What Are the Key German VAT Considerations in Cross-Border Trade?

This article offers a detailed exploration of taxes in cross-border trade, highlighting Value-Added Tax (VAT), purchase tax, and import-turnover tax.

Overview

• Taxation
• Intra-Community movement of goods: purchase tax
• Trade with third countries: import-turnover tax

Taxation

VAT is a tax levied on the exchange of goods and services. For this reason, companies are required to charge VAT on their prices of goods or services and to invoice it to their customers.

The regular VAT tax rate in Germany is 19% below the European average. A reduced tax rate of 7% applies to commodities and everyday services (e.g. food, newspapers, public transport). Certain services (such as banking and health services or community service) are completely exempt from VAT.

The VAT collected must be paid monthly, quarterly, or annually to the responsible tax office. The exact time frame depends on the amount of the company's turnover.

Companies that also pay VAT themselves on goods and services can offset this with the VAT they receive. Thus, the actual VAT load lies exclusively on the private end-user.

Intra-Community Movement of Goods: Purchase Tax

There are no customs duties in the case of trade in goods between companies from different EU countries. Only the so-called purchase tax is incurred.

The purchase tax corresponds to the respective VAT rate of the EU Member State in which the recipient is based. The purchase tax is therefore 19% for Germany.

Business customers The taxpayer is the company that receives the goods supplied by a company from another EU Member State. The supplying company is not charged any VAT but is subject to certain documentation and verification obligations.

The company which receives the delivery of goods from another EU Member State must pay tax on this purchase in its own country, i.e. report to the tax office and deduct the income tax.

Purchase tax can be regularly claimed as input tax and be charged accordingly. There is therefore no additional tax load for companies.

Example: An Italian company sells goods to a company in Germany. The Italian company can make the delivery of the goods without invoicing VAT to the German company. The German company however is required to pay purchase tax for the goods received. The purchase tax rate corresponds to the German VAT rate of 19%. The German company may claim the purchase tax as input tax and offset it directly in the turnover tax advance return.

Private consumers

In the case of an intra-Community supply of goods from a company to a private consumer, the respective value-added tax of the country in which the selling company is based is generally invoiced to the private consumer.

Exceptions apply in the event of dispatching sales to a private consumer resident in an EU member state. In this case, the supplying company must issue an invoice with the foreign VAT and pay it to the financial office of the foreign EU Member State *.

* Applicable only if revenue exceeds the delivery threshold of the respective EU Member State.

Trade with third countries: Import-Turnover Tax

Delivery of goods from non-EU countries (third countries) is subject to import-turnover tax. The tax rates of the import-turnover tax also amount to 19% and 7% respectively, and are payable to the customs authorities.

The import-turnover tax paid on the importation of goods can be claimed as input tax in the context of the input tax deduction, just as VAT and purchase tax. A prerequisite for this is that the company can present the customs documents for importation. The export of goods is however exempt from any VAT.