German VAT Registration
VAT in GermanyUpdated on Monday 28th September 2020
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Value-added tax is an indirect tax applied to the supply and of goods and services in Germany. Companies are required to add VAT to their prices, and therefore this specific tax will be paid by the end-user of the product or service. Some types of transactions are not subject to VAT payment an others are subject to a reduced rate.
The German VAT standard rate is 19 % but there is also a reduced rate of 7 % for goods and services like: food, plants, and animals, books and newspapers, works of art, or entrance fees to cultural sites.
Certain goods and services are exempt from value-added tax in Germany; this applies to German and foreign businesses alike. The following are exempt from German VAT: export deliveries, the intra-community supply of goods, services provided by professional groups, financial services, cultural services, voluntary services.
Businesses are required to register for VAT in Germany when the annual turnover exceeds a certain value. The registration requirements apply to both residents and non-residents, however, reduced rates (as described above), as well as a scheme for small businesses, applies to companies.
In this article, our team of lawyers in Germany answers a number of common questions related to the payment of this tax. If you are interested in knowing more, as well as receiving specialized assistance for VAT registration, please reach out to our tax attorneys.
The German VAT registration process
Companies are not forced to register for VAT in Germany but need to register for VAT payment if they make taxable supplies and in those cases in which the annual turnover exceeds 17,500 EUR.
For registration purposes, companies need to fill in an application, add a registration certificate and provide information about the directors, the form of organization of the company, the company’s activity and expected turnover. Once all the information is submitted, the companies will receive a fiscal registration number. This applies also for companies that manage intra-community supplies in Germany. Our lawyers are able to assist with additional information on the requirements set by the Federal Ministry of Finance.
Companies that are required to register for German VAT will need to include the value of this tax on their outgoing invoices (and will see the input VAT refunded inscribed on their incoming invoices).
Once the German VAT registration process is complete, the company may use the VAT number which consists of 11 characters: the country code “DE” and 9 digits. The final two digits in the number are used for control purposes. Companies in Germany have two such numbers, the general tax number and the EU VAT number used for transactions within the EU.
Small entrepreneurs and non-taxable legal entities are not required to submit VAT in Germany, thus they are not liable for it.
The registration rules applied to German companies also apply to non-German companies providing taxable supplies within the country. The small entrepreneurs’ exemption is not applicable in case of non-resident taxpayers.
Our lawyers briefly describe some of the situations in which non-resident companies (businesses that are established in another country and provide services although they do not have a branch in the country) need to register for VAT in Germany:
- when they purchase and sell goods in the country and the goods are not removed from the country;
- when they organize live events such as conferences or art exhibitions;
- when they operate a German consignment warehouse and thy sell goods to German customers;
- in some cases that involve the distance sale of goods and the German registration threshold is exceeded (for example, internet retailers or Amazon traders).
Please note that these are just some examples and if you are a foreign national who operates a company in another EU Member State (or another country) and you provide certain types of goods and services in Germany you may be subject to registration. This is an important step for all companies, not only foreign ones but also resident ones, as failure to register as needed results in penalties that may deter the company from doing business. Some of the possible penalties include a fine of a certain percentage of the VAT due (possibly 10%) as well as an addition on the unpaid VAT due that is calculated with a monthly interest charge of 1%. A maximum final cap applies, however, this can rise according to the value of the tax due.
German VAT registration can vary from one tax office to another and the final registration time may depend on whether or not the applicant provides all of the needed documents in the first place. We recommend requesting specialized aid provided by our lawyers who specialize in value-added tax matters.
If you are looking to open a business in Germany our German law firm will provide you with the best personalized offer, according to the chosen type of legal entity and the business sector in which it will be involved. It is important to note the fact that VAT is imposed on certain types of goods and services and our lawyers are able to provide legal assistance on the need for registration and compliance once the business is set up and running. We provide complete assistance to foreign investors who require aid in order to register for German VAT.
How can VAT be recovered in Germany?
