Germany is a member of the EU as well as one of the countries using the Euro as its currency. This means it followed the rules set out concerning VAT by the EU under their EU VAT Directives.
The rules allow countries to set their VAT rates at anything above a certain percentage and to apply their own conditions as well as the exclusions listed in the regulations.
So what is the position of VAT in Germany?
The EU VAT Directive applies to all 28 member states of the EU and requires them to incorporate it into their laws. It was created on 26th November 2006 as the Council Directive 2006/12/EC. It creates a framework for the scope, place of supply, tax amount and other details relating to VAT for the member states.
In Germany, VAT was originally introduced in 1968 but the current system falls in line with the EU VAT Directive. It is overseen by the Ministry of Finance and covers both individuals and businesses within Germany as well as foreign and non-resident companies that provide goods and services within the country.
When VAT must be paid
There are three main events that require the payment of VAT whether in Germany or around the EU. The first of these is the supply of goods or services that involve a payment within the country. The second is importing goods from outside the EU into Germany and the third is important goods from other EU countries into Germany. On their website, VATGlobal has listed the details of German VAT rules in detail along with the rates of Germany VAT.
Other events that may require the payment of VAT involve distance selling regulations. This is where the business sells goods over the internet to German customers, even if the business themselves are not based in the country. Goods held in consignment stock can also be liable for VAT payments.
If a business is holding a live exhibition, training event or other event in Germany, then they may be liable to pay VAT on sales made during the event. Companies that are not VAT registered but are receiving services in Germany may also have to make the payment under the reverse charge rule.
Currently, for businesses that are based and operate in Germany, the VAT threshold that requires them to become VAT registered is 17,500 Euros. For foreign businesses that trade in Germany but are registered for VAT elsewhere, there is a nil threshold. And for companies selling goods over the internet to customers in Germany, then the threshold is 100,000 Euros.
A business that is registered for VAT will then receive two numbers that related to its VAT status. The first is called the Steuernummer, the general tax number that is used on all documents including the tax return. The second number is the USt-IdNr which is the VAT identification number provided for reporting intra-EU supplies and services. So if a company imports items from France, for example, this number is required to relate to these goods and services. If the company only conducts business within Germany, then they may not need this second number.
Once registered for VAT in Germany, companies will be required to follow the German rules on the issuing of invoices, including electronic invoices. Companies are required to keep account records for at least 10 years and invoicing must include VAT details.
The following information is required to feature on all invoices to comply with German VAT rules. The date of issue and a unique, sequential number must be on the invoice along with the VAT number of the company supplying the goods or service. The full name and address of both parties should be listed along with a full description of the goods or services involved, quantities and if there is a different in the supply date to the invoice date.
Also included is the net, taxable value of the goods or service as well as the VAT rate applied as well as the actual amount of VAT involved. If there is a zero VAT rate applied, then details of why this is the case need to be included. The last detail should be the total gross value of the invoice.
If there has been any foreign currency involved in the transaction, then details of the approved foreign currency rates used should also be details along with the invoice in case required at a later date.
How much VAT is due?
The standard rate of VAT due on goods and services within Germany is 19% (see https://www.vatglobal.com/germany-vat-rates-registration/ ). There is a reduce rate of 7% that applies to the following:
- Some food
- Water supplies
- Public transport
- Medical equipment and care
- Writers and composers
- Agricultural supplies
- Sport event admissions
- Social services
The tax point for German VAT payments is generally said to be 10 days after the end of the reporting period. This can either be monthly or quarterly. For goods, the tax point is the time of delivery or when the goods pass to the buyer while for services, it is when the service is completed.