EY
Rothenbaumchaussee 78 20148 Hamburg Germany
Indirect tax contact
Peter Schilling
Munich (München)
EY
Arnulfstrasse 59 80636 Munich Germany
Indirect tax contacts
Martin Robisch
Janina Habla
Stuttgart
EY
Flughafenstraße 61
70629 Stuttgart Germany
Indirect tax contact
Klaus Trejo
A. At a glance
Name of the tax
Local name
+49 (40) 36132-21262 peter.schilling@de.ey.com
+49 (89) 14331-15306
martin.robisch@de.ey.com
+49 (89) 14331-29545 janina.habla@de.ey.com
+49 (711) 9881-16859
klaus.trejo@de.ey.com
Value-added tax (VAT)
Umsatzsteuer/Mehrwertsteuer (USt/MwSt)
Date introduced 1 January 1968
Trading bloc membership European Union (EU)
Administered by German Federal Ministry of Finance (http://www.bundesfinanzministerium.de)
Ministries of the Federal States
VAT
Other
VAT number format
Business ID-number
Zero-rated (0%) and exempt
DE123456789 (DE+9 digits)
DE123456789-0001 (DE+9 digits+ 5 digits)
VAT return periods Monthly, quarterly and annually
Thresholds
Registration
Established None
Non-established None
Distance selling
Intra-Community acquisitions
Electronically supplied services
EUR10,000
EUR12,500
EUR10,000
Recovery of VAT by non-established businesses Yes, subject to certain conditions
B. Scope of the tax
VAT applies to the following transactions:
• The supply of goods or services made in Germany by a taxable person
• The intra-Community acquisition of goods from another European Union (EU) Member State by a taxable person (see the EU chapter)
• Reverse-charge supplies, including supplies of services and supplies of goods with installation services
• The self-supply of goods and services by a taxable person
• The importation of goods from outside the EU, regardless of the status of the importer
For VAT purposes, the territory of Germany does not include the Island of Heligoland, the territory of Buesingen and a free zone of control type I, as defined in Article 1 (1), first sentence of the Customs Administrative Act; this mainly covers the free ports of Bremerhaven and Cuxhaven, as well as certain other special territories.
Services rendered for foreign businesses are taxable in their home countries instead of Germany.
Quick Fixes. Pending introduction of a “definitive” system for the VAT treatment of intra-Community supplies of goods to taxable persons, the EU has adopted Quick Fixes for intra-Community trade in goods. For an overview of Quick Fixes rules, see the EU chapter. For documentary requirements see Section H. Invoicing, subsection Proof of exports and intra-Community supplies.
In Germany, the Quick Fixes have been implemented as of 1 January 2020. These include regulations regarding consignment stock, chain supply, intra-Community supply and its documentation. Documentation of intra-Community supplies according to Quick Fixes is required in addition to those under national regulations. In Germany, the rules on chain supplies are broader than the EU law. They also include the allocation of the moved/unmoved supply for local and export sales, as well as chain supplies where the transport is arranged by the first or last party of the supply chain.
Effective use and enjoyment. To avoid instances of non-taxation or double taxation, EU Member States can apply use and enjoyment rules that allow a service that is “used and enjoyed” in the EU to be taxed or prevent a service that is “used and enjoyed” outside the EU from being taxed. If a service is taxed in the EU under the use and enjoyment provisions, a non-EU supplier of the service may be required to register for VAT in every Member State where it has customers that are not taxable persons. For information regarding the rules relating to VAT registration, see the chapters on the respective countries of the EU.
In Germany, the following services are subject to the “use and enjoyment” provisions:
• Freight transport services and other similar transport services of objects
• Work on movable objects
• Certain travel services (Reisevorleistung)
• Services in connection with exhibitions and events
• Hire of means of transport
Group registration. Germany allows group registration for subsidiaries that are “financially, economically and organizationally integrated” into the business of a parent entity. The following general conditions apply:
• The parent (or controlling) member of the VAT group may be any type of legal entity, including a corporation, a general partnership or a sole entrepreneur (natural person). However, it must carry out taxable activities to be able to act as the parent company of the VAT group.
