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Indirect tax snapshot
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Value Added Tax (VAT) is the main type of indirect taxation in Germany and in other European Union (EU) countries.
It is a tax on consumption, which is applied during the production and distribution process to most goods and services. It is also applied to goods, and certain services, entering the country. Although VAT is ultimately borne by the consumer by being included in the price paid, the responsibility for charging, collecting and paying it to the tax authority at each stage of the process generally rests with the business making the supply, ie the sale.
A business registered for the tax will charge VAT (output tax) on its sales, and incur VAT (input tax) on its purchases (including any VAT paid at importation). The difference between the output tax and the deductible input tax in each accounting period will be the amount of VAT payable by the business to the tax authority. Where the input tax exceeds the output tax, a refund can be claimed.
Taxable supplies on goods and services
A transaction is within the scope of German VAT, if the following conditions are met:
- it is a supply of goods or services. According to German law, a supply of goods is the transfer of the right to dispose of tangible property for consideration. Activities for consideration, which are not regarded as a supply of goods, are services
- it takes place in Germany
- it is made by a taxable person. For these purposes, a taxable person is a person or entity who practices commercial or professional activity independently and is registered for VAT, or has a liability to become registered
- it is made in the course or furtherance of any business carried on by that person or entity.
Generally VAT is due and accounted for at the end of the month in which the supply of goods is performed; as a general rule, the tax has to be calculated on the agreed consideration.
On application the competent local tax office can allow that an entrepreneur accounts for the VAT on basis of received consideration. The consideration receipts basis is a method available only to three groups of persons:
- entrepreneurs who’s total amount of supplies have not exceeded €600,000 in the previous calendar year
- entrepreneurs who are – by way of exemption according
§ 148 of the German Fiscal Code – not required to keep accounts and to make periodical financial statements on basis of annual inventories
- entrepreneurs who (and only as far as they) perform turnovers in an independent profession according § 18 (1) No. 1 of the German Income Tax Act (eg lawyers, tax advisors, engineers, architects, doctors etc.)
VAT rates and exemptions
There are two rates of VAT that are applied to goods and services in Germany; the standard rate and the reduced rate. In addition, some goods and services are exempted from the tax.
Businesses that make exempt supplies are, under certain circumstances, unable to claim all of the input tax that they incur, so the VAT paid to suppliers will be a ‘real’ cost. In relation to VAT exempt supplies, the supplier may opt for taxation under specific circumstances.
Most goods imported into Germany from outside the EU are subject to import VAT. The tax will have to be paid by the importer at the time of importation. Where the importation is for business purposes and the importer is registered for VAT, it may be possible to reclaim the tax (subject to certain rules).
Since 1 July 2021: the import VAT exemption for imported goods in consignments of low values (below €22) has been abolished.
It is also important to note the interaction between VAT and customs duty. Customs duty is levied across the EU at the place where goods are imported into the community. It is levied in order to bring the cost of goods produced outside the EU up to the same level as those produced within it. Once duty (and VAT) has been paid by the importer, the goods are in ‘free circulation’ and they can then be released for use in the home market. Unlike other indirect taxes, such as VAT, once duty has been paid it is not usually recoverable by the importer. It therefore represents a bottom line cost to the importing business if it cannot be passed on in higher prices. It is therefore very important to ensure that the correct rate of duty is applied. Import VAT is charged on the value of the importation, including any custom duty.
It is possible, subject to conditions, to defer the payment of the VAT until the 16th day of the month following the import. Taxpayers are entitled to the deduction of import VAT in the VAT declaration period, in which the goods are imported.
Since nearly all imports are processed via the electronic customs procedure called ATLAS, a print out from the customs will suffice to recover the import VAT (import duty assessment notice).
The person liable for customs duty on importation is also liable for VAT on importation. This is the person in whose name customs clearance has been applied for.
Generally a ‘person’ who either makes or intends to make taxable supplies of goods or services in the course or furtherance of a business must register for VAT.
Small business rule
If the value of its annual taxable supplies in Germany did not exceed € 22,000 in the preceding calendar year and is not expected to exceed €50,000 in the current calendar year and thus the ‘person’ is to be considered as a small entrepreneur, an obligation to register for VAT does not exist. The privilege for the small entrepreneurs only applies for businesses established in Germany. A small business can opt for VAT on a voluntary basis even if the registration limit has not been exceeded. The effect of the voluntary registration is an obligation to retain VAT on all supplies and services for the next five years.
For these purposes, a ‘person’ includes any legal entity. Therefore, once a person is registered for VAT, all of his business activities will be covered by the registration – even if the nature of some of those activities are very different.
In Germany there is no typical ‘Group registration’ like in the UK. However, in case a corporation is integrated into a business from a fiscal, economic and organizational point of view (so called Organschaft), it is not independent and has to comply with the parent’s directions. Effect is that both companies are taxed as one. Transactions between group members are not subject to VAT. Solely the controlling enterprise is taxed.
