Topic

Value Added Tax –
The sum-up
for online merchants

Basically, all businesses have to pay VAT. Here you will find all the important and up-to-date information on VAT, VAT IDs, the numerous exemptions and much more for the e-commerce sector.

With value added tax (abbreviated to VAT), the exchange of services, i.e., the turnover, between two parties is taxed. VAT is always assessed on the revenue that a company generates 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 recipient of the service has to spend to receive the service – excluding VAT.

Mehrwertsteuer (Sales Tax) & Umsatzsteuer (VAT) – What is the difference?

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 at all. From the entrepreneur’s perspective and by law, there is only value added tax (VAT) and input tax. In German, “Mehrwertsteuer” has only become accepted as a colloquial generic term. 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 businesses 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 certain 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 clearly identify companies that operate within the EU and sell and buy goods internationally. It consists of eleven digits:

2-digit country code
8-digit unique number
1-digit check digit

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
Image Mehrwertsteuer-Digitalpaket

VAT rates in the EU

The EU has 27 member states, all with different tax rates and regulations. In order not to risk losing customers or revenue, online merchants must always apply the correct rates.
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.

VATRules

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 basically a private person or the object is purchased for private consumption (B2C = business-to-consumer), the intra-Community delivery is a 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 the assessment of the VAT consequences.

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