• A subsidiary (or controlled) member of a VAT group must be a corporation or a general partnership. A sole entrepreneur (i.e., a natural person) is ruled out as a controlled member. National jurisdiction has positively admitted general partnerships only if they fulfill additional certain requirements, though. A decree of the tax authorities mainly – if not entirely – follows the rulings regarding the requirements for admitting a general partnership. The European Court of Justice (ECJ) (C-868/19, 15 April 2021) ruled that the certain tighter requirements for general partnerships in Germany (compared to the regular requirements to corporations) are not in line with the EU Directive. At the time of preparing this chapter, the national jurisdiction reacted only partially to this ruling (Federal Fiscal Court, V R 14/21 (V R 45/19). The tax authorities have not reacted to the ECJ’s ruling.
The VAT authorities apply the following criteria to determine whether entities are eligible for integration:
• “Financial integration” means, according to rulings of the national jurisdiction and national tax authorities’ opinion, that the parent has the majority of voting rights in the subsidiaries. The ECJ has ruled, however, that financial integration does not require the majority of voting rights. Instead, the majority of shares is sufficient as long as the parent is able to enforce its will (ECJ, C-141/20, 1 December 2022). For a general partnership, national jurisdiction and tax authorities require that the parent holds all its shares (directly and/or indirectly). The ECJ disputed that (see above).
• “Economic integration” means that the subsidiaries act like departments of one entity or like divisions with respect to the overall business of the group.
• “Organizational integration” exists if the parent has the means to exercise management power in the subsidiaries. For example, this requirement is met if the parent and the subsidiary have the same person acting as the Managing Director, whereas legislation requires this person to be employed at the parent and not at the subsidiary.
If the integration conditions are met, the subsidiaries and the parent are automatically treated as a group for VAT purposes. The effect of grouping is that the subsidiary is no longer considered to be an entrepreneur or separate taxable person. As a result, intragroup transactions are outside the scope of VAT and accordingly, no VAT is charged. The subsidiary is no longer required to file separate VAT returns, and its transactions are reported through the parent’s VAT return. These effects apply only to domestic supplies between the group entities (that is, supplies within the scope of German VAT). In addition, the effects of the VAT grouping are limited to Germany.
VAT grouping does not apply to certain intra-Community compliance obligations. Each subsidiary must have its own separate VAT Identification Number and must file its own European Sales List, if it carries out intra-Community supplies. Intrastat returns may be filed either on an aggregate group basis by the parent or by each subsidiary separately.
Generally, the representative member is liable for VAT debts and penalties. However, other VAT group members can be held liable partially.
There is no minimum time required for the duration of a VAT group.
Holding companies. In Germany, a pure holding company cannot be a member of a VAT group. This is because a pure holding company does not qualify as a taxable person. They might, however, serve as link to established financial integration between their parent company and their subsidiaries.
Cost-sharing exemption. The VAT cost-sharing exemption, in accordance with VAT Directive 2006/112/EEC Article 132(1)(f), has been implemented in Germany. This provides an option to exempt support services that the cost-sharing group supplies to its members, providing certain conditions are met (in accordance with specific requirements laid out in German VAT law).
Fixed establishment. A legal definition of a fixed establishment for VAT purposes does not exist in Germany. It requires a facility or other fixed place, which is equipped with a minimum of personnel and assets to provide the respective services/supplies.
Non-established businesses. A “non-established business” is a business that has no fixed establishment in Germany. A non-established business is not required to register for German VAT if all its supplies are covered by the reverse-charge procedure (under which the recipient of the supply must self-assess VAT). The reverse-charge procedure applies to most services. It does not apply to supplies of goods located in Germany (except supplies of installed goods) or to supplies of goods or services made to private persons. In principle, if the reverse charge does not apply, a non-established business must register for German VAT. As such, no threshold applies for nonestablished businesses.
