VAT in Germany: Rates, Registration, and Reporting Explained

VAT in Germany - Three Types of Rates

There are three types of VAT rates in Germany:

1. Standard VAT rate,

2. Reduced VAT rate,

3. Zero VAT rate.

How Much is VAT in Germany’s Regions?

The Island of Heligoland, located in the North Sea, and the territory of Büsingen, although surrounded by Switzerland, are two German territories that are exempt from the scope of VAT under German VAT law and the EU VAT Directive. These territories do not form part of the EU customs territory, and excise rules do not apply.

VAT Registration Thresholds 

German VAT legislation provides essential details regarding the VAT threshold in Germany, as well as other relevant provisions. 

There is no specific registration threshold for resident businesses. However, they can take advantage of the small business owners' exemption if their turnover did not exceed EUR 25,000 in the previous calendar year and is not expected to exceed EUR 100,000 in the current year.

Also, for non-resident businesses, there is no VAT registration threshold.

The VAT registration threshold for intra-EU distance sales of goods and B2C services sales is EUR 10,000, consistent across the EU. There is also no registration threshold for non-EU-established suppliers of Electronically Supplied Services.

On January 1, 2025, the special EU VAT regime for small businesses, also known as the EU SME scheme, allows SMEs conducting cross-border transactions to sell goods and services without charging VAT to their customers if their total annual turnover is no more than EUR 100,000 in all EU countries. In addition to this, taxable persons must not exceed the domestic small businesses' exemption threshold.

Types of Taxable Activities in Germany

According to the German Sales Tax Act, businesses engaged in economic activities and those conducting commercial or professional activities independently and sustainably should collect VAT. However, entrepreneurs who meet the criteria for small businesses may be exempt from this obligation.

The types of activities that trigger registration:

• The supply of goods and the provision of services in Germany for a fee as part of business activities;

• The import of goods from a third country or territory;

• Intra-community acquisition of goods.

VAT Registration Process 

In Germany, VAT registration is mandatory for natural or legal persons engaging in taxable activities.

Once registered, an individual or business is assigned a VAT Germany number for all tax-related transactions. The general tax number is unique to each individual or company and enables tax authorities to track their tax obligations and payments.

In most cases, businesses should follow the registration procedure for taxable supplies, intra-EU acquisitions of goods, or when the reverse-charge mechanism is in place. 

German VAT Registration for Domestic Businesses

The assignment of a VAT number is done following an application submitted in one of the following ways:

1. Online application via the Form Management System (FMS) of the German Federal Government, or

2. In writing.

Following the online application, information such as the German tax office responsible for the company's taxation, the German tax number under which the company is registered, the company's legal form, and other business-related details must be provided.

If applying in writing, the data that should be included in the application are the company's name and address, the German tax office under which the company is registered for a general tax number, and the German tax number under which the company is registered.

German VAT Registration for Foreign Businesses

Non-resident businesses that make taxable supplies should usually register for VAT in Germany. 

However, it may be exempt from registration if the business only provides B2B services subject to a reverse-charge mechanism. On the other hand, if a foreign business performs an intra-community acquisition in Germany, it should register for VAT.

Foreign taxable businesses should apply for registration at the relevant state's tax office. The official language is German, and the tax forms are generally only available in German. This means that even when registering a foreign company for German VAT, the correspondence with the jurisdictional tax authorities should be in German.

Foreign taxable persons should contact the tax office responsible for registering them to obtain a general sales tax number. Once registered for tax purposes in Germany, foreign businesses also apply for a German VAT number issuance using the tax registration form.

VAT Return in Germany 

Taxpayers registered for VAT in Germany are generally required to submit monthly or quarterly returns, depending on the turnover from the previous calendar year. The following rules apply:

• If the VAT liability in the previous calendar year exceeded EUR 7,500, monthly advance VAT returns for the current year must be submitted. 

• The tax office may exempt businesses from submitting advance VAT returns if VAT liability did not exceed EUR 1,000 in the previous year. 

• If a business's VAT liability exceeded EUR 7,500 in the previous calendar year, it may file advance VAT returns on a monthly basis instead of quarterly.

Returns are typically due by the 10th of the following month. However, due to the short timeframe for both filing and payment, taxpayers can request a permanent extension of the submission period from the tax offices. If granted, this would extend the filing deadline by another month, making the new deadline the 10th of the month after the month of the reporting period. 

Penalties for Failure to File Tax Return 

Taxpayers should levy VAT on their transactions and submit their VAT returns on a timely basis. If they submit their returns after the deadline, they may incur additional costs compared to filing within the allowed period.

Failure to comply with VAT regulations in Germany can result in fines imposed by the tax authorities. 

The exact amount of these fines is determined at the discretion of the tax inspector, but there are set limits: a late payment surcharge cannot exceed 10% of the amount of VAT Germany owed, with a maximum limit of EUR 25,000. 

One of the notable reasons for the wrongful calculation of owed tax is based on the misconception of what VAT rate Germany should levy on the supply in question. 

