Value added tax - submitting an annual declaration or advance notification
Turnover tax (also called value-added tax) generally taxes all private and public consumption (i.e. goods purchased and services commissioned by the ultimate consumer). It thus differentiates itself from income or wage tax, which takes the individual performance of each taxpayer into consideration. As measured by the incoming revenue, turnover tax is one of the most important taxes in the Federal Republic of Germany. Turnover tax in its present form is structured such that all goods and services, once they get to the end consumer, are charged at the same tax rate. The amount of tax corresponds to the tax rate valid for the goods or services. Therefore it does not make any difference how many economic levels a product or service has passed through on its way to the consumer.
Turnover tax is paid on
- all deliveries (e.g. sales of objects) and other performances (e.g. services),
- the import of objects from third countries into Germany (the resulting import turnover tax is charged by the customs) and
- intra-Community purchases (acquisition of goods from other countries in the European Union, the European Community)
Taxation on intra-Community purchases is required, as the so-called country of destination principle generally applies to the commercial movement of goods within the European Union. This means the goods are charged with turnover tax in the state in which they ultimately land. To guarantee the correct implementation of the country of destination principle, entrepreneurs who take part in intra-Community trade receive a value-added tax identification number (VAT ID No.). This number is issued upon written request from the Bundeszentralamt für Steuern (BZSt) - Außenstelle - in D-66738 Saarlouis (Telephone 06831-4560). It assumes that tax returns are registered at the responsible German tax authority.
Who has to pay the tax?
As a consumer tax, the turnover tax is designed such that the financial burden is borne by the consumer. It is however technically not possible to charge turnover tax to the consumer. The party liable to pay turnover tax is therefore generally the entrepreneur who exports a turnover. He is responsible for passing on the turnover tax to the recipient of his services as part of the price. In many cases entrepreneurs make this evident by declaring the turnover tax separately on their invoices for taxable turnovers. When issuing invoices to other entrepreneurs, they are even obliged by law to openly declare the tax amount. Because turnover tax is charged to the consumers via the entrepreneur, it counts as an indirect tax.
The Turnover Tax Law (UStG) stipulates that in some exceptional cases it is not the supplier but the recipient of the benefit who owes the value added tax. This tax liability of the recipient of the benefit, also called "Reverse-Charge-Rule", applies e.g. if companies located abroad carry out deliveries subject to tax or render other services subject to tax in Germany. In these cases, the recipient of the benefit is the partly liable to pay the turnover tax, if he is an entrepreneur or a legal entity under public law.
The Turnover Tax Law includes an extensive list of services that are exempt from turnover tax. This includes e.g.
- deliveries of objects to entrepreneurs in other EU member states,
- export deliveries to countries outside the EU,
- turnovers from the sale as well as rent and lease of land,
- granting loans,
- turnovers from working as building society and insurance sales representatives,
- turnovers from working as a doctor, dentist or alternative practitioner.
The entrepreneur can renounce the tax exemption for specific tax-exempted turnovers. He has the right to decide to pay taxes (right of choice). This option to pay taxes is only possible for some tax-exempted turnovers and also only in certain circumstances, which are described in more detail in § 9 of the Turnover Tax Law.
The Turnover Tax Law has two tax rates: the general tax rate at 19 percent and the reduced one at 7 percent.
Most turnovers are subject to the general tax rate. The reduced tax rate is applied in particular to deliveries, imports and intra-Community purchases of almost all foodstuffs - except drinks and restaurant turnovers. In addition, it also applies e.g. to local public transport, to the sales of books, newspaper and certain works of art.
Input tax deduction
Turnover tax is provided with a so-called added value tax system. The "added-value" taxation is achieved by the entrepreneur being allowed to deduct the turnover tax charged to him for services received from the turnover tax he owes as input tax.
A simplified example which tracks the path of a product over several trade levels should clarify the function of the added-value system.
