Sales Taxation

Sales Taxation

Value Added Tax - VAT

In Germany, all entrepreneurs who are engaged and independently active in a trade, business or profession with the purpose of generating income, are liable to value-added-tax also known as turnover tax (Umsatzsteuer). The following information on VAT is a general overview.

VAT is raised regardless of citizenship, residence, main place of management, or the place of billing or payment. The only criterion for charging VAT is that the entrepreneur executes taxable transactions within the country above a certain volume. The German Turnover Tax Law, based on the EU VAT Directive, covers the following transactions that are liable for the German VAT:

  • The supply of goods and services within Germany
  • The importation of goods from territories outside the EU into Germany, also called ''import turnover tax'' (Einfuhrumsatzsteuer)
  • The movement of goods into Germany from another territory within the EU (Intra-Community acquisitions) also called ''acquisition VAT'' (Erwerbsteuer).

VAT rules distinguish between the place of supply of goods and services and define which transactions are performed for business and private customers.

The standard VAT rate for the supplies of goods and services in Germany is 19 percent. Certain goods - like books and food - and services are subject to the lower rate of 7 percent.

There are some goods and services that are exempt from VAT. The most common are intra-EU-deliveries of goods, exports of goods to a non-EU destination and services related to these deliveries.

Since VAT is a very complex subject and there are many different cases and exceptions, it is recommended that all trading companies seek competent advice in this area, to make sure that they are fully informed about the taxes that apply to their products. A suitable tax advisor might be found through the search engine of the German Association of Tax Advisors.

Furthermore The German Federal Central Tax Office maintains a comprehensive online tax information center on taxes in Germany and the taxation procedure. More information on the European harmonization process of the European taxation systems can be found on the relevant pages of the European Commission.

Place of Supply - Goods

The place of supply determines whether a transaction is subject to German VAT.

Here are some general rules for determining the place of supply of goods for VAT purposes within Germany:

  • The place where the shipping of the goods begins
  • The place where the goods are located at the time that the buyer acquires the power to dispose of the goods 
  • In case of movements from a special customs warehouse into free circulation within the EU: the location of the goods when they are put into free circulation counts as the place of supply of goods for VAT purposes.
  • Imports into EU territory from non-EU countries: The place of the chargeable event for the supply of goods is the location where the imports enter the EU country of destination and the import VAT is levied.

Place of Supply - Services

The place of supply determines whether a transaction is subject to German VAT.

The place of supply of services depends on whether they are rendered to private consumers (B2C) or to commercial businesses (B2B). If the recipient is a private consumer, the place of supply is where the entrepreneur's business or permanent establishment is based. In B2B-relationships, on the other hand, the place of supply is usually where the customer's permanent establishment is located.

Notable exceptions:

  • Services related to land or property, VAT liability exists where the land or property is located.
  • Transportation services - VAT liability is incurred where the transport is performed. Note that special rules apply in case of intra-community transportation.
  • Work (e.g. valuation, inspection, repair) carried out on moveable goods - VAT liability exists where the goods are located at the time of the work done (this rule may not apply where the goods do not remain in the same location throughout the installation work).
  • Use of patents, copyrights and trademarks, advertising, legal, financial tax, technical and management consulting services, use of information and know-how, provision of personnel, leasing of goods (but not vehicles). In these cases, the place of supply is where the customer is established: VAT is levied where the non-EU customer or the taxable person/entity in a member state other than that of the supplier is established.
  • Services related to cultural, artistic, sporting, scientific, educational, entertainment, and other similar activities. VAT is charged at the place where the activities actually take place.
  • Radio and television broadcasting services and telecommunication services supplied by a non-EU entrepreneur and are used and enjoyed within the EU. In this case the place of supply is the place where the services are effectively used and enjoyed.

On January 1, 2015 a new EU VAT place of supply of services rule was implemented for selling digital services (telecommunications, broadcasting, and e-services). When selling to private customers within the EU, businesses must now charge VAT in the EU country where the customer is located. This means that the place of taxation for the supply of telecommunications, broadcasting, and electronic services are now the same for both B2B and B2C sales.

