First of all, the terms sales tax (VAT) and value added tax (VAT) have the same meaning. It doesn’t matter which term you use on your invoices. For example, you will find the abbreviation “VAT” on invoices:
And another piece of good news: VAT is not a financial burden for most self-employed people. In the end, the tax is borne by private end consumers. But sales tax still makes work and not too scarce. Only the so-called “small business owners” within the meaning of ยง 19 UStG are exempt from this. You can read more about this simplification rule in the crash course for small business owners.
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For everyone else, whether you want to or not, you take on the duties of a state tax collector. And to top it all off, the tax authorities also put you at risk of making mistakes in tax collection.
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Apart from that, the sales tax principle is actually quite simple:
- In addition to your sales prices and fees, you invoice your customers sales tax and then collect them,
- deduct your own operational sales tax payments as “input tax” from this sales tax income and
- transfers the difference to the tax office as part of your advance VAT returns.
If, as an exception, you paid more input tax than you received sales tax, you will receive a refund from the tax office.
The final annual sales tax return is due at the end of May of the following year: In it you provide information about the total of your net sales and sales tax income, the amount of your own input tax payments, your advance payments already made and input tax refunds received. You transfer the remaining sales tax income to the tax office as a “final payment” without being asked. If there is an input tax plus, you will receive a refund. If everything goes well, the bottom line is that the process leads to a zero-sum game. The online tax services are perfect there.
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The sales tax rate in Germany has been 19% for 10 years. The reduced tax rate of 7% applies to certain goods and services. Its height has not changed since the early 1980s. For example, basic foodstuffs, cultural goods or the exploitation of copyrights are benefited. Finally, there is a whole range of tax exemptions (= 0% sales tax): These include medical treatments and exports.
But so much now:
If you are unsure which tax rate is the right one for which of your deliveries and services, you should definitely seek professional advice – for example from a tax advisor, the IHK or directly from the tax office. If you are a member of a professional or industry association, you can also ask there.