Dealer A delivers a product for Euro 100 plus Euro 19 VAT (19 percent of Euro 100) to dealer B. A pays Euro 19 VAT to the tax authority. B claims an input tax deduction of the same amount from the tax authority. If B sells the object for Euro 140 plus 26.60 VAT (19 percent of Euro 140) to Dealer C, then B has to pay Euro 26.60 VAT to the tax authority for this turnover, while C claims an input tax deduction of the same amount. If C sells these goods for Euro 200 plus Euro 38 VAT (19 percent of Euro 200) to an end consumer, then he has to pay Euro 38 VAT to the tax authority for the turnover. This amount remains with the tax authorities for good. This example shows clearly that the turnover tax is a tax which is only realised when selling to the ultimate consumer.
The input taxes can however only be deducted if they are allotted to turnovers which are intended for the company. Taxes which an entrepreneur has been charged for an object which he uses exclusively for his own private purpose (e.g. private television) are therefore excluded from input tax deduction. If a capital asset (e.g. a computer) is used both in the company and privately, then the entire input tax can be deducted but the private use is subject to VAT as goods and services granted gratuitously.
Entrepreneurs whose turnovers are exempt from turnover tax can thus not deduce the input taxed charged to them. Exceptions are intra-Community deliveries and export to non-EU countries. Due to the exemption of intra-Community deliveries and exporting by granting input tax deduction, export goods can pass borders without turnover tax being imposed. This measure is necessary to protect the competitiveness of our products on the world market and corresponds to the country of destination principle that generally applies within the EU, where goods are subject to turnover tax in the country of consumption. In addition, specific other services are exempt by granting input tax deduction, which are related to imports, exports or goods in transit, as well as specific turnovers for sea traffic and air traffic. Entrepreneurs, who have both turnovers that are taxable and tax-exempted without input tax deduction, have to divide their input taxes in deductible and non-deductible amounts.
Declaring the turnover tax on invoices
In the case of deliveries or other services to other entrepreneurs that are subject to tax, the turnover tax has to be declared separately in the invoice. The invoice has to comply with specific requirements regarding the format (§§14, 14a UStG). Even if the amount for turnover tax is too high or the tax amount is unjustified on an invoice, this amount is always owed. The entrepreneur is obliged to issue the invoice within six months.
Should sales to other companies be carried out, the company providing the service is, as a rule, obliged to issue an invoice within six months of the date of performance. An obligation to issue an invoice also applies in relation to private customers, should certain services be carried out in connection with real estate (for example construction services, garden work, repairs in and to buildings, window cleaning). The private customer is obliged to retain this invoice for two years.
Small company ruling
The so-called small company ruling can be claimed if the income subject to tax (plus the VAT incurred) does not exceed Euro 17,500 in the last calendar year and will probably not exceed Euro 50,000 in the current calendar year. This means that no turnover tax has to be paid. However the prerequisite for this is that invoices are not issued with the turnover tax declared separately. Any turnover tax declared openly is always owed. If the small company ruling is applied then input tax deductions cannot be claimed.
The special ruling can have an unfavourable effect on small companies due to the fact that there is no input tax deduction. Legislation therefore grants you the possibility to do without this special ruling and to opt for taxation in accordance with the general regulations. You are then bound to this declaration of renunciation for five years.
Tip: If you have additional questions about turnover tax, please contact your relevant tax authority or look on the internet at your tax authority’s website under >Service>FAQ.
the tax authority
The prerequisite for the turnover tax liability is the so-called classification as an entrepreneur. Only if you are an entrepreneur are you able to render services which are subject to turnover tax. According to the definition of the law, an entrepreneur is someone who carries out a commercial or professional activity independently. All natural persons (individual persons, who run a company in terms of the UStG, e.g. retailers, craftsmen, home owners), legal entities (e.g. AG, GmbH, cooperatives, registered associations, foundations) and association of individuals (e.g. GbR, OHG, KG) thus have the capability to be an entrepreneur. Commercial or professional in this sense is any activity which is aimed at achieving revenues on a long-term basis.