Tax representatives. In principle, a non-established business that is required to register for VAT in Germany may not appoint a tax representative. A tax representative may be appointed only if the non-established business does not have any German VAT to reclaim and exclusively makes supplies that are either exempt from German VAT or exempt with credit.
Reverse charge. Applying the reverse-charge mechanism shifts the liability for payment of the tax from the supplier to the recipient of the supply. The recipient must self-assess the VAT due.
The recipient is allowed to reclaim the reported VAT in the same preliminary VAT return as input tax to the extent it is allowed for input tax deduction. The supplier must issue invoices without German VAT. Therefore, the taxable person only invoices the net amount. Furthermore, it is mandatory for the entrepreneur to state on the invoice that the reverse charge applies and the recipient is liable for German VAT with the following phrase: “Steuerschuldnerschaft des Leistungsempfängers” or “Transactions subject to reverse-charge mechanism.”
Domestic reverse charge. The reverse-charge procedure applies in principle to the following supplies and services (if further criteria are met):
• Supplies of services performed by entrepreneurs based in other EU Member States or third states to a German-based taxable person
• Services and the supply of goods with installation provided by non-established businesses
• Certain supplies in connection with immovable property
• Certain supplies in connection with the real estate transfer tax law
• Certain supplies of gas and electricity and emission certificates
• Goods supplied as part of the execution of security outside of an insolvency procedure
• Supply of rights to emit greenhouse gases and of gas and electricity certificates
• Certain supplies of heat and cooling
• Supply of scrap and discarded metal as defined by a special annex
• Facility cleaning under certain conditions
• Supplies of integrated circuits, mobile phones, tablet computers and games consoles for a remuneration of EUR5,000 or more
• Supplies of base metals as defined by a special annex
• Telecommunication services
The reverse-charge procedure does not apply to certain supplies of passenger transportation or to services with respect to fairs or exhibitions.
Digital economy. Specific VAT rules apply to cross-border supplies of goods and services sold via the internet (e-commerce) in all EU Member States with effect from 1 July 2021. These new rules
For more details about the rules for online marketplaces, see the EU chapter. Vouchers. In Germany, the rendering of a single-purpose voucher (SPV) is taxed at the VAT rate of the supply itself. In that case the actual supply/service is not taxed. The rendering of a multipurpose voucher (MPV) is not taxed. Instead, the supply/service paid with that voucher is taxed regularly (i.e., the voucher is taxed on redemption). The voucher classifies as SPV if the place of supply as well as the VAT amount are already certain upon issuing of the voucher.
Registration procedures. There is no VAT registration threshold in Germany. All taxable persons that carry out taxable transactions in Germany that are subject to German VAT must register for VAT purposes in Germany. It normally takes four to six weeks to obtain a (general) tax number from the responsible local tax authority. The entrepreneur may apply for a VAT ID number for intra-Community transactions or services supplied from the Federal Central Office for Taxes (Bundeszentralamt für Steuern).
From November 2024 onward, the BZSt will issue Business Identification Numbers (W-IdNr.). It will be used for local tax purposes and other business purposes. Use of the W-IdNr. is not mandatory before 1 January 2027.
The entrepreneur can apply for the (general) tax number at the responsible local tax authority by explaining in writing why they need to register for VAT in Germany. No special form is required, but the entrepreneur generally must complete a questionnaire issued by the relevant local tax authority. Furthermore, they must submit a certification of status of taxable person as well as an excerpt from their local trade register. Online registration is not possible. To obtain the VAT ID number, a separate application is required to be submitted to the Federal Central Office for Taxes (Bundeszentralamt für Steuern).
Deregistration. There is no special procedure or form required to deregister. The entrepreneur informs the tax office and states the reason for the deregistration.
Changes to VAT registration details. A taxable person must report changes to its VAT registration details to the tax authorities without any undue delay. No fixed deadline exists for such notifications. However, any delay that hampers the duly taxation might trigger penalties or might even be regarded as fraudulent behavior.
D. Rates
The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT.
The VAT rates are:
• Standard rate: 19%
• Reduced rate: 7%
• Zero-rate: 0%
The standard rate of VAT applies to all supplies of goods or services, unless a specific provision allows a reduced rate or exemption.