Since VAT is a very complex subject and there are many different cases and exceptions, it is recommended that all trading companies seek competent advice in this area, to make sure that they are fully informed about the taxes that apply to their products. A suitable tax advisor might be found through the search engine of the German Association of Tax Advisors.

Furthermore The German Federal Central Tax Office maintains a comprehensive online tax information center on taxes in Germany and the taxation procedure. More information on the European harmonization process of the European taxation systems can be found on the relevant pages of the European Commission.

Intra-EU Community Trade

The place of the intra-EU acquisition of goods is normally deemed for VAT purposes to be the place where the goods are located at the time when the transport to the person acquiring them is completed. VAT (in this case also refered to as acquisition tax or ''Erwerbsteuer'') is normally paid by the recipient in the EU country. The acquisition tax rate is the same as the VAT rate (19 percent and 7 percent). The recipient entrepreneur also has the possibility of deducting the paid acquisitions tax (input tax) in the advance VAT return (Umsatzsteuer-Voranmeldung).

There are numerous exceptions to the application of this rule. The most notable exceptions are: the recipient is VAT registered with a VAT identification number in the EU country of destination or the supplier does not hold adequate proof of the shipment of goods. In such cases, VAT is payable by the supplier in the EU country from which the goods are dispatched.

When the goods are moved from Germany to another EU country without any change in legal or/and economic ownership, German VAT is due unless proof of shipment is provided and the German entrepreneur is registered for VAT in the country of destination. This rule will apply even if the goods only remain in the ownership of the German entrepreneur for a short period of time in the country of destination and are destined for sale to a single customer in that country (i.e. consignment stock).

Exemptions

The German Value Added Tax Act provides tax exemptions for

  • Small enterprises whose total turnover during the past year was below 17,500 € and whose turnover presumably will not exceed 50,000 € as provided in Sec. 19 of the VAT Act.
  • Specific kinds of service listed in Sec. 4 of the VAT Act like exports, border-crossing shipments within the European Single Market
  • Specific Service Sectors like health services, education services, financial services, real estate dealing, and voluntary services to name a few

However, According to Section 9 of the VAT Act taxpayers may optionally pay VAT even for exempt turnover, in order to deduct input taxes, as this sometimes might be more profitable.

Since VAT is a very complex subject and there are many different cases and exceptions, it is recommended that all trading companies seek competent advice in this area, to make sure that they are fully informed about the taxes that apply to their products. A suitable tax advisor might be found through the search engine of the German Association of Tax Advisors.

VAT Registration

A German entrepreneur receives upon registration of a business a single tax reference number for all applicable taxes, including VAT.

Entrepreneurs who intend to supply goods or services within the Single European Market have to apply for a separate VAT identification number. This identification number is standardized within the European Union and has to be quoted on invoices received and issued in relation to all intra-EU supplies of goods. The validity of VAT numbers can be checked at the VIES (VAT Information Exchange System) web page. The VIES might also help to find verify the entries name and address of the seller.

Foreign companies that are not established in Germany may also register for VAT without having to form a local company. A VAT number must be in place before the foreign company can start carrying out its business in Germany.

Registering for German VAT may take at least three weeks, although this can vary. In order to receive a general tax reference number the foreign enterprise/entrepreneur must register with the tax office (Finanzamt) allocated to his country within Germany. The VAT identification number is also available through an online application procedure which may be accessed through the website of the Federal Tax Office.

Since VAT is a very complex subject and there are many different cases and exceptions, it is recommended that all trading companies seek competent advice in this area, to make sure that they are fully informed about the taxes that apply to their products. A suitable tax advisor might be found through the search engine of the German Association of Tax Advisors.

Procedures

VAT has to be paid quarterly in advance. Within 10 days after the end of a quarter the VAT tax return has to be calculated and handed over electronically to the local tax office. Enterprises whose VAT liability exceeded 7500 € during the preceding year have to file the tax return every month instead. Within another ten days the VAT has to be paid. An additional VAT tax return is due at the end of each year.