A VAT return (annual return) has to be submitted for each calendar year by May 31st of the following year. The tax has to be calculated by you and also has to be paid without further request within one month after submitting the return. The tax authorities only stipulate the tax by sending a tax assessment notice if it deviates from the tax calculated in your tax return.
Value added tax - advance notification
- Should the value added tax have amounted to more than 7,500 euros for the previous calendar year, monthly value added tax advance notifications must be made in the current year.
- Should the value added tax in the previous year have not exceeded 1,000 euros, the tax office can exempt you from the requirement to submit value added tax advance notifications. In such a case, only an annual declaration needs to be made.
- Should a surplus of more than 7,500 euros have been accrued in your favour for the previous calendar year, you can choose the calendar month as the advance notification period instead of the calendar quarter.
- Should you take up professional or commercial activities for the first time as a company founder, you must submit monthly value added tax advance notifications during the year of the company incorporation and in the following calendar year.
The advance notification has to reach the tax authorities on the 10th day after the advance notification period (quarter, month) has expired at the latest. At the same time the tax you have calculated has to be paid.
Upon request, the tax authorities can extend the deadline for submitting the advance notification and for paying the advance payments (so-called permanent extension). If monthly advance notifications are to be submitted, then a special advance payment has to be made in the case of permanent extension). Should you wish to claim a permanent deadline extension for the submission of the current value added tax advance notification, you must apply for this in advance at the tax office.
Obligation concerning authenticated electronic transfer
Since 01.01.2013, the value added tax advance notification and the application for a permanent deadline extension must be transferred in an authenticated manner to the finance administration electronically.
This authentication takes place via the ELSTER certificate. This certificate has the function of an electronic signature and serves the purpose of security. The certificate should ensure the confidentiality, authenticity (identity of the sender) and integrity (non-editability of the data contents) of the transmitted data.
In order to obtain the certificate, registration in the ELSTER online portal is mandatory. The registration process is comprised of several steps (for example sending of the registration data, sending of a confirmation mail by the ELSTER online portal, sending of the activation code by post). Due to the necessary processing steps, you are advised to carry out the registration in good time.
The Elster program is available to you free-of-charge for the electronic transfer. Here, you can also obtain further explanations concerning the registration process.
Only in exceptional cases of hardship can the competent tax office waive the electronic transfer requirement. The claiming of the hardship provision must be applied for and substantiated in writing at the tax office. Should this application be refused, a transfer in paper form is permitted.
Due to the basic electronic transfer requirement, the templates for the value added tax advance notification are no longer provided on paper in the form system for printing. Paper templates only continue to be retained by the tax office in exceptional cases of hardship (see above).
In addition to the advance notification for turnover tax or the turnover tax return, it is perhaps also necessary to present additional documents in individual cases. These can include incoming invoices, contracts or similar documents.
Annual value added tax declaration:
The value added tax declaration must be submitted by 31.05 of the following year at the latest. Should the assistance of a professional tax advisor be engaged and should the said person carry out the declaration, a general extended deadline until 31.12 of the following year applies.
Value added tax advance notification:
The value added tax advance notification must be transmitted to the tax office at the latest on the 10th day following expiry of the advance notification period (month/quarter of a year). See above for the claiming of a permanent deadline extension.
More details on turnover tax can be found in the "Tax Tips" and "Brochures", which the Ministry of Finance in Baden-Württemberg (Finanzministerium) has provided in the internet under "Publications".You can also get information from your tax authorities.
The German original version of this text was drafted in close cooperation with the relevant departments. The Finanz-und Wirtschaftsministerium, represented by the Oberfinanzdirektion Karlsruhe, released it on 16.08.2016. Only the German text is legally binding. The Federal State does not assume any liability for the translated texts.
In cases of doubt or if you have any questions or problems, please contact the relevant authorities directly.