Some supplies are classified as “exempt-with-credit” (i.e., zero-rated), which means that no VAT is chargeable, but the supplier may recover related input tax. Exempt with credit supplies include exports of goods outside the EU and related services, and intra-Community supplies of goods. Examples of goods and services taxable at 7%
• (e-)Books and (e-)newspapers
• Cultural services
• Food
• Passenger transport (under certain conditions)
• Agricultural products
The time limit for a taxable person to reclaim input tax in Germany is the period to which the input tax is allocated. Input tax must be claimed for the period to which it is allocated. Retroactively this is only possible if the tax assessment for the respective period can still be procedurally amended. Input tax includes VAT charged on goods and services supplied in Germany, VAT paid on imports of goods and VAT self-assessed on the intra-Community acquisition of goods (see the EU chapter) and VAT on purchases of goods and services taxed under the reverse-charge procedure.
A valid tax invoice or customs document must generally accompany a claim for input tax. A tax invoice that is not fulfilling all formal requirements may be corrected/amended retroactively under certain conditions.
Nondeductible input tax. Input tax may not be recovered on purchases of goods and services that are not used for business purposes (for example, goods acquired for private use). The following specific rules apply in Germany to the input tax deduction:
• The 10% rule. If an asset is used for less than 10% business purposes, no input tax recovery is allowed. This rule applies to all assets.
• Private use. For corporations (for example, a GmbH or an AG) that are taxable persons, any purchase of goods or services is treated as being made for business purposes. Consequently, input tax recovery is allowed in full (if used for taxable output services or supplies). If the goods or services are used for private purposes, the legal entity is deemed to make a supply of goods or services and output tax is due. However, if the taxable person already intends to use the goods or services for private purposes when it acquires them, the legislation does not grant input tax recovery. Consequently, no output tax is due upon use for private purposes.
• Luxury goods and services. Input tax may not be deducted for some items of business expenditure. In general, if an item of expense is allowable for German income tax purposes, the input tax may be deducted.
The following lists provide some examples of items of expenditure for which input tax is not deductible and examples of items for which input tax is deductible if the expenditure is related to a taxable business use.
Examples of items for which input tax is nondeductible
• Business gifts (if valued over either EUR50 or EUR60, depending on the recipient)
• Employees’ home telephone bills and private mobile telephone bills
Examples of items for which input tax is deductible (if related to a taxable business use)
• Hotel accommodation
• Restaurant meals for employees on business trips
• 100% purchase, lease or hire of cars by corporations, partnerships or sole proprietors (with VAT chargeable on employee private use)
• Advertising
• Books
• Transport services
Partial exemption. Input tax directly related to making exempt supplies is generally not recoverable. If a German taxable person makes both exempt and taxable supplies, it may not recover input tax in full. This situation is referred to as “partial exemption.” Note “exempt with credit” supplies are treated as taxable supplies for these purposes.
The amount of VAT recoverable is calculated using the following two-stage calculation:
• The first stage identifies the input tax that may be directly allocated to taxable and to exempt supplies. Input tax directly allocated to taxable supplies is fully deductible. Input tax directly related to exempt supplies is entirely not deductible (exceptions apply).
• The second stage identifies the amount of the remaining input tax (for example, business overheads) that may be allocated to taxable supplies and recovered.
Approval from the tax authorities is not required to use the partial exemption standard method in Germany. Special methods are not allowed in Germany.
Capital goods. Capital goods are items of capital expenditure that are used in a business over several years. Input tax is deducted in the VAT year in which the goods are acquired. The amount of input tax recovered depends on the taxable person’s (partial exemption) recovery position in the VAT year of acquisition. However, the amount of input tax recovered for capital goods must be adjusted over time, if the taxable person’s partial exemption recovery percentage deviates from the intended use during the adjustment period.