In principle, the provider of goods or services is liable for the payment of sales taxes. However, special regulations apply to B2B-contracts with foreign service providers that are not permanently established in Germany. In this case, VAT needs to be paid through a reverse charge procedure, i.e., the German service recipient is the tax debtor.

Within the Single European Market sales to Germany can be exempted from value added tax (VAT) in the country of origin. Suppliers from EU member states are able to declare sales to Germany in the recapitulative statement (''zusammenfassende Meldung'') and acquit themselves of the VAT. The recapitulative statement form is supposed to be provided by the national tax authorities. In this form, vendors have to identify customers by quoting their VAT registration number, which should be exchanged upon conclusion of the transaction.

In order to quantify the trade volume within the Single European Market, European statistics offices have established the Intrastat system. Every vendor or buyer who realizes an annual trade volume of more than 400,000 Euro must report the turnover to the corresponding office for national statistics in his/her home country. Such data is used to calculate GDP- and foreign trade figures. For more information, please contact the relevant authorities in your country.

Since VAT is a very complex subject and there are many different cases and exceptions, it is recommended that all trading companies seek competent advice in this area, to make sure that they are fully informed about the taxes that apply to their products. A suitable tax advisor might be found through the search engine of the German Association of Tax Advisors.


VAT Refund

Foreign companies that are not registered in Germany and do not generate turnover that is liable to German VAT are eligible to apply for a VAT refund.

According to the new EU Directive 2008/9/EC which came into effect on January 1, 2010, enterprises registered in other EU member states must apply for a VAT refund at their local tax administration offices and follow the refund procedures required in their home country.

Businesses from outside the European Union need to send their VAT refund application and the relevant attachments to the competent German Tax Office. It is recommended to apply online in order to accelerate the process. The Federal Central Tax Office (FCTO) provides detailed information on the refund procedures and offers additional support on its Tax Information Center website.

Private individuals only may request VAT refunds, if they purchase goods in Germany to take to a non-EU country. The German Customs Office is generally responsible for the refund procedures relating to private persons.
Since VAT is a very complex subject and there are many different cases and exceptions, it is recommended that all trading companies seek competent advice in this area, to make sure that they are fully informed about the taxes that apply to their products. A suitable tax advisor might be found through the search engine of the German Association of Tax Advisors.

VAT-Refund for Foreign Exhibitors

Foreign companies seeking to exhibit their products and services in a trade fair in Germany have the possibility to apply for a VAT refund depending on the country where their business is established. As stated above, VAT will be refunded to companies from other EU-Member States. Entrepreneurs from non-EU states are only entitled to a VAT refund if no VAT or similar tax is raised in their home country or if the foreign government has signed a reciprocity agreement with Germany.

In general, expenses are refunded for:

  • Trade fair expenses (exhibition booth rental, assembly, construction, etc.)
  • Accommodation and travel expenses (hotel, taxi, food, parking fees, etc.)
  • Expenses incurred while visiting customers in Germany
  • Service costs (interpreters, advertising, catering, etc.)

All invoices must be collected and submitted to the Federal Central Tax Office with a formal request for a VAT refund. The procedure is called ''input tax refund procedure'' (in German: Vorsteuer-Vergütungsverfahren). You can also contact a VAT service company to have the paperwork done. Some German trade fair companies offer this service for a fee. Be aware that the VAT refund application must be received by the Federal Central Tax Office by June 30th of the year following the purchase.

Import Sales Taxation

Goods coming from non-European countries into Germany are subject to an ''import turnover tax'' (Einfuhrumsatzsteuer) of 19 percent. It is equivalent to the value-added tax (Mehrwertsteuer) which is levied on all domestically sold items placing the same tax burden on imported and domestic products. The import turnover tax is charged on the customs valuation on the imported good plus a customs duty. A discounted tax of 7 percent is levied on food products, books, newspapers, pieces of art etc.

Importers can deduct this import tax as input tax (Vorsteuer) from their value-added tax bill, if the goods have been acquired for resale purposes. In order to do this, the company must be able to provide the necessary import documents (import declaration).

The German customs authorities collect both customs duty and import turnover tax. Further information on the import turnover tax is available on the website of the German Customs Office.

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