Germany draws up its rules according to laws or directives issued from Brussels by the EU. The current VAT directive applies to all 28 member states of the European Union, and it governs the rules on VAT compliance, and in some part, covers the setting of VAT rates. However, the standard German VAT rate, currently 19%, is still set by the German state. There is also a reduced rate of 7% for foodstuffs, books, medical, passenger transport, newspapers, admission to cultural and entertainment events and hotels. If there is a conflict between the German VAT law and the EU VAT directives, then the EU rules prevail.
German VAT law
The German VAT law, based on the EU VAT directive, is contained within the Value Added Tax Act of 1980 – ‘Umsatzsteuergesetz’ (UStG). This has been revised several times since its inception. German tax law is implemented by the Federal Parliament. However, it is administered by the 16 federal states (Bundesländer).
German VAT registration
Both EU and non-EU businesses may trade in Germany without establishing a local presence. This is known as non-resident VAT trading. There is no VAT threshold in Germany for registration of non-resident traders; a VAT number must be in place before the commencement of taxable supplies.
There are strict rules governing the situations where a German VAT registration is permitted. Common scenarios which require a registration include:
- Importing goods into Germany,
- Organising live events, conferences, etc. in Germany,
- Holding goods in a warehouse in Germany as stock for resale,
- Buying goods within Germany which are subsequently resold in-country,
- Selling goods from Germany to other EU member states,
- Distance-selling to private individuals in Germany, e.g. internet retailing.
Registering for German VAT generally takes three weeks, although this can vary. A tax payer must register with the specific tax office allocated to his country. For example: Italy to München II; and Spain to Kassel-Hofgeismer.
German VAT compliance
There are detailed rules controlling the recording and processing of German transactions for VAT purposes. These include guidelines on:
- German invoice requirements,
- When to issue a German tax invoice,
- Foreign currency reporting,
- Credit notes and corrections,
- Correcting entries from prior returns,
- Which accounting records must be maintained.
German VAT rates
The standard VAT rate in Germany is 19%. There is a reduced rate of 7% for food, books, hotel accommodation, cultural services and other goods and services.
German VAT returns
Companies with a German VAT number must complete periodic returns detailing all taxable supplies (sales) and inputs (costs). Generally, VAT returns are submitted monthly in Germany. German VAT returns are due by the 10th of the month following the reporting period. German returns are filed electronically through the ELSTER system to the relevant Finanzamt (tax office). There is also a requirement to submit an annual German VAT return by the end of May of the following year.
German Intrastat and EC sales lists
In addition to VAT returns, companies may be required to submit additional German statistical information. The German Intrastat, which lists sales (dispatches) and purchases (acquisitions) within the EU region, must be filed monthly once the annual threshold is exceeded. German EC sales lists, or a recapitulative statement, details customers and the values of sales made to them. It should be submitted on a monthly, quarterly or annual basis.
German VAT refunds
If a foreign company is selling goods in Germany, but is unable to obtain a German VAT number, or is incurring German VAT on local goods or services, then VAT may be recovered through a German VAT