VAT recovery in Germany is possible if companies do not have domicile, registered offices, management or permanent establishment in Germany. In order to benefit from VAT refunds, the companies need to submit an application form together with a list of invoices to the local tax authorities, but it can also be submitted electronically by September 30th of the year following the refund period. The minimum amount to be refunded for one year is 25 euros. VAT will not be refunded for goods or services used for personal purposes.
When the VAT is paid in the non-EU Member States, the refund shall be applied for directly in that country. in case of refunds from other States, the minimum value is at least 400 EUR or the equivalent in another foreign currency. The application is submitted to the Federal Central Tax Office (BZSt) and before it forwards it to the Member State in question, it will evaluate whether the applicant can deduct VAT in the refund period for which he applies and if the VAT identification number (or the tax number) that has been indicated does match the applicant. This decision is made in 15 days and if the application is refused, a notice will be sent to the applicant.
Some of the situations in which an application to recover value-added tax from a Member State is not forwarded by the German authorities is when:
- the applicant is not a taxable person for value-added tax purposes;
- when it is covered by the exemption for small enterprises;
- when the applicant has been subject only to the agricultural flat-rate taxation;
- when it only performed goods or services that are exempt from VAT.
Applications for VAT refunds in third countries are to be submitted directly to the foreign tax refund authorities. For more information on the general VAT return process, please reach out to our team of tax lawyers in Germany.
What are the VAT return requirements in Germany?
Companies are not only required to comply with the German VAT registration process but also the requirements for filing the VAT returns as per their tax period.
A company can choose a monthly or quarterly tax period for value-added tax. The first requirement is for the business to file a preliminary return each month when the bet VAT that is due in the preceding calendar year exceeds 7.500 EUR. This is also a requirement applicable to newly incorporated companies – they must observe this step for the first two years of existence. Companies that have recorded a net VAT due in the previous calendar year below this value are required to file quarterly preliminary returns. When the net VAT value was below 1,000 Euros, companies are not expected to file the preliminary quarterly returns, instead, they will only submit the annual one.
The returns are filed electronically using the “Elster” platform. The deadline for the submission is the 10th day if the month following the tax period for which the payment is made. Apart from these monthly or quarterly requirements, companies are also expected to file an annual recapitulative statement before July 31st the next calendar year. One of our agents who specialize in German VAT registration can provide more details.
How is VAT paid in Germany?
The VAT payment is to paid no later than the 10th of the month after the one for which the calculation is made. When a company makes payments based on the monthly or quarterly provisional returns, this is to be considered an interim payment,
Investors should know that late payments are sanctioned with a surcharge of 1% of the next value-added tax that is to be paid by the company.
Asking for adequate tax advice is important for those who wish to register for German VAT even if the company is not a resident one. It is advisable to seek professional aid from a local specialist as the tax laws can change from time to time and a resident will be up to date with the latest versions.
According to data issued by the Ministry of Finance, the tax revenue from VAT was the following (VAT-based own resources):
- 104 million Euros: the November value of the VAT tax revenue (excluding local authority taxes).
- 2,399 million Euros: the value of the VAT-based revenue from January to November 2019.
- 9.8%: this is the value of the year-on-year change for the revenue received from this particular tax.
Our lawyers in Germany will provide you with all the answers regarding the German VAT and European tax system. German VAT registration is required in many cases for non-EU companies that sell products in Germany. Applying for the tax number is required, along with the tax ID number, for selling various types of products, including for e-commerce sales with large, international e-commerce stores.
Special VAT schemes
A special situation occurs in case of e-Services. This is the VAT on e-Services scheme and it is a special arrangement that targets businesses not established in the EU. These companies are thus able to declare their sales in the EU in a single tax return that is transmitted to the Member State and they are then able to pay the resulting tax in a single payment.
Participation in this scheme is possible for companies after their register and this may only take place within one Member State or their choosing. The online portal of the BZSt receives these applications, which are processed within approximately five working days. Upon registration with the German authorities, the business received a number.
