Planning to expand your customer base to Germany? Learn about the German VAT regulations and how to comply with them as an online seller.
A Guide on German VAT for E-Commerce Businesses
The best way to grow your business as an online seller is to expand your reach beyond your current customer base. Germany, like other European Union (EU) member states, is an excellent place to begin your strategy. Start on the right foot with crucial information about German VAT and its compliance.
1. All Imported Goods Are Subject to VAT
When you’re based outside the EU, any goods you sell are considered an import. And if your buyer lives in Germany, they must pay VAT on products purchased from your store, which you will remit to the government.
Prior to 1 July 2021, imported goods with less than €22 value were exempt from German VAT. However, the EU abolished the exemption in the revised VAT rules for cross-border e-commerce activities.
Some non-EU sellers mislabel and undervalue the consigned goods to avoid charging VAT. This loophole allows them to lower prices than their EU competitors and circumvent paying taxes, costing the government millions in uncollected revenue.
2. There Is a Minimum Threshold
Before the revised VAT rules were issued in 2021, EU countries had different turnover threshold requirements for VAT registration. In Germany, distance sellers only needed to register if their annual sales revenue exceeds €100,000. But now, that has been replaced with a lower limit.
The new EU-wide threshold to register for VAT is €10,000. If you intend to carry out transactions subject to German VAT, i.e., sell goods online, it’s better to arrange registration even if you anticipate gross sales to be below the set threshold.
3. You Must Be Registered for VAT
Remember to apply for German VAT registration before commencing your business activities. Otherwise, you may face penalties for submitting your registration late or while already doing business involving taxable goods in the country. German tax authorities can be severe in penalising violations.
Like in other EU states, Germany doesn’t require non-resident e-commerce sellers to establish a local presence to trade. It does, however, mandate VAT registration on activities like importation and distance selling.
To register correctly, contact the jurisdictional tax office in the relevant German state. Submit the registration form completed in German along with the following documents:
• A copy of the Articles of Association
• An excerpt from the business’s trade register
• Certificate of VAT liability if registered in other EU member states
• Proof of economic activity in the country
• Power of attorney, if using a fiscal representative or agent
The local tax authorities may require some documents to be translated into German. Moreover, they are quite critical of foreign companies’ VAT registration because of substantial lost government revenues and the potential for carousel fraud.
4. Fiscal Representation Is Optional
When registering for German VAT, non-EU businesses don’t need to appoint a fiscal representative. Foreign companies can apply themselves if they know the language and are familiar with the process.
However, working with a fiscal representative or a tax advisor from Sterlinx Global is still highly recommended. Their primary responsibility is fulfilling tax obligations, such as submitting and filing VAT returns, on behalf of their clients.
5. VAT Registration Can Be with One EU State Only
To improve VAT collection in the EU, one of the new rules for cross-border e-commerce activities includes the introduction of the Import One Stop Shop (IOSS). This online platform for non-EU sellers allows them to register for VAT in only one EU member state.
Once online sellers obtain their IOSS number, there’s no need to register for VAT in all the EU countries they will sell in. They can declare and pay the VAT of goods imported from non-EU territories.
The streamlined system ensures that the correct tax amount goes to the right EU member state. That’s because keeping track of the applicable VAT rate can be confusing, even to seasoned e-commerce businesses, because of the different tax legislations in each EU country.
6. Standard VAT Rate Is Above 15%
As a member of the EU, Germany based its VAT legislation on EU directives. Although the country can set its standard rate, it should be higher than 15%. The German VAT rate is currently 19%.
At the height of the COVID pandemic crisis, Germany temporarily cut its standard rate to 16% to support the economy. Except for hospitality businesses, the VAT rate has now reverted to its pre-pandemic level.
Like other EU member states, the country’s VAT system is tiered. Apart from the standard 19% rate applicable to most goods and services, the country applies the reduced rate of 7% to certain items like food, books, newspapers, other periodicals, timber, and some agricultural inputs, to name a few.
7. Know Your VAT Obligations
Being registered for German VAT as an e-commerce seller means you have certain responsibilities to fulfil. Two important obligations are to settle your tax liability with the proper authorities and file the corresponding returns.
For newly registered businesses, they must submit VAT returns monthly for the first two years. After the prescribed period, the frequency varies according to net VAT due in the prior year:
- Above €7,500: File every month
- Below €7,500: File every quarter
- Less than or equal to €1,000: File every year; no preliminary VAT returns required
In addition to monthly or quarterly filings, all companies that are VAT-registered must file an annual return for each calendar year, regardless of revenue.
VAT returns are due by the 10th of the month following the covered period. Moreover, the annual VAT return should be submitted by the end of May of the next calendar year. But if it falls on a weekend or national holiday, it is extended to the next working day.
VAT returns submissions are done electronically through the ELSTER systems of the relevant German tax office, which depends on your country of residency.
The charges for failing to comply with the deadlines are as follows:
• Late filing: 10% of the VAT due but no more than €25,000 per return
• Late payment: 1% of the VAT due per month of delay
Avoid paying hefty fines for non-compliance with the assistance of a tax agent or fiscal representative from Sterlinx Global.
Frequently Asked Questions about German VAT
How long does it take to be VAT-registered in Germany?
Getting your VAT registration number in Germany often takes several weeks or up to a month. The processing period is slightly longer than in other EU states because German tax offices conduct thorough checks on foreign companies to prevent fraudsters from applying and to minimise revenue losses.
Can I register for German VAT myself?
Yes, you can. However, it’s not the most efficient use of your resources. Remember that German tax offices are generally strict with VAT registration to reduce fraudulent transactions involving non-EU businesses. Expect to spend a lot of time and effort, both things which are better utilised in running your business.
Is it possible to compute VAT obligations on my own?
You can compute your German VAT obligations yourself—the IOSS makes it easier to track your tax liabilities. But it can quickly get confusing when you’re also selling in other EU states since VAT rates vary across the region. Save yourself the trouble by working with an accountant from Sterlinx Global.
Expanding your market reach to Germany is an excellent growth opportunity. But before venturing into it, learn more about the German VAT to avoid surprises that may cost you. And if you need professional advice or assistance, the experts at Sterlinx Global are ready to lend a hand.