

Below is the simple formula you can use to calculate your VAT collection on each merchandise/ service sold:

VAT collectible = Sale value * (Standard Rate or reduced Rate as may be applicable)

Digital Products/ Services

Digital Products are those stored, used, or delivered in the electronic format or any such form. EU VAT applies to all such kinds of Digital Products, and thus the German VAT must also be applied to digital products since the German VAT laws align with EU VAT rules.

The digital products include the following:

• E-books, images, newspapers, movies, periodicals, videos, etc.
• Software-as-a-Service (SaaS), Platform-as-a-Services (PaaS) or Infrastructure-as-a-Service (IaaS).
• Online ads and affiliate marketing.
• Websites, site hosting services, and internet service providers.

Few of the listed above are covered under a reduced VAT Rate of 7%. For instance, access to databases that contain many electronic books, newspapers or magazines or parts of these. For more information on reduced rates, refer to the previous section of this article.

VAT Exemptions

The legislation provides certain exemptions from the VAT under section 4 of the German VAT, such as:

• Export deliveries.
• Supply of Gold to Central Banks.
• Supply of goods to an entrepreneur for his business.
• Turnover for maritime transport and aviation.

See what exemptions are covered.

B2B and Reverse Charge Mechanism in Germany?

When a taxable person from another EU Member State sells the goods/ services to a VAT-registered person in Germany, the transaction is considered a B2B Intra-Community supply, and the seller is not required to charge the VAT on an invoice raised to the buyer. Instead, the German buyer will account for VAT on the intra-community acquisition (under the reverse charge mechanism). In the VAT return, the buyer will calculate the input VAT on purchase from another state and show the output VAT for the same amount, allowing him to adjust the tax liability, resulting in a zero VAT payment. Reverse charge is applied pursuant to Articles 196 & 197 of the EU VAT Directive.

The same principle will apply when a taxable person from another EU Member State maintains a warehouse in Germany and transfers his goods. The seller will need a VAT number in Germany and should account for VAT as an Intra-Community acquisition under the reverse charge. He will show deemed purchase (input VAT) and deemed sale (output VAT) while filing the return in Germany, leading to zero tax being paid.

“Example 2: Company A in France sells goods in Europe. For this purpose, it has set up a warehouse in Germany. From France, it transfers the goods to the German Warehouse and sell them in Germany.

Company A must register and account for German VAT on the stock transfer (considered an Intra-community B2B acquisition). While filing the VAT return in Germany, Company A will show input VAT on intra-community acquisition and report the output VAT for the same amount. This way, the VAT liability would become zero on the stock transfer. Later, Company A must charge and pay German VAT for goods sold to the consumers in Germany.”

Should you appoint a fiscal representative in Germany?

A taxable person who doesn’t have an establishment, registered office, or branch office in Germany and carries out any VAT-exempted transaction in the country may need to appoint a fiscal representative to deduct/ refund of input VAT.

The appointed fiscal representative shall require a power of attorney from the taxable person registered in another EU Member State.  

Appointing a fiscal representative and carrying out the transaction may not be easy, as any defaults will lead to heavy fines and penalties. TaxDo can help you by appointing a fiscal representative and handling all the duties, as we work with leading tax partners in Europe, so we can find it easily.

To know more about the duties and responsibilities of a fiscal representative, read section 22 of German VAT.

How should you file VAT in Germany?

Based on your reported VAT for the previous calendar year, the filing frequency of the current year is decided, which can be Monthly, Quarterly, or Yearly. Quarterly frequency is assigned when your annual sales tax collections are from EUR 1,001 to EUR 7,500. You can file annually when your sales tax collections are up to EUR 1,000. In all other cases, you must file monthly.

Depending on your filing frequency, you must file your VAT return in Germany by the 10^th of the month following the reporting period. Sometimes, filing dates are extended in special circumstances through a notification by the Ministry of Finance.

Note: If the due date is a holiday or weekend, the next business day would be considered the final due date. This link will take you to the official German VAT, where you can see what the legislation says about VAT filing due dates.

You can file the VAT return in Germany through the ELSTER online portal or using the TaxDo’s specialized software, which seamlessly files, calculates, and report your taxes. Additionally, if you are selling to other EU Member States and opted for One-Stop-Shop, you must file OSS return. Refer to our OSS article for further details.

Are there any fines or penalties for default when filing or paying VAT?

The legislation levies a penalty of up to 10% of VAT due (subject to a maximum of EUR 25,000) if you fail to file the VAT return by the due date.

Similarly, if you pay after the due date, the penalty is 1% per month of the tax due. Additionally, an extended interest Rate of 0.5% is applied if the tax is not paid within 16 months following the end of the year in which VAT is due.

However, assigning your tax burden to TaxDo would not result in you paying any penalty or interest. We will adhere to the due dates. Please review the guidelines that Germany issued for penalties and interest.

VAT Invoice in Germany

A VAT invoice is a testament to how much VAT is charged and collected, and evidence of the B2B/B2C supplies basis to which the other rules are applied. Accordingly, the Germany VAT invoice must include the following information:

• Business Name and Address of buyer and seller.
• Business VAT number issued to the supplier.
• Date of issue.
• Quantity and type (customary trade name) of the goods supplied or the scope and nature of the other service.
• Time of delivery or other service.
• The applicable VAT Rate and the amount of tax attributable to the consideration.

For more details, refer to Section 14 of German VAT.

Important Note 3: For any sales made to a country outside the Germany, you must convert the amounts to your official currency. For this purpose, you can use the European Central Bank’s official exchange Rates.

Keeping Records: You must keep the VAT records for at least ten years under Article 369 of the EU VAT Directive.

Zero VAT territory in Germany – The Island of Heligoland and the territory of Büsingen do not come under the purview of EU VAT rules. Any products/ services received from these territories are considered an Import from outside the EU, in contrast, any sale to these territories will be treated an Export, leading to zero VAT. TaxDo has immense experience and knowledge in handling these territories, and we will guide you in the best possible manner.