Repeated failure to file tax returns and provide requested documents within the prescribed deadlines may also result in additional late filing penalties. The tax authorities are strict about compliance, and those who consistently disregard their tax obligations can face significant fines or criminal charges.

VAT Rules for Electronically Supplied Services 

Under the EU VAT Directive 2006/112/EC, Electronically Supplied Services (ESS) are those delivered through the Internet or other electronic means, often with minimal human intervention. These services rely heavily on advancements in information technology for their efficient delivery.

Germany follows the EU's standard definition of ESS. 

Taxability Rules for ESS:

• B2B Provision - The usual rules for determining the place of supply should be followed.

• B2C Provision- Foreign businesses must comply with EU VAT regulations specifically designed for this context, applying the VAT rate of the consumer’s location.

• Place of Supply for Distance Sales of Goods and B2C Electronically Supplied Services - If the supplier’s annual turnover is below EUR 10,000, they can either adhere to their home country’s VAT rules or use the One-Stop Shop (OSS) scheme.

• Place of Supply for Distance Sales of Goods and B2C Electronically Supplied Services—If the supplier’s turnover exceeds EUR 10,000, they must apply the VAT rate of the country where the goods are dispatched or services are received.

How much is VAT in Germany on ESS?

The Germany VAT rate for ESS is generally 19%.

E-Commerce Rules 

The E-Commerce package, implemented on July 1, 2021, has been fully incorporated into national VAT laws across EU Member States. This package significantly changed e-commerce operations throughout the EU, primarily simplifying administrative processes and creating consistency in regulations governing e-commerce within the EU.

The changes are particularly evident in the expanded range of transactions covered by EU-harmonized e-commerce regulations, which now include:

• Remote sales of low-value goods imported in consignments worth less than EUR 150 from non-EU countries, conducted by suppliers and deemed suppliers, excluding goods subject to excise duties,

• Intra-community remote sales of goods by suppliers or deemed suppliers,

• Domestic sales of goods by deemed suppliers,

• Provision of B2C services by taxable persons not established in the EU or by those based in the EU but not in the customer's Member State.

The E-Commerce package has significantly changed the EU VAT special schemes established under previous regulations. It has introduced revised One Stop Shop (OSS) schemes, including the Import One-Stop Shop (IOSS), marking a notable change in VAT regulations related to e-commerce.

The new OSS schemes introduced by the E-Commerce package include:

• Union Scheme,

• Non-Union Scheme,

• Import Scheme.

VAT Germany regulations do not provide a simplified registration process for non-resident businesses involved in ESS or the distance sale of goods. However, non-resident businesses can utilize one or more specialized OSS schemes to fulfill their VAT obligations under German VAT regulations. 

EU VAT Reporting 

EC Sales Lists 

When supplying goods or services to a VAT-registered client in another EU country, a company registered for VAT in Germany should notify the German Federal Tax Office. The company must prepare an EC Sales List (ESL), which includes details of each EU customer and the value of the goods and services provided. The ECSL must specify:

• The customer,

• The corresponding country codes,

• The value of the goods or services,

Monthly ESL is submitted when Intra-Community Supplies (ICS) exceeds EUR 50,000 in the current or previous four quarters. Businesses may file annual Germany VAT returns only if their taxable turnover does not exceed EUR 200,000 and their Intra-Community transactions do not exceed EUR 15,000.

Monthly and quarterly reports are due on the 25th day of the month following the end of the reporting period. In contrast, annual reports must be submitted by the 10th day of the month following the end of the reporting period.

Intrastat 

Intrastat is a system for gathering data and producing statistics on the movement of goods between member states within the EU's internal market.

In Germany, the reporting thresholds for Intrastat are set at EUR 1 million for dispatches from Germany and EUR 3 million for arrivals into Germany. Until 2025, these thresholds were set at EUR 500,000 adn EUR 800,000. Those who exceeded the old threshold in the 2024 reporting year but remain below the new threshold do not need to provide required data in the 2025 reporting year.  Companies that exceed the new threshold must submit Intrastat reports to the relevant authorities within ten working days following the end of the reporting month.

Digital Reporting 

The E-Government law, published in April 2017, and the Regulation on e-invoicing, issued in September 2017, mandated the reception and processing of e-invoices for all federal contracting authorities (B2G), regardless of the invoice amount. According to these regulations, the authorities of the federated states have been mandated to accept e-invoices since April 18, 2020.

The Federal Ministry of Finance issued the Act to Strengthen Growth Opportunities, Investment, and Innovation, as well as Tax Simplification and Tax Fairness (Growth Opportunities Act) on March 23, 2024. The Growth Opportunities Act stipulates that, as of January 1, 2025, B2B e-invoicing became the default method of issuing invoices in Germany. However, not all parties need to do so immediately.

Businesses must be prepared to receive e-invoices in accordance with EN 16931. However, the supplier can still issue paper invoices in an unstructured format as long as the buyer provides their consent.

As of January 1, 2027, businesses with a turnover exceeding EUR 800,000 will no longer be permitted to issue invoices on paper or in unstructured electronic formats. As of January 1, 2028, the obligation will be extended to all remaining businesses.