Germany VAT Law/Rule
German VAT is known as ‘Mehrwertsteuer’, or ‘MwSt’. It is also sometimes termed as ‘Umsatzsteuer’, or ‘UmSt’. In Germany the VAT registration number is referred to as the "Umsatzsteueridentifikationsnummer" or "USt-IdNr" for short.
Based on the EU VAT Directive, the German VAT law is formulated in the Value Added Tax Act of 1999 - Umsatzsteuergesetz. Federal Parliament put the German Vat law into practice. However, it is managed by the 16 states (Bunderslander).
In Germany, all entrepreneurs that are engaged independently in trading, business or profession and generating income, are considered to be eligible for VAT.
Under the German Turnover Tax Law, the following transactions should be treated liable for German VAT:
♦ The supply of goods and services should be within the jurisdiction of Germany
♦ The goods should be imported from territories outside the EU into Germany, also known as
''import turnover tax'' (Einfuhrumsatzsteuer)
♦ The transfer of goods into Germany from another territory within the EU (Intra-Community
acquisitions) also termed as ''acquisition VAT'' (Erwerbsteuer).
♦ For B2B services VAT will be charged where the customer is settled. For B2C VAT will be charged
where the supplier is established.
Among the goods and services that are not eligible for VAT the most common are intra-EU-deliveries of goods, exports of goods to a non-EU destination and services related to these deliveries.
The place of supply denotes whether a transaction is accountable for German VAT.
Given below the general guidelines for demarcation of place of supply of goods for VAT liability within Germany:
♦ The place in which the goods are dispatched via shipping
♦ The location place of the goods where the purchaser holds the power to release the goods
♦ In case of transfer from a special customs warehouse into free circulation within the EU, the
location of the goods at the time of placing into free circulation will be considered as the place of
supply of goods for VAT calculation.
♦ In case of importing from non-EU countries into EU territory, the location will be the place of the
chargeable event for the supply of goods where the imports step in the EU country of destination
and the import VAT is charged.
Place of Supply - Services
The place of supply of services will indicate the place in which the entrepreneur's business is situated; if the delivery of these services is performed through a durable set up, then the location of it is considered to be the place of supply.
Given below the general guidelines for demarcation of place of supply of services for VAT liability within Germany:
♦ If the services connected with land & property then the location of land and property will be
considered for VAT liability
♦ In case of transportation services VAT liability will occur for the place where the transportation is
made. For intra-community transportation the rule may be changed.
♦ In case of valuation, inspection and repair work for transferable goods, VAT liability occurs for the
place where the goods are located at the time of performing the work. This rule will not be
applicable if the goods are not in the same location all through the installation process.
♦ In the case of using of patents, copyrights and trademarks, advertising, legal, financial tax,
technical and management consulting services, information and know-how, provision of
personnel, leasing of goods (but not vehicles), the place of supply will be the place where the
customer is settled. VAT is charged if the non-EU customer or the taxable person/entity in a
member state is settled other than that of the supplier.
♦ For telecommunication services VAT will be applied on the location of the customer.
♦ If a non-EU entrepreneur provides radio and television broadcasting services and
telecommunication services then the VAT will be charged on the place of service where the
services are applied subject to these service are performed within EU.
♦ If a non-EU company provides electronic services to private consumers within the EU then the VAT
will be charged on the customer's place of residence.
Intra-EU Community Trade
When the goods are transferred from Germany to another EU country not making any change in legal or/and economic ownership, German VAT will be liable except that the proof of shipment is supplied and the German entrepreneur is registered for VAT in the country of destination. This rule is applicable even the goods only remain temporarily in the possession of the German entrepreneur in the country of destination and are provided for sale to a single customer in that country (i.e. consignment stock).
There exists some tax exemption for German VAT :
♦ If the Small enterprises make the total turnover below 17,500 € in the past year and whose
turnover apparently would not surpass 50,000 € as stated in Sec. 19 of the VAT Act.
♦ Specific kinds of service as for instance exports, border-crossing shipments within the European
Single Market, narrated in Sec. 4 of the VAT Act
♦ Specific Service Sectors for example health services, education services, financial services, real
estate dealing, and voluntary services etc.
As per the Section 9 of the VAT Act taxpayers have the option to pay VAT even for exempt turnover, so as to deduct input taxes.