The prices of all goods and services in Germany are calculated to include value added tax (VAT), or Umsatzeuer (USt), paid by the consumer. This revenue is then passed on to the German Federal Central Tax Office, the German tax authority, on a regular basis – every month, every quarter or every year, depending on the turnover of the company.
A VAT rate of either 7% or 19% is due for German businesses, slightly less than elsewhere in Europe. The lower rate of 7% is paid on everyday consumer goods and services, like food, newspapers, local public transport, and overnight accommodation, while financial, medical and certain other services traded between EU member states are entirely exempt from the levy.
Input VAT (Vorsteuerabzug)
VAT is often also due on the products and services purchased, as well as sold, by a German company. This is known as input VAT.
Trading with EU businesses
Germany’s membership of the EU and the single market mean that German businesses can trade throughout most of Europe without being subject to customs and other restrictions. There is, however, an “acquisition tax” applied to goods traded between EU member states which is payable by the receiving company. The providing company, meanwhile, is exempt from both customs duties and VAT. Acquisition taxes are calculated based on the VAT rate in the recipient country, although companies are able to reclaim this amount in a similar manner to VAT.
Trading with non-EU businesses
Goods purchased from outside the single market attract an import VAT tax known as (Einfuhrumsatzsteuer). This will be payable at the same rate as VAT – either 7% or 19% depending on the nature of the goods purchased – but can be deducted as input tax (Vorsteuer). All companies importing goods and services and outside the EU must be sure to secure the correct import documents and proof of payment of customs duties (known as an import declaration), at the outset of the transaction. Exports, on the other hand, are not liable for VAT at all.
The intricacies of German VAT rules can be difficult to navigate. Entrepreneurs and companies seeking to trade in Germany should consult a professional tax adviser with an expert working knowledge of the subject before starting out. The German Association of Tax Advisers can help you find one. You can also find more information on the websites of the German Federal Central Tax Office and the European Commission.