Value added tax (VAT)
VAT affects all of us in our daily lives. However, for businesses, it can quickly become an area with high cash tax risks and daily administrative challenges. Additionally, due to EU-wide harmonization and the fundamental freedom of movement for goods and services, a complex system with many exceptions and special regulations has been created for businesses. We help you maintain an overview of potential filing obligations, tax rates, and input tax deductions.
I’m starting my self-employment business. Do I have to file a VAT return?
Depending on your type of business and the amount of revenue you expect, you may be considered an entrepreneur under the German VAT Act (UStG). In that case, you are required to charge VAT on your invoices and pay it to the tax office. Exceptions can apply, for example, under the small business exemption (Kleinunternehmer acc. To § 19 UStG).
What is the small business exemption (“Kleinunternehmer”) and what does it mean?
If your annual revenue in the year you start your business — or in the previous year — stays below certain thresholds, you can apply the small business exemption for VAT purposes. You can also actively choose to not use the small business exemption for VAT purposes by sending an application to the tax authorities.
In case the small business exemption applies, you do not charge VAT on your invoices. You have to include a note on your invoice referring to the small business exemption. However, when using the small business exemption, you also cannot claim input VAT from your business expenses. Depending on your business situation, this can be more or less advantageous.
Furthermore, there are multiple exceptions in which an individual/business using the small business exemption still has to pay and report VAT to the tax authorities.
I’m starting my business and want to claim the VAT I paid for business purchases as input VAT. Is there anything I need to know?
When starting a business, you need to register it with the German tax office. You will then receive a tax number as well as a VAT number in certain cases. When you purchase goods or services, it needs to be ensured that the incoming invoices (as well as the invoices you issue) contain all required information. Only then can you deduct the expenses and claim the input VAT. Based on the services you provide you might not be eligible to deduct input VAT or you might need to file certain applications in order to be able to deduct input VAT.
We are happy to assist you with tax registration and check your incoming and outgoing invoices to ensure they meet the requirements of the VAT Act.
I receive a service from a company based in another EU country for my business. The invoice states "Reverse Charge Procedure." What do I have to do?
The reverse charge procedure shifts the VAT liability to the recipient of the service. This means that you, as the recipient, must both pay the VAT and, depending on the services you provide, also claim input VAT.
We are happy to check whether the EU-based supplier has issued the invoice correctly and handle the VAT reporting for you in the international context.