With value-added tax (abbreviated to VAT), the exchange of services, i.e., the turnover, between two parties is taxed. VAT is continuously assessed on the company’s revenue for its domestic business. Regarding VAT, services for remuneration (goods and services) that an entrepreneur carries out in the country are taxed. The remuneration is deemed to be what the service recipient has to spend to receive the service – excluding VAT.
Mehrwertsteuer (Sales Tax) & Umsatzsteuer (VAT) – What is the difference in Germany?
The terms “Mehrwertsteuer (sales tax)” and “Umsatzsteuer (VAT)” are used synonymously by consumers in Germany. In German tax law, however, the term “Mehrwertsteuer” does not appear. From the entrepreneur’s perspective and by law, there is only a value-added tax (VAT) and input tax. In German, “Mehrwertsteuer” has only become accepted as a colloquial generic term, and it is comparable to the VAT in English (Value Added Tax).
Who has to pay VAT?
All businesses are subject to VAT and must pay tax on their sales. VAT is first invoiced to the customer and then paid to the tax office.
Input tax
The VAT charged to businesses and service providers by other companies, and service providers can be claimed as input tax from the tax office.
When must VAT be paid?
In general, all business transactions are subject to Value-added tax. However, as is so often the case in tax law, there are numerous exceptions.
Subject to VAT:
- Supplies (e.g. sales of goods)
- Other services (e.g., provision of services)
- Intra-community acquisition
- Imports from non-EU countries
- Goods and services purchased with input tax deduction entitlement
Not subject to VAT:
- Sale, renting and leasing of real estate
- Turnover of insurance agents, doctors, alternative practitioners and midwives
- Turnover of certain cultural institutions
- Turnover of specific general education or vocational training institutions (e.g., schools, self-employed teachers)
- Exports and intra-Community deliveries
VAT identification number – determination and verification
The VAT ID (USt-IdNr. and UID) is issued to entrepreneurs by the Bundeszentralamt für Steuern (BZSt) (Federal Central Tax Office) in addition to the tax number. It is used to identify companies that operate within the EU and sell and buy goods internationally.
VAT regulations for e-commerce
The VAT digital package for cross-border online trade affects merchants and consumers alike. Important new regulations were introduced in these four areas in particular.
- (Import) VAT for all
- Adjustment of the delivery thresholds
- Platforms must pay the value-added tax themselves
- OSS and IOSS should simplify tax reporting
- Rising prices for the end consumer
VAT rates in the EU
The EU has 27 member states with different tax rates and regulations. Online merchants must always apply the correct rates to avoid losing customers or revenue.
Especially for EU merchants with large product portfolios, determining the correct VAT rates poses major challenges.
One solution to this problem is automated tax rate determination.
VAT on intra-Community distance sales and intra-Community supplies
There is an essential difference between the VAT regulations of the intra-Community distance sale and the so-called intra-Community delivery.
In contrast to an intra-Community distance sale, where the buyer of the goods is a private person or the object is purchased for private consumption (B2C = business-to-consumer), the intra-Community delivery is delivery to an entrepreneur (B2B = business-to-business). The VAT consequences differ significantly; therefore, the correct classification of the transaction type – B2B or B2C – is elementary for assessing the VAT consequences.
