Value Added Tax (VAT) Guidelines: Germany

published on 23 March 2022

• 1. VAT SCOPE, VAT RATES AND VAT EXEMPTIONS »

• 2. VAT REGISTRATION AND SIMPLIFICATIONS »

• 3. DECLARATION REQUIREMENTS AND PENALTY REGIME »

• 4. VAT RECOVERY »

• 5. INVOICING »

• 6. OTHERS »

1. VAT Scope, VAT Rates and VAT Exemptions

Generally, the following supplies would be taxable in Germany:

• All forms of supplies of goods and services which will be provided by an enterprise/entrepreneur within its business for a consideration made in Germany
• the import of goods in Germany from a third country (non-EU Member State) with customs clearance in Germany or
• intra-Community acquisition of goods in Germany.
   

Certain actions carried out for no consideration are deemed to be supplies, e.g. the giving of business gifts.
 
Certain transactions are not subject to German VAT, such as genuine compensation payments (damages).
 
The standard VAT rate is 19 per cent for supplies performed since 1 January 2007, one reduced VAT rate is 7 per cent. Only as a corona-pandemic caused economic support temporary reduced VAT rates (16 and 5 per cent) for supplies performed in the second half-year period of 2020 have been legally implemented.

 
There are some rules for VAT exemptions as well. It will be distinguished between VAT exemptions with input VAT recovery, e.g. exports or intra-Community supplies of goods from Germany to a third country or another EU Member State, and VAT exemption without an input VAT deduction, e.g. supply of services as rental of immovable properties or financial services (with/without the right to opt for taxation).
 
Supplies of goods are taxable, generally, at the place of the beginning of the physical transport. Specific rules for the place of supply and therefore the place of VAT taxation must be considered, for example in import cases (if the supplier owes German import VAT due to the agreed conditions). 
 
If a business/entrepreneur (tax payer) sells goods to a customer who is registered for VAT purposes in another EU Member State and the sale involves the removal of those goods from Germany (either by the supplier or the customer) to that EU Member State, then the tax payer does not need to charge VAT and may zero rate the supply as an intra-Community shipment. The supplier must obtain his own and a foreign customer’s VAT identification number and quote them on the invoice. The supplier should also declare the intra-Community supply within the relevant German declarations in time and obtain evidence of the goods removal from Germany.
 
If a tax payer sells goods to a customer who is not registered for VAT in another EU Member State and the sales involves the removal of those goods from Germany by the supplier, the supplier will have to charge German VAT.

 
If a tax payer exports goods to a customer (entrepreneur or private) outside of the EU and the supplier arrange for the goods to be transported the supplier does not need to charge VAT.
 
As a general rule with exceptions, supplies of services provided to an entrepreneur/tax payer for business purposes (so-called B2B services) are made where the recipient of the service is established. In B2C-cases it depends on the kind of supply and residency of the customer for example.

2. VAT registration and simplifications

If an entrepreneur performs taxable supplies in Germany, it will be required to notify the German Tax Authorities of the date of commencement of taxable activities; the business will granted a local tax registration number (so-called Steuernummer).
 
If a tax payer performs/receives intra-Community supplies in Germany, it will be generally required to notify the German Tax Authorities of the date of commencement of such activities, the tax payer also be granted a German VAT identification number (so-called Umsatzsteuer-Identifikationsnummer).
 
The registration rules which apply to German entities also apply to non-German entities providing taxable supplies in Germany.

 
There are some simplification rules to avoid a registration for VAT purposes in Germany:

• Reverce Charge: For several supplies of goods or services the reverse charge-mechanism is applicable for B2B business in Germany. In that case, the recipient of the supply (not the supplier) is liable for VAT.
• Intra-Community triangulation concerning supplies of goods
• OSS as a special taxation/declaration procedure for intra-Community distance selling (B2C)
   
  As of 1 of July 2021, a One Stop Shop (OSS) procedure has been introduced. OSS covers all services to EU consumers (B2C) as well as  distance sales/intra-Community supplies of goods to EU private buyers (B2C).
   
  OSS simplifies the VAT obligations for sellers of goods and services to private consumers throughout the EU, as it allows them to:
  register for VAT electronically in a single EU Member State for all intra-EU distance sales of goods and for business-to-consumer supplies of services and thus avoid VAT registration in multiple EU Member States;
  declare and pay VAT due on all these supplies of goods and services in a single electronic quarterly return;
  work with the tax administration of their own or only one EU Member State and in own language, even if their sales are cross-border.
   
  Notification of participation has to be made to the responsible tax authority of the respective EU Member State; notification in the Member State of residence of the company (for companies based in Germany the application has to be submitted to the Bundeszentralamt für Steuern); for third country enterprises without a permanent establishment in the EU the notification has to be made in the EU Member State of the start of the movement of goods.
   
  The participation applies only uniformly for the entire EU territory and the application (and revocation) for OSS is only possible before the beginning of the taxable period determined by the company (the calendar quarter).
• IOSS as a special import taxation/declaration procedure (Import One Stop Shop) for specific constellations with non-EU resident online sellers
• Consignment stock: There are new regulations within the scope of the European “Quick Fixes” for supplies via a consignment/call-off-stock for supplies since 1 January 2020. Accordingly, the taxation of the intra-Community supply in the EU Member State of departure as well as the intra-Community acquisition will only take place at the time of the removal of the goods. The transport of goods to the consignment store thus no longer triggers an intra-Community transfer taxable at the time of the storage in the destination / warehouse country.
   
