Value Added Tax in Germany
In contrast to personal taxes, value-added tax (VAT) is levied on transactions. In general, it is charged on any goods or services provided by a business to a third party. The value-added tax has to be borne by the end consumer. However for administration purposes the value-added tax is owed by the entrepreneur.
The current standard VAT rate in Germany is 19%.
There is also a reduced VAT rate of 7% for e.g. newspapers, food.
All EU-member countries agreed in the past to introduce a uniform VAT system within the member countries. The currently used VAT system in Germany reflects in large portions this common VAT system.
In case of selling products/services to another entrepreneur, VAT is imposed on the price of the product/service. For the buyer, the paid VAT is refundable in the same amount by the German tax authorities if the buyer is an entrepreneur. In case the buyer is not an entrepreneur the VAT is not refundable. That system ensures that only the final non-entrepreneur customer shall be burdened once by VAT.
In the European Union sales of goods by an entrepreneur to another EU-entrepreneur for use in business and delivered/picked up from/in one EU-country to another, is non-taxable in the originating country. Instead, the other EU-entrepreneur is liable for VAT in the destination country of the goods and can also claim for a VAT refund in that country.
Sales to non-EU countries are VAT exempt in Germany (only transactions between entrepreneurs). Under certain conditions, paid VAT by the non-EU-seller is refundable with the German tax authorities.
The sale of goods from entrepreneurs located in non-EU countries to Germany is subject to import-VAT at the time of crossing the border to the EU. The recipient can only claim a VAT refund in case he is an entrepreneur and the imported goods are declared in his name. If the seller imports the goods in his own name only he can claim for refund of the VAT which is time consuming and partly does not work (depending on the country of the seller). In addition this may lead to domestic sales in Germany which are subject to German VAT and maybe to a permanent establishment (warehouse) in Germany with double taxation problems.
Please note that for telecommunication and Internet-services within the EU special VAT regulations are applicable.
For further information, please feel free to contact our VAT experts:
Audit Partner Richard Hempe
CPA and Tax Consultant
Tel.: 089 - 54 70 90 - 0