The place of supply for TBE (Telecommunication, Broadcasting and Electronically provided) services to non-entrepreneurs is where the service recipient is established. The result of this is that local VAT is chargeable at the applicable rate in each of the Member States in which TBE services are made (ie where the customer belongs).The only exception is if the service provider is seated in only one Member State and did not exceed the EU-wide turnover threshold of €10,000 for TBE services and intra-Community distance sales in the previous calendar year and will not exceed the threshold in the current calendar year.
If the threshold is exceeded, the business can use the One Stop Shop declare and pay the VAT due in only one Member State (see Intra-Community distance sales of goods).
The normal VAT registration limit does not apply to businesses who are not established in Germany, but for the purposes of the tax, are making taxable supplies there. Those businesses will need to register for VAT as soon as they commence trading in Germany, irrespective of the level of turnover.
In case of intra-Community acquisitions, if the volume of the intra-Community acquisitions did not exceed €12,500 in the preceding and will not exceed €12,500 in the current calendar year, the purchaser will be treated as a private person, ie the sales are taxed in the country they were sold, if the purchaser is:
- an entrepreneur, who performs only tax exempt sales
- a small entrepreneur
Intra-Community distance sales of goods
Since 1 July 2021: An intra-Community distance sale is the supply of a good that is directly or indirectly transported or dispatched on behalf of the supplier from the territory of one Member State to an acquirer in the territory of another Member State.These acquirersare not registered or liable to be registered for VAT. Theyare known as non-taxable persons, and include private individuals and businesses and other organizations that are not registered for VAT (either because of their size, or the fact that they are exempt from having to register due to the nature of their activities).
The common examples of distance sales are goods supplied by mail order and via the internet. For intra-Community distance sales of goods, the place of supply is where the good is located at the end of the dispatch or transport to the acquirer. Only in cases where a supplier is registered in one single Member State and does not exceed the EU-wide turnover threshold of €10,000 for intra-Community distance sales of goods and TBE services nor waive its application, is the place of supply deemed to be where the transport or dispatch of the good began.
If a supplier performs intra-Community distance sales of goods in Germany and exceeds the EU-wide turnover threshold:
- the supplier becomes liable to register for VAT in Germany
- Germany becomes the place of supply
- any further sales to customers in Germany are subject to German
- suppliers can choose to make Germany the place where the goods are supplied by registering for VAT voluntarily before the threshold is reached.
Supplier that performs intra-Community distance sales of goods in several EU countries have the possibility to register for the OSS (One Stop Shop). This scheme allows a supplier to declare and pay for all VAT due for intra-Community distance sales of goods in only one Member State. In Germany, the the Federal Tax Office (Bundeszentralamt für Steuern) is competent for OSS matters. The OSS can also be used to declare and pay the VAT due for services provided to non-entrepreneurs and is open to both by EU and non-EU companies. The VAT return needs to be filed and submitted electronically within a month after the end of the taxable period.
Please refer to E-Services and Intra-Community distance sales of goods for the use of the OSS.
Since 1 July 2021, a business (for example an online marketplace) that facilitates two certain types of supplies of goods through its electronic interface is treated as if it bought the good from the underlying supplier and supplied the good to the final customer itself. The two kinds of supplies covered by the new rules are:
- the supply of a good, where the transport or dispatch begins and ends within the EU, by a business not established in the EU to a recipient according to Sec. 3a Par. 5 S. 1 German VAT Act (mostly private customers)
- the distance sale of a good imported from non EU-territories or third countries in consignments of a material value not exceeding 150 EUR.
Through the new rules, a fictious chain transaction is being created for VAT purposes and the supply between the operator of the electronic interface and the final customer is always deemed to be the supply with transport. As a result, new VAT liabilities emerge for the business operating an electronic interface. Depending on the structure of the fictious chain transaction, tax liabilities in EU Member Statesother than the country of establishment can result.
A new-established business is allowed to appoint a fiscal representative but does not have to.
Monthly VAT return
As a general rule, VAT returns have to be filed quarterly. As an exception, VAT returns have to be filed monthly (if certain thresholds are met) or annually.
Late filing of VAT returns may result in additional assessments and penalties. The payment must be received by the VAT authorities on time. If no payment has been received on time, late payment surcharges will be fixed.
Returns are normally prepared for a one month period. They are due for submission within ten days of the period end. The period of ten days can be extended on application for another month if prepaying 1/11 of VAT of previous calendar year (will be repaid/ offset in the December return). The filing of VAT returns should only take place electronically. The electronic VAT return has to be prepared on the basis of special software, which is available from the tax authorities.
If the VAT return for the previous calendar year does not exceed
€7,500, then the VAT return generally must be prepared on a three month period (calendar quarter). They are due for submission within ten days of the periods end. The period of ten days can be extended on application for another month.
If the VAT amount for the previous calendar year does not exceed
€1,000, the taxable person must then only submit an annual VAT return.
In case of new-registered companies the VAT returns have to be prepared monthly in the first two years, notwithstanding what the real VAT amount is.
Annual VAT return
Generally annual VAT returns must be submitted to the competent local tax office by 31 Julyof the following calendar year. However, for taxable persons who have appointed a tax advisor the deadline for submitting is in general automatically extended to the last day of February of the following calendar year.