  Under certain conditions, there is no obligation to register/declare the goods in the country of destination and therefore no VAT registration obligation. 

3. Declaration requirements and penalty regime

Entrepreneurs liable to German VAT are required to submit an annual VAT return for each calendar year. Most registered businesses are required, in addition, to submit (preliminary) VAT returns on a monthly or quarterly basis (depending on the amount of VAT payable) during the year.
 
If an entrepreneur supplies goods which are shipped from Germany to VAT registered businesses in other EU Member States, it is required to correctly complete European Sales Listing forms (recapitulative statements) electronically.
 
The Intrastat report is a statistical record concerning the intra-Community trade of goods (not services).VAT registered entrepreneurs with a value of dispatches and/or deliveries to or from EU Member States, which exceed a certain threshold (currently EUR 500,000 for outgoing supplies and EUR 800,000 for incoming supplies), must submit supplementary declarations for both each month.
 
There are no penalties for failing to register for VAT in time. However, your business may incur late-payment penalties, late-filing penalties and interest (0.5 percent per month after a grace period of 15 month generally in case no tax fraud will be alleged; however currently under discussion by legislator) on any outstanding VAT.
 
There are a number of penalties that apply in Germany for compliance failures, in addition to the mentioned penalties above, for example for undisclosed activity or insufficiency or omission of invoicing custody duties and European Sales Listings.
 
The German tax law does not involve any reasonable excuses, but penalties could be avoided as an exception and via application if the individual circumstances lead to that.
 
For late-payment of VAT as declared in a VAT return, the tax authority can impose a penalty for late payment which have to be paid in addition to the VAT amount. If a VAT is not paid by the end of the due date, a late payment surcharge of 1 percent of the rounded down amount of tax in arrears shall be paid for each month or part thereof that the tax is in arrears, generally. In specific cases a remission of the penalty can be applied for. 
 
For late-filing or non-filing of a tax return, the tax authority can impose a penalty for late filing which have to be paid in addition to the tax amount. The penalty is limited to 10 percent of the assessed VAT/inaccurate input VAT up to an amount of EUR 25,000.
 
The amount of interest to be paid for tax evasion is based on the amount evaded. This amount is multiplied by an interest rate of 0.5 percent for each month (6 percent for each year currently) according to General Fiscal Code (AO) that the taxes were evaded. The interest run, on the other hand, ends with the payment of the evaded tax. Tax fraud, also called tax evasion, is a criminal offence in Germany, regulated by the Fiscal Code of Germany. The penalty for tax evasion depends on several factors and must be evaluated and assessed from case to case.
 

4. VAT recovery

If your business is registered for VAT purposes in Germany it is possible to declare and deduct German input VAT within the VAT return on the regular tax procedure under further preconditions.
 
It is also possible to recover German input VAT if the entrepreneur is not registered for VAT purposes in Germany. 

 
Input VAT an certain employee expenses:

• Domestic air travel: Yes, if the trip is undertaken in connection with the employer’s business.   
• International air travel: Not applicable. Expenses incurred on specific international flights do not incur German VAT.
• Rail travel: Yes, if the trip is undertaken in connection with the employer’s business.
• Taxi fares: Yes, it the trip is undertaken in connection with the employer’s business.
• Car rental: Yes, if the rented car is used for business purposes.
• Fuel: In principle yes, among other operating costs, if acquired for a business car. However, if the recipient is resident outside the EU, the refund of VAT on fuel under the 13th EU VAT Directive is excluded. If the car is also used privately, there is a special method for calculating the basis of the output VAT charge for such private use.
• Car parking: Yes. The parking expenses are recoverable, even if the expenses are incurred on a private passenger car, provided that the parking relates to the taxable business carried on by the employer.
• Hotel: Yes, if accommodation relates to the taxable business carried on by an employer. Please note that, if the total amount of invoice exceeds EUR 250, the hotel bill must be addressed to the employer.
• Client entertaining: Yes. Input VAT on expenses, if they are incurred for value gifts (less than 35 euro net per person per year).
• Client meals: Yes. As a rule, input VAT is 100 percent deductible if such expenses are 70 percent deductible for income tax purposes.

5. Invoicing

There are formal invoicing requirements to be fulfilled according to the German VAT Act. 
 
If invoices do not content all of the necessary requirements or if some indications are not correct it is possible to amend these invoices via different ways, for example via cancellation and new issuing (via so-called credit notes) or amendment with an additional document and respective references to the original invoices. Also due to European and German jurisdiction the tax authorities allow in specific cases a retroactive invoice correction to get the input VAT at the time not in full a proper invoice was issued. 
 
An electronic submission of invoices (e.g. via email, computer fax) is generally possible with specific conditions to get an input VAT refund.
 
A credit note – as well as invoice amendments – could be issued with the possibility to claim back already paid VAT from the tax authority.
 
To operate via self-billing invoice is possible, provided an entrepreneur has the agreement of the entrepreneurial customer before doing so, i.e. that the recipient will issue an invoice, so-called self-billing invoice, to the supplier (e.g. in practice often given in consignment stock cases).
 

6. Others

VAT grouping exists and is obligatory by German VAT law if there are specific financial, economic and organizational links between companies of a group; the conditions and the restriction to German territory are currently under discussion within the German and European jurisdiction.