If you sell products or services in Germany, you may become responsible for collecting value-added tax (VAT) on those sales. This is true whether you are located in Germany or in another country, and whether your customers are individual consumers or other businesses.
Because Germany is a member of the EU (European Union), its tax laws must align with the EU’s VAT framework; however, within that framework, Germany (like all other EU countries) can determine its own VAT rates, which items are taxed, and some other rules and regulations.
This guide explains German VAT rules, so you’ll understand your registration and tax collection obligations if you are doing business in Germany.
How VAT works in Germany
In Germany, VAT is called Mehrwertsteuer (MWSt). Germany charges VAT at two different rates, as well as a 0% rate, and any company (domestic or foreign) selling to German customers may be expected to register to collect VAT at the correct rate on taxable transactions.
Failure to comply with these obligations can result in serious penalties.
German VAT rates
Germany has both a standard and a reduced VAT rate. Some items are also zero-rated, while others are exempt from VAT.
Here are the rates that apply to different goods and services in Germany:
- 19% standard VAT rate: Applies to all taxable goods and services that are not subject to the reduced VAT rate, zero-rated, or exempt.
- 7% reduced VAT rate: Applies to some food, some medical equipment for the disabled, certain types of transport, books and periodicals including digital and audio books but excluding content harmful to minors, cultural and sporting event admission, some hotel accommodations, agricultural inputs, firewood, some timber for industrial use, cut flowers, and plants for decorative use and food production.
- 0% VAT rate: Applies to certain intra-EU supplies to VAT-registered businesses and to specific international transport services that are directly connected with exports or imports.
In Germany, products and services that are exempt from tax include some healthcare, educational, financial, and cultural services; real estate; charitable activities; insurance and reinsurance; and postal services. There is also a German small business exemption for companies whose taxable turnover did not exceed €22,000 in the previous calendar year and is not expected to exceed €50,000 in the current year (these limits are subject to change).
Registering for VAT
Germany requires companies to register for a VAT number and begin collecting VAT once turnover reaches a predefined threshold. This threshold depends on whether the company is based in Germany or not.
Resident vs. non-resident businesses
Businesses established in Germany are usually required to register for VAT if their taxable turnover exceeded €22,000 in the previous calendar year and is expected to exceed €50,000 in the current year.
There is no VAT registration threshold for companies based outside of Germany, including companies based outside the EU. These businesses are typically required to register after making their first taxable sale in Germany.
For EU businesses making cross-border B2C (business-to-consumer) sales, the EU-wide €10,000 distance-selling threshold determines where VAT is due. Businesses exceeding this threshold may be able to report VAT through the EU’s One-Stop Shop instead of registering directly in Germany (more on the One-Stop Shop later in this article).
Who needs to register
You must register for VAT in Germany if you:
- Make taxable sales in Germany, and those sales are not covered by an exemption or simplification scheme such as the One-Stop Shop.
- Store goods in Germany or sell through programs such as Fulfilled by Amazon (FBA), which generally creates a registration obligation.
How to register
Companies register for VAT in Germany by submitting an application and company details, including expected turnover, to the relevant local tax office. Once the registration process is complete, the business is issued a German VAT number.
Working with a tax representative in EU countries
Germany does not generally require non-EU companies to appoint a fiscal representative to register for VAT, although businesses must comply with German VAT rules and may choose to work with a local tax advisor.
When to charge tax
Not every transaction is taxable in Germany, so you don’t necessarily have to collect VAT on every sale. The key is to determine:
- Whether you are subject to Germany’s VAT requirements, based on whether you meet registration thresholds or are part of the One-Stop Shop or Import One-Stop Shop.
- Whether the items you are selling or the goods you are providing are taxable. The rules for which items are subject to VAT in Germany may differ from the rules in other EU countries.
- Whether you are responsible for collecting the tax, as opposed to the buyer (under the reverse charge mechanism) or the marketplace you are selling on (if the marketplace is a deemed seller).
Reverse charges
The reverse charge mechanism is an EU-wide system that can apply to certain transactions taking place with German companies.
Under the reverse charge mechanism, if a German-registered company buys certain products or services from a distant supplier, the buyer becomes responsible for paying the VAT that is due. The buyer reports the VAT on their own return, claims any allowable deductions, and satisfies the VAT obligation instead of paying the VAT to the supplier directly.
Since the German-registered company is fulfilling the VAT requirements, the cross-border seller may be able to avoid registering and filing returns in Germany.
B2B vs. B2C
Your obligations to collect VAT, and the process by which you fulfill those obligations, can change depending on whether you are selling to other businesses (B2B) or whether you’re selling to consumers (B2C) who have no VAT reporting obligations.