In Germany, the capital goods adjustment applies to the following assets for the number of years indicated:
• Land and buildings (adjusted for a period of 10 years)
• Other assets (adjusted for a period of five years)
The adjustment is applied each year following the year of acquisition, to a fraction of the total input tax (1/10 for land and buildings and 1/5 for movable capital assets). The adjustment may result in either an increase or a decrease of deductible input tax, depending on whether the ratio of taxable supplies made by the business has increased or decreased compared with the year in which the capital goods were acquired. This provision also applies to current assets and services.
For goods that are used only once, the adjustment takes place at the time the transaction (for example, their resale) is carried out. No adjustment period applies.
The initial input tax deduction for services that are not performed on goods but that are used for transactions within the scope of VAT (for example, software licenses, cleaning services, consulting services for a business concept and prepayments for long-term leasing) must be adjusted to the extent that the initial deduction ratio changes.
For goods that are integrated in other goods and for services performed on goods, the capital goods scheme applies in the same way; that is, the additional supply has its own capital-goods adjustment scheme, but the adjustment period is the same as the period that applies to the basic good (for example, if new windows are added to a house, the adjustment period for the windows begins with their first use and the adjustment period lasts 10 years, because the windows become part of the immovable property).
No adjustment need be made in the following situations:
• The total input tax on the purchase or the production cost of the goods or service is less than EUR1,000.
• The correction amount for the year does not exceed EUR1,000, and the adjustment is less than 10%.
Refunds. If the amount of input tax recoverable in a monthly period exceeds the amount of output tax payable in that period, the taxable person has an input tax credit. The credit is generally refunded. Exceptionally, the tax authorities may make the refund conditional on the taxable person making a deposit (for example, a bank guarantee) that is subsequently refunded.
Pre-registration costs. Input tax on costs incurred before registration is deductible. No special rules apply. Status as a taxable person does not depend on registration. However, recovery of input tax on such costs requires (retroactive) registration.
Bad debts. A taxable person is entitled to recover any VAT already accounted to the tax authorities in respect of unpaid debts. VAT on a bad debt is recovered at the VAT rate that was applied to the original transaction.
For the EU VAT in the Digital Age (ViDA) proposals, refer to the EU chapter.
Simplified VAT invoices. A Simplified VAT invoicing scheme is available in Germany for invoices with a gross amount not exceeding EUR250. For such invoices, reduced formal requirements apply. In general, only the name and address of supplier, date of invoice, description and quantity of rendered supply/service, gross amount and tax rate must be stated.
Self-billing. Self-billing is allowed in Germany. A self-billed invoice must state “Gutschrift” “Selfbilling” or the respective word in other languages as stated in the VAT Directive. Self-billing must be agreed in advance between the supplier and customer before the first self-billed invoice is issued. No special form for the agreement is required. Nonetheless, a written agreement is favorable. A self-billed invoice becomes invalid upon the supplier’s veto.
Proof of exports and intra-Community supplies. VAT is not chargeable on supplies of exported goods or on the intra-Community supply of goods (see the EU chapter). However, to qualify as VAT-free, exports and intra-Community supplies must be supported by evidence that proves the goods have left Germany.
The Automated Tariff and Local Customs Clearance System (ATLAS) proof of export is the standard documentary proof. Alternative proof, such as bills of lading, airway bills or freight forwarder certificates, is accepted if an export has not been declared in the electronic ATLAS procedure, or in special cases, the electronic export procedure could not be completed as required.
For intra-Community supplies, the standard proof – the so-called Gelangensbestätigung (confirmation of arrival) – is required. The confirmation must contain the following information:
• The name and address of the customer
• The amount and customary description of the supplied goods
• In the case of transport by the supplier or on behalf of the supplier or customer, the place and date of receipt of the delivered goods in another EU Member State
• In the case of transport by the customer, the date and place of the end of the transport in another EU Member State
Other types of proof are allowed. However, the tax authorities are more likely to challenge alternative proofs than to challenge the Gelangensbestätigung.
No special documentation applies in Germany for evidencing the application of the Quick Fixes. Normal intra-Community documentation rules apply (the so-called Gelangensbestätigung). However, from 1 January 2020, proofs as stated in the VAT Directive as amended under the “Quick Fixes” scheme are recognized in addition to the proofs stipulated by national law. See the Quick Fixes subsection above for more detail.