VAT returns which are filed late can be fined maximum €25,000. When assessing the late penalty surcharge, the extent and frequency of the delay as well as the tax amount are taken into consideration.
Late payments are subject to a surcharge of 1% of the tax to be paid for every month during the period the delay continues. Interest is due from the beginning of the fifteenth month after the end of the calendar year in which the taxable event occurred. The interest is calculated at 0.5% per month. In cases of tax evasion additional interest is possible from the beginning.
Further late or non-payments are seen as offences which could be punished up to €100,000 and in serious cases a higher fine at the discretion of the court or imprisonment of up to ten years. Penalties can be appealed if there is reasonable excuse.
If a tax return is found to be incorrect it must be corrected immediately by filing an amended tax return. Penalties may arise according the general rules (see above).
EC sales lists which are submitted late can be fined up to 5,000 per declaration. In addition this could be seen as an offence punished up to €5,000. Finally the Federal tax office could fix fines to force the taxpayer to submit the forms up to €25,000.
If an Intrastat report is not filed or filed late a penalty of up to
€5,000 per declaration can be implemented.
Businesses that are registered for VAT in Germany, and make supplies of goods or services to traders registered for the tax in other EU countries are required to complete and submit EC Sales Lists (ESLs). The ESLs must show details of the recipients of the goods and services.
Generally, where the value of goods supplied to businesses in other EU member states exceeds €50,000 in the current or four previous quarters, the ESLs must be submitted each calendar month. Otherwise the document for goods is submitted for each calendar quarter. The ESL must be submitted no later than 25 days after the end of the reporting period. As of 1 January 2020, an intra-Community supply is not tax-exempt if the company obliged to declare has not fulfilled its duty to declare or has declared the respective supply incorrectly or incompletely in the ESL.
ESLs for services should be submitted for each calendar quarter.
In addition, if the value of the intra-EU trade in goods dispatched or arriving from other EU is above an annual threshold of 500,000 respectively 800,000 (for arrivals as of 1/1/2016), a supplementary declaration (referred to as an Intrastat declaration) has to be submitted for either or both. These declarations have to be submitted on a monthly basis if such transactions incur.
Yes. A range of penalties can be imposed where businesses do not comply with general rules.
Penalties can also be applied for example where the business has failed to maintain adequate records or provide information.
Criminal proceedings may be brought in the case of more serious matters.
Yes, it may be possible to reclaim the VAT incurred in certain circumstances.
Two schemes exist, one for businesses established in the EU and another for businesses established elsewhere.
VAT-refund procedure for European-businesses
The EU cross border refund scheme is available in all EU member states, and enables a business established in an EU country to recover VAT incurred in another member state. To be eligible to make a claim, the claimant must be a taxable person established in an EU member state other than the one from which the claim is to be sought. In addition, the claimant:
- must not be registered, liable, or eligible to be registered in the member state from which he is claiming the refund
- must have no fixed establishment, seat of economic activity, place of business or other residence there
- during the refund period he must not have supplied any goods or services in the member state of refund, apart from certain limited exceptions.
The amount that is refundable is determined by the deduction rules that apply in the country making the refund. The claim is submitted electronically to the tax authority in the country of establishment of the claimant.
The refund period must not cover more than one calendar year or less than three calendar months – unless it is covering the remainder of a calendar year. The claim has to be made by
30 September of the year following that in which the VAT was incurred.
VAT-refund procedure for non-European-business Businesses established outside of the EU can, subject to certain conditions, also reclaim the VAT incurred on imports into
Germany or purchases of goods and services used in Germany. The scheme is available to any person carrying on a business established in a third country, ie outside the EU, provided that in the period of the claim:
- they were not registered or liable to be registered for VAT in Germany
- they were not established in any EU country
- they made no supplies of goods and services in Germany
- where they are established in a third country having a comparable system of turnover taxes, that country provides reciprocal arrangements for refunds to be made to taxable persons established in Germany.
Claim forms have to be submitted to the Bundeszentralamt für Steuern no later than six months from the end of the relevant designated year, ie by 30 June each year.
A VAT invoice must show:
- an invoice number which is unique and sequential
- the seller’s name and address
- the seller’s tax registration number or VAT ID Number
- the recipients VAT ID Number (in case of specific cross border supplies)
- the invoice date
- the time of supply (also known as tax point) if this is different from the invoice date
- the customer’s name and address
- a description sufficient to identify the goods or services supplied to the customer and the quantity of goods or the extent of the services
- the tax base with regard to each tax rate applicable or tax exemption
- the rate of any cash discount
- the tax rate
- the total amount of VAT charged
- indication of the application of the reverse-charge- mechanism (if applicable).
Where a VAT invoice includes exempt goods or services, it must show the reason for the tax exemption.
Where a business makes a sale of goods or services for €250 or less including VAT, a simplified VAT invoice can be issued.
VAT invoices can be issued, received and stored in an electronic format and there is no need to tell the tax authority. Electronic invoices must contain the same information as paper invoices. The method used to ensure the authenticity of origin, the integrity of content and legibility of the invoices is a business choice and can be achieved by any business controls which create a reliable audit trail between an invoice and a supply of goods or services.
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