The Value Added Tax (VAT) in Germany, known as Mehrwertsteuer, is one type of tax imposed on most goods and services provided on Bavarian territory.
Whether you are a consumer or someone establishing their own company or project in Germany, you will inevitably be subject to value-added tax (VAT).
Therefore, we found it important to discuss the value-added tax in Germany, to understand its nature and origin, and whether its value differs from one commodity to another.
You can also learn how to register for German Value Added Tax (VAT) through our article on AlmanyPedia encyclopedia. Stay tuned with us.
What is the Value Added Tax (VAT) law in Germany?
The Value Added Tax law is one of the laws that is implemented according to the policies of the European Union issued by Brussels, and it is applied within a long list of taxes in Germany.
This law applies to certain goods and services provided to both German citizens and residents in the country, including expatriates and refugees, in exchange for the enjoyment of services provided by the state.
The value-added tax (VAT) rate in Germany varies depending on the type of goods or services provided. It can be as high as 19% for some goods and services, while others are subject to a rate of only 7%.
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However, in general, this value is determined according to the regulations of the European Union, which takes precedence in determining the rate, especially when there are differences in accordance with German VAT law.
The Value Added Tax (VAT) law is considered one of the essential things that anyone who wants to establish a company in Germany or start a private project should know. It is also useful for those who want to familiarize themselves with the tax systems applied in the country.
The activities that are required to be registered for Value Added Tax (VAT) in Germany
Germany relies entirely on the funds collected from taxes imposed within the country, which constitute its main source of income and are relied upon to carry out its primary functions and expenses.
Among these duties and obligations is funding education in Germany, as well as managing government institutions, hospitals, and other services provided by the state free of charge.
Therefore, the federal government and the European Union impose value-added tax (VAT) in Germany on all commercial activities that generate profit from the services provided within the country.
According to the regulations in place, obtaining a tax number is required before starting any business project in Germany, especially for the following types of activities:
- Who organizes parties, events, and conferences on German soil.
- Those who achieve an income exceeding 100,000 euros annually through the internet and social media.
- The one responsible for introducing and importing shipments of goods into German territories.
- If you are planning to engage in trade within Germany or the European Union by buying and selling goods again.
- Those who use warehouses for storing and selling products within the country.
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The value-added tax rate in Germany
The Value Added Tax (VAT) is officially set at a general rate of 19% in Germany, but this rate may vary depending on the adjustments made by the state according to the nature of your business activity.
This percentage has been reduced to only 7% for certain activities, including food, hotel services, cultural activities, and everything related to books, among other activities.
In general, if you are starting your own business or if you already have a company in Germany, You should seek the assistance of a financial accountant with extensive knowledge of the intricacies of German taxes to help you fulfill your obligations towards the state accurately.
It is not only the value-added tax that is required from business owners in Germany, but as an employer in the European country, you are also required to register for and pay a range of other taxes.
Among the taxes imposed on business owners in Germany are the following types:
- Income Tax in Germany.
- Corporate Tax.
- Tax on investment in Germany.
- Property taxes.
- Import and export taxes.
Tax Deductions – Tax Credits
Every employer in Germany is required to pay value-added tax as part of a range of different taxes that they are obligated to pay to the state. These taxes can impose a significant burden on the employer, to the extent that they may affect the company’s income and profits.
However, German laws grant company owners the right to certain deductions and reductions that generally reduce the amount paid in taxes through deductions.
As a business owner or project owner in Germany, you have the right to include all essential expenses of your company in the annual tax return in Germany in order to reduce the percentage of profits you receive.
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Tax reductions in Germany include the following provisions:
- The costs associated with child care and expenses of divorced partners.
- Employee salaries.
- The transportation expenses from one place to another vary according to the work circumstances, such as travel, public transportation, and car costs.
- The amounts that are paid to charitable organizations in Germany.
- Social security fees.
- Mortgage fees.
- Church tax.
The danger of tax evasion on employers in Germany
Avoiding payment of the required taxes by employers in Germany poses a significant risk to both the employer and their company, given the strictness of the federal government in this matter. This is especially crucial as it serves as the main source of income for the state in funding governmental expenses.
You should keep track of your taxes and the amounts required from you through a financial advisor who can assist you in understanding your obligations and fulfilling them legally, and by using a tax calculation software in Germany.
All of this will exempt you from paying German tax fines, which can amount to 50,000 euros and, in some cases, imprisonment, when the project owner delays payment of taxes within the specified time or fails to comply with them fully.
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How to register for Value Added Tax (VAT) in Germany
Individuals and companies in Germany are required to register for value-added tax (VAT) if their annual profits exceed the threshold set by the federal government and the European Union. This obligation applies to all residents in the Bavarian territory, whether they are citizens or expatriates, as long as they generate income within the country’s borders.
This tax is also applicable to individuals or entities who sell products within Germany or utilize German warehouses to sell their goods within the borders of the European Union.
You can register for Value Added Tax (VAT) in Germany through simple steps, as follows:
- Please proceed to the tax authorities to fill out the tax registration form.
- Please provide all the data and documents related to your company.
- Please provide evidence of your tax identification number.
- Specify the applicable tax system (general or simplified).
- Afterwards, you will be able to obtain your Value Added Tax (VAT) number.
After completing all the previous procedures, you must ensure to adhere to the correct deadlines for submitting the required tax declarations to avoid any future penalties.
Read also – The Tax Identification Number in Germany and the Difference between it and the Tax Identification Number.
Benefits of Registering for Value Added Tax (VAT)
Registering for Value Added Tax (VAT) in Germany is beneficial both for the registered individual and the state, as it enables you to access a wide range of benefits, including:
- You will receive official recognition from the government once you register your activity in the tax system.
- Registering for VAT entitles you to access government support and prescribed tax exemptions.
- You can achieve wide market penetration in the European market.
- You are exempt from any legal accountability and penalties for tax evasion in Germany.
- Once you register in the Value Added Tax (VAT) system, you will be able to engage with other companies legally.
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Registering with the tax office in Germany online
You can register for the Value Added Tax (VAT) and tax systems in Germany completely free of charge through the government’s official website.
You can also file your tax return in Germany online through the Electronic Tax Office (ELektronische Steuererklärung), and you can access it through this link.
Create an account on the website to be able to register for the Value Added Tax (VAT), corporate tax, and other required tax systems in Germany. Additionally, you can access the website to submit the necessary annual tax returns.
Make sure that you have entered all your personal information correctly when creating an account on the online platform of the German Tax Office. This includes the following data:
- Tax Identification Number.
- Electronic signature.
- Birth date.
- Username and password.
Please confirm your personal information and email address to obtain your digital signature, which will be instantly generated for you by the German Electronic Tax Office. You will use this signature for your transactions on the website.
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Frequently Asked Questions about Value Added Tax (VAT) in Germany
What is the tax system in Germany?
It is a system imposed by the German government and the European Union on anyone who engages in commercial activities and generates an annual income. Its purpose is to assist the state in funding governmental interests, education, and other expenditures.
What is the tax rate in Germany?
Tax rates vary depending on their type. For example, the value-added tax (VAT) in Germany is set at a rate of 19%, although it is reduced to only 7% for certain goods and services.