During the entire time a company participates in the VAT on e-Services scheme, it must keep records about its tax returns and payments and provide them in the electronic form to the BZSt or the competent tax authority of the Member State in which it was registered for this scheme. The records produced for this purpose are to be retained for ten years.
Other requirements for companies that participate in the VAT on -Services scheme in Germany include the following, presented by our lawyers in Germany:
- the timely submission of the tax return: there are four submission deadlines (by 20 April, by 20 July, by 20 October and by 20 January the following year); this return is submitted even if no sales were carried out in the quarter for which the assessment is made (this is called a nil return);
- when or if a certain tax return must be corrected, the business is required to submit an adjustment that will be clearly labeled as such; this adjustment will include all the sales (not only the adjusted values) for the period in question;
- a participant in this scheme is expected to pay the reported taxed on time; the payment should be performed by the 20th following the end of the quarter; direct debit is not a payment option and for those interested our team of lawyers can provide more details on the payment options.
Any changes to a business that is registered in this scheme must be notified to BZSt no later than the 10th of the month that follows the one during which the change took place.
It is mandatory to keep accurate sales records and these mush be kept in order. They must reflect the accuracy of the payments as well as the returns that have been made and they are submitted electronically. Those interested in this scheme can note that input tax can only be claimed as part of the VAT refund process (the refund can only be claimed in the Member State in which the input tax was accrued). Our lawyers can provide more details.
When a company discontinues the services provided within the EU or when the conditions for application no longer apply, it is required to deregister from this scheme on the 10th day of the month following the change.
Upon request, the Federal Central Tax Office can confirm that a business participates in the VAT on e-Services scheme, based on its VAT number (the VAT ID No.). A supplier doing business with another company qualified for this scheme can use this verification feature.
Companies that repeatedly fail to observe the requirements under this scheme will be excluded by the BZSt. The same takes place when it becomes clear that the sales of a certain business will no longer take place as part of the agreement.
For the purpose of the scheme described above by our lawyers, an electronically supplied service (to which the scheme applies together with telecommunications, radio and television broadcasting services) is a service that is supplied over the internet or by using an electronic network. This also includes networks for the transmission of digital content. The nature of the service is that is relies on information technology and it involves minimum human intervention. The service could not take place without information technology. It is useful to note that the sale of goods is not a serve that is being supplied electronically even though the process takes place in this manner.
A special procedure is in place with the BZSt to confirm the VAT registration number for a business that participates in the scheme and its value-added tax number was issued by an EU Member State. The key is to determine whether or not the customer is a taxable person and in this case tax liability might be shifted to him. Any business that participates in this scheme is entitled to make an enquiry regarding a VAT number. The request submitted with the authorities must include the registration number of the business submitting the request.
E-Service companies that are interested in knowing more about VAT refunds under this program can reach out to our tax attorneys in Germany.
Taxation in Germany
VAT is an indirect tax applied to companies in Germany, however, it is not the only one discussed when referring to the country’s corporate taxation system. The basis for taxation for businesses is residence, whether or not that company maintains its registered office or a central place of management in Germany. Resident companies are taxed on their worldwide income while non-residents only on their German-sourced income.
The corporate income tax rate is 15% and it also includes a solidarity surcharge, bringing it to 15.825%. To this, a municipal trade tax will also apply, with a value of 14-17%, bringing the final value of the corporate income tax rate between 30 and 33%. The withholding tax on dividends is 25% (26.375% with the solidarity surcharge) and non-resident companies may apply for a 40% refund. The withholding tax on dividends, interest, and royalties can be reduced under tax treaty. Also, this tax is not levied for dividends that qualify for the EU Parent-Subsidiary Directive.
Other taxes on companies include the social security contribution (the employer generally paying 50% of the worker’s social security contributions), the real property tax (levied at a municipal level) and the real estate transfer tax.
Tax returns are filed electronically in Germany, no later than 31 July the year following the tax year.
Our team can provide complete information about taxation in Germany, the accounting and reporting principles and a number of other details about running a business that are of interest to investors.
Contact our law firm in Germany for more information on how to register for VAT in the country.