Foreign currency invoices. If a German VAT invoice is issued in a foreign currency, the value must be converted to the domestic currency, which is the euro (EUR) using an official exchange rate. The following conversion rates may be applied:
• The actual bank-selling rate for the date of the supply (not the date of the invoice) (see Section E. Time of supply above). The rate used must be evidenced by documentation issued by the bank (this must be allowed by the German tax authorities).
• The average monthly exchange rates published by the Federal Ministry of Finance shortly after the end of the month.
German law provides that the use of the official Ministry of Finance rates is the standard method of currency conversion for VAT purposes. Alternatively, the tax authorities may accept the use of bank selling rates by a taxable person. However, neither the law nor any official guidelines specify how this acceptance is to be achieved. In addition, no formal obligation to ask for approval exists. In practice, many companies simply use bank selling rates, while others inform their tax office in advance and ask for acceptance.
the taxable person receives by registering on the ELSTER Online-Portal (http://www.elsterformular.de/).
Following the successful transmission of data, the transmission protocol needs to be retained for the taxable person’s files to fulfill the documentation requirements of Sec. 147 AO (Abgabenordnung, the German Fiscal Code).
Payments on account. Payments on account are generally not required in Germany, except for certain taxable persons. As the regular filing deadline is relatively short, the VAT authorities allow a permanent, one-month filing and payment extension on a written application. However, taxable persons who must submit monthly preliminary VAT returns must pay a special prepayment equal to 1/11th of the preceding year’s VAT liability by the due date. This special prepayment is deducted from the VAT payable in the preliminary VAT return submitted for the month of December. Taxable persons that file returns on a quarterly basis are not required to make a special prepayment when they apply for a permanent filing extension.
Special schemes. Secondhand goods. A special scheme applies to supplies of secondhand goods, e.g., if a commercial car dealer acquires a car from a private person. If a taxable person sells goods or services he previously purchased for taxable purposes in his business, he must charge VAT on the resale of such goods or services.
Tour Operator’s Margin Scheme. A special scheme also applies for EU-based tour operators, the Tour Operator’s Margin Scheme (TOMS). On 1 December 2021, the German Federal Ministry of Finance declared via a decree that non-EU travel operators will no longer be subject to TOMS from 1 January 2023. The transitional period has been extended. As such, for non-EU tour operators, the TOMS is granted until 31 December 2026.
Cash accounting. Small businesses with a taxable turnover of not more than EUR800,000 in the prior year may account for VAT on a cash basis (Istbesteuerung). The same applies to small businesses that have been exempted from the obligation to keep books and records (Article 148 of the Fiscal Code) as well as to freelancers mentioned in Article 18(1)(1) of the Income Tax Act. This method of VAT calculation must be approved by the tax office.
Farmers and foresters. Not a special scheme as such, but for farmers and foresters special tax rates apply.
Annual returns. All taxable persons must file an annual VAT return by 31 July of the year following the end of the VAT year. If a German tax advisor is engaged to prepare the VAT returns, the filing deadline is the end of February of the second year after the end of VAT year. Because of the COVID-19 pandemic, various extensions apply for the tax years 2020 and 2023 and – if a German tax advisor is engaged – for 2024.
Essentially, the annual return must contain the same information that is required to be stated in the monthly preliminary returns, but on an annual and partially more detailed basis. Annual tax returns must be filed electronically.
Supplementary filings. Intrastat. A taxable person that trades with other EU countries must complete statistical reports, known as Intrastat, if the value of its sales or purchases exceeds certain thresholds. Separate reports are used for intra-Community acquisitions (Intrastat Arrivals) and intra-Community supplies (Intrastat Dispatches). Apart from deemed intra-Community supplies, any movement of goods to or from other Member States is also subject to Intrastat reporting (for example, goods sent for repair).
The threshold for Intrastat Arrivals in 2024 is EUR800,000. The threshold for Intrastat Dispatches in 2024 is EUR500,000.