As your products gain popularity in the German market and orders begin pouring in, you'll inevitably encounter the complexities of German Value Added Tax (VAT) regulations. Understanding when to register for VAT, how to issue compliant invoices, and when to charge VAT to customers is crucial for maintaining compliance while expanding your business operations.
Essential Components of a Compliant German VAT Invoice
When conducting business in Germany, issuing properly formatted VAT invoices is mandatory. A compliant German VAT invoice must include these key elements:
- Supplier Information: Complete legal name and full address of the supplier
- Recipient Information: Clear identification of the recipient's name and address
- Invoice Date: Exact date when the invoice was issued
- Invoice Number: Unique, sequential numbering system for tracking purposes
- Tax Identification Numbers: Supplier's and customer's tax identification number (Steuernummer) or VAT identification number (USt-IdNr), if VAT-registered
- Product/Service Description: Detailed explanation of goods or services provided, including quantities
- Supply Date: Specific date of goods delivery or service provision (minimum precision to month level), plus prepayment receipt date if applicable
- Price Information: Net amount excluding VAT, categorized by standard rate, reduced rate, and exempt items
- Price Discounts: Clearly noted if pre-agreed price reductions apply
- VAT Amount: Accurate calculation of applicable VAT with corresponding rate. For exempt transactions, reference the legal basis for exemption
When to Charge VAT to German Customers
If you're registered for German VAT and selling goods within Germany, you must charge German VAT (output tax) to your customers. The specific requirements vary by transaction type:
Business-to-Business (B2B) Sales
When selling to VAT-registered German businesses, you must issue proper VAT invoices.
Business-to-Consumer (B2C) Sales
For sales to German consumers, you typically don't need to proactively issue VAT invoices unless specifically requested by the customer.
Cross-Border Distance Sales
When shipping goods to German consumers from warehouses located in other EU countries, VAT invoices are generally required.
The VAT collected must be reported periodically (usually quarterly) to German tax authorities through VAT returns. You may deduct input VAT (VAT paid on business purchases and operational costs, including import VAT) from your output VAT liability. The net amount (output tax minus deductible input tax) represents your final VAT payment obligation.
VAT Rules for Non-German B2C Customers
When shipping goods from German warehouses to consumers in other EU countries where you aren't VAT-registered, you typically must charge German VAT. However, once you exceed the distance selling threshold in any particular EU country, you must register for VAT there and charge that country's VAT rate instead.
Alternatively, you may elect to charge the destination country's VAT before reaching the threshold. Note that if goods are already stored in the consumer's country at the time of sale, this constitutes a domestic sale requiring local VAT registration.
VAT Rules for EU B2B Transactions
For B2B sales to other EU countries, German businesses may apply the zero-rate under these conditions:
- The customer provides a valid EU VAT number (including country prefix)
- Goods are shipped from Germany to another EU destination
- Proper commercial evidence documents the cross-border movement
Additional reporting requirements include submitting EC Sales Lists detailing all intra-EU B2B transactions.
German VAT Refund Process
After VAT registration, businesses can reclaim German VAT paid on qualifying expenses by offsetting input tax against output tax. Non-established businesses not required to register for German VAT may still reclaim input tax through special refund procedures.
German VAT Rates
Germany applies three VAT rates:
- Standard rate: 19% (applies to most goods)
- Reduced rate: 7% (for certain goods like books, food, etc.)
- Zero rate: 0% (for specific transactions like intra-EU B2