How VAT works in Germany

Value added tax (VAT) is a 19% tax on goods and services.

This guide explains VAT for German businesses. You must understand this to start a business in Germany.

What is VAT?

In Germany, VAT is a 19% tax on most goods and services. In German, it’s called Umsatzsteuer (USt.) or Mehrwertsteuer (MwSt.).

VAT is always included in the advertised price.¹ If the price label says 20€, the customer pays 20€ including VAT.

VAT included example: On a restaurant menu, a meal costs 15€. You pay 12.61€ for the meal, and 2.39€ VAT; 15€ in total.

Other EU countries also have a VAT; it’s between 17% and 25%.²

Reduced VAT

Some goods and services have a VAT of 7%, or no VAT.³

Reduced VAT (7%):

Some foods and beverages⁴
Museum, theatre, concert and sport event tickets
Artistic, journalistic and copyrighted work
Hotel stays

Full list (in German) – § 12 UStG

No VAT:

Medical treatments: doctors, dentists and therapists
Teaching, in some cases
Social services, in some cases
Insurance
Rent for long-term, residential spaces
Buying and selling property

Full list (in German) – § 4 UStG

Who must charge VAT

Most German businesses must charge 19% VAT, but there are exceptions:

When you are a small business (Kleinunternehmer) you choose if you want to charge VAT – More information
When your customer is in another country, you don’t always charge VAT.
Some goods and services have a VAT of 7%, or no VAT.

Exemption for small businesses

If you are a small business (Kleinunternehmer), you can choose not to charge VAT. It makes accounting easier, but it’s not always a good idea.

Should you be a Kleinunternehmer?

How to charge VAT

Charge VAT on the goods and services you sell.
Pay VAT on your business expenses.
Calculate the difference between the VAT you charge and the VAT you pay.
Tell the difference to Finanzamt with a VAT return.
Pay the difference to the Finanzamt with a bank transfer. If the difference is negative, the Finanzamt pays you.⁵

Example:
You make 20,000€ in sales, including 3,193€ VAT
You pay 12,000€ for tools and supplies, including 1,916€ VAT
You must give 1,277€ to the Finanzamt (3,193€ − 1,916€)

Example with negative VAT:
You make 20,000€ in sales, including 3,193€ VAT
You pay 100,000€ for new office equipment, including 15,966€ VAT
The Finanzamt must give you 12,773€ (15,966€ − 3,193€)

1. Register for VAT

When you start your business, you must register it with the Finanzamt. This is how you get a Steuernummer and a VAT number. You must put those numbers on your invoices, and start charging VAT.

How to register your business

When you fill the registration form, you can register as a small business that does not charge VAT.

During the registration, you can give the Finanzamt a direct debit authorization. It lets them take VAT payments directly from your bank account. It saves time, and helps you avoid late payments.⁶

2. Collect VAT from customers

You must charge VAT to all your German customers, and some of your EU customers.

When to charge VAT

If you forget to charge your customers VAT, you must still pay VAT to the Finanzamt.⁷ For example, if you make a 100€ invoice, and you forget to charge 19€ for VAT, the Finanzamt still collects 19€ from you. If you write incorrect invoices, you can lose money.

3. Submit VAT returns

If you charge VAT, you must submit VAT returns (Umsatzsteuervoranmeldung). They tell the Finanzamt how much VAT you owe them.

There are 4 ways to make VAT returns:

Hire a tax advisor – safe and easy, but expensive
Use tax software for businesses
Use a business bank like Qonto, Holvi or Kontist
Do it yourself with ELSTER⁸

Frequency: How often you submit VAT returns depend on how much VAT you paid last year.²⁴

VAT paid last year	When to submit VAT returns
Under 1,000€	Never
1,000€ to 7,500€	Every quarter
Over 7,500€	Every month

Due date: You must submit your VAT return before the 10th day of the next month.⁹ If that day is a Saturday, Sunday or public holiday, you have until the next business day.¹⁰

If you submit your VAT returns late, you pay a fine (Verspätungszuschlag). The fine is up to 10% of the VAT you owe, maximum 25,000€.¹¹

4. Pay VAT to the Finanzamt

After you submit your VAT return, you must pay the Finanzamt by bank transfer. They will not send you an invoice; you must simply transfer the money.¹² If you gave the Finanzamt a direct debit authorization, they take the money automatically.

If the VAT you paid is more than the VAT you charged, you get a refund from the Finanzamt.¹³

Due date: The VAT payment is due on the same day as the VAT return: before the 10th day of the next month.¹² You have 3 more days for the bank transfer to go through.

Late submission example 1: You pay your March VAT on April 10. The payment goes through on April 13. You don’t pay a fine, because you paid your VAT on time.

Late submission example 2: You pay your March VAT on April 20. You pay a fine, because you paid your VAT late.

If you submit your VAT return on time, but you payment is late, you get a fine (Säumniszuschlag). The fine is 1% of the VAT you owe for every month you wait.¹⁴

Late payment example: You owe the Finanzamt 5,300€. You pay your VAT 2 weeks late. The fine is 53€ (1% of 5,300€).¹⁵

5. Submit a yearly VAT declaration

You must also make a yearly VAT declaration (Umsatzsteuererklärung). If you forgot to declare something in your VAT returns, you can make corrections in your VAT declaration.¹⁶

Due date: May 31 of the next year.¹⁷ If your tax advisor submits it for you, they have until September 30.¹⁸

If you submit your VAT declaration late, the fine is the same as for a late VAT return: up to 10% of the VAT you owe, maximum 25,000€.

When to charge VAT

If you are a small business (Kleinunternehmer), you never charge VAT.

Otherwise, it depends on what you sell, and where your customer is.

Use the VAT helper to decide how much VAT to charge.

VAT for customers in Germany

Charge VAT. If you sell goods of services to customers in Germany, you must charge 19% VAT.

Some products and services have a reduced VAT, or not VAT.

VAT for customers in the EU

It depends. If your customer is in another EU country, it’s more complicated:¹⁹

If you sell to another business (B2B)
You charge 0% VAT, and issue a reverse charge invoice.²⁰ – How reverse charge works
If you sell to a private customer (B2C)
- If you sell goods
  It depends on how much B2C revenue you get from other EU countries:
  - Less than 10,000€ in EU sales
    You charge the German VAT rate, 19%.
  - More than 10,000€ in EU sales
    You charge the VAT rate in the customer’s country. You must register your business for VAT in the customer’s country, or open a One Stop Shop. – What is a One Stop Shop?
- If you sell services
  You usually charge the German VAT rate, 19%, but there are exceptions:
  - Broadcasting, telecommunication and electronically-supplied services
    You charge the VAT rate in the customer’s country.²¹ This includes most sales of digital services: software, films, web hosting, courses…²⁵

If your customer is in another EU country, your invoice must contain specific information.

VAT for customers outside the EU

Don’t charge VAT. If your customer is outside the European Union, you must not charge VAT.²²

For example, if you sell goods or services to customers in the United States, you must not charge VAT.²³

Need help?

Where to ask business questions

Sources and footnotes