If you’re selling to businesses, the reverse charge mechanism may shift certain VAT reporting and payment obligations to the buyer in specific circumstances. If you are a B2C business, on the other hand, you may be able to use the One-Stop Shop (OSS) or Import One-Stop Shop (IOSS) to simplify VAT compliance when making cross-border sales or importing goods into the EU.
Marketplace facilitators
While most German transactions will result in you having VAT obligations to fulfill, this is not always the case. For example, if you are selling goods via a marketplace facilitator, then the marketplace facilitator may become responsible for VAT compliance.
Marketplace facilitators are third parties that facilitate the sale of goods. When they do more than just provide basic help, they may be classified as a deemed seller that has VAT obligations for all transactions on their platform. Usually, this occurs if the marketplace:
- Influences prices.
- Takes on customer service responsibilities.
- Arranges for the shipment of goods and services.
- Predominantly features its brand instead of the brands of individual sellers.
Under this definition, sites like eBay and Amazon are deemed sellers responsible for VAT collection, while other sites like Stripe that solely process payments don’t have this responsibility.
You should be able to find out from the marketplaces you are selling on if they are deemed sellers responsible for VAT compliance. If so, you won’t have to collect VAT on transactions that occur through this marketplace.
VAT deductions
When you submit German VAT returns, you’re eligible to claim deductions for input VAT. You should have a VAT-compliant invoice if you’re claiming these deductions, and you can claim them only if the transaction on which the VAT was charged was directly related to your company’s taxable business activities.
Statute of limitations
The statute of limitations for VAT collection in Germany is four years, with the clock beginning to run on December 31 of the year when your annual VAT return was filed. In cases of negligent underpayment, the limitation period may be extended to five years, and in cases of intentional tax evasion, it may be extended to 10 years.
Staying compliant with German VAT regulations
Beyond registering and collecting the required tax, there are other steps you will need to take to remain compliant with German VAT regulations. These regulations relate to things like creating VAT-compliant invoices and maintaining appropriate records.
Invoicing requirements
There are certain requirements you must fulfill to create a VAT-compliant invoice in Germany. The invoice must include:
- A unique number with invoice numbers going in sequential order.
- The supplier’s and recipient’s full names and addresses.
- The date of supply or service and the invoice date.
- A description of goods and services provided.
- The net amount.
- The applicable VAT rate and VAT amount.
- The total amount payable.
- Any exemptions to VAT.
Filing VAT returns
You must file your VAT return online in Germany using the country’s electronic filing system. The frequency with which you must submit returns varies depending on the net VAT due:
- Net VAT due above €7,500: monthly.
- Net VAT due of €7,500 or less: quarterly.
- Net VAT due below €1,000: annually.
Filing deadlines
The deadline for filing VAT forms is the 10th day of the month after the VAT return period.
Recordkeeping requirements
You must keep records related to German VAT obligations for 10 years.
Risks of noncompliance
Audits, interest charges on unpaid VAT, and fines and fees are all possible if you do not follow Germany’s rules regarding VAT registration, collection, or payment. Noncompliance puts your company’s stability and future at risk, so make sure that you understand what is expected of you and follow VAT regulations in both Germany and throughout the EU as a whole.
Tips on staying compliant with German VAT regulations
VAT rules in Germany (and throughout the EU) are very complicated and can quickly become overwhelming. Fortunately, there are ways to simplify things, including taking part in programs like One-Stop Shop and using the right software solutions for your business.
One-Stop Shop and Import One-Stop Shop
Germany participates in both the One-Stop Shop (OSS) and the Import One-Stop Shop (IOSS), along with other EU countries. Since July 2021, both programs have made compliance with VAT obligations simpler for companies that sell goods in multiple EU countries and companies that import goods valued at €150 or less.
If you participate in OSS or IOSS, you register in one member state, and then you have one VAT form to submit and one VAT payment to make, which is, in turn, appropriately distributed to different countries where you did business. You charge VAT when a customer purchases an item at the customer’s local tax rates.
Software solutions
While programs like OSS make things somewhat simpler, the fact remains that you still need to know VAT rules for every country where you’re required to collect tax, and you need to make sure you understand what tax rates apply to which transactions.
Numeral can take care of all of these compliance issues and more, managing your VAT and sales tax obligations in more than 70 countries, including helping you track sales, register when required, charge the correct tax, and file and make payments. You can spend five minutes a month on sales tax while Numeral handles all of your compliance needs.
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Final thoughts
If you’re selling goods or services in Germany, you need to know whether those items are taxable and whether you’re required to register to collect VAT. You also need to know these details for other countries worldwide where you do business. Numeral can take care of knowing these things for you, and complying with all the VAT and sales tax rules your company is required to follow. Contact us today to learn more.
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