Complete Guide To Corporate Finance

The Business Finance Guide

It is common knowledge that Germany is the world’s fourth-largest economy. A considerable percentage of global investments flow into this country, not to mention that labor market is highly flexible. It does not come as a surprise that the vast majority of businesses are interested in the German market. Nonetheless, it is important to keep in mind that doing business in this climate is not as simple as you may think. Those who are not familiar with the tax structures have a hard time, which is the reason why you need to be more knowledgeable. The first thing you will need to learn by heart is the VAT, namely the most important tax imposed in Germany. In this article, you will find all the details you need about this financial contribution, compliance rules and of course German VAT rates.

Outlining the VAT system in Germany

The value-added tax, or end consumer tax as it is commonly known, is added to the goods and services that are sold in the European Union. It is important to stress that the federal government does not charge goods and services that are acquired in professional contexts, but rather high-end consumers. The point is that any business organization providing goods and services is subject to the VAT. What a company has to do is register the business for the German value-added tax and, implicitly, pay their taxes. If you are doing business in this country, you should expect to include this contribution in your invoices.

German VAT Rates

Germany, like many other countries, follows the EU VAT Directive on VAT compliance. Nonetheless, the local interpretation varies significantly. Each country is given the freedom to set its own standards and Deutschland makes no difference. Whether you are a B2B or a B2C, you have to pay the value added tax rate, which is 19%. You pay this financial contribution and you will receive a refund later on from the tax office. There is a reduced value-added tax rate, but it applies to the food industry, passenger transport and items such as books or agricultural supplies. The value added tax is imposed on products and services in the country as well as exports.

Is there such a thing as total exemption from VAT?

As stated in the beginning, there are businesses that are not required to pay taxes. Small entrepreneurs are the lucky ones. If they do not achieve a profit that exceeds €50,000 per years, they cannot charge the value-added tax in their invoices. The result is that they do not benefit from incentives from the tax office. Equally important is mentioning holding companies. While holding companies generally face the challenge of recovering their value added tax, they are not liable for VAT in Germany.

In order to find out when you have to file for value-added tax returns, you check with the calendar.  The reporting calendar is on an annual basis, so the likelihood is that you will have to make annual returns. You have to pay your taxes at the end of each reporting period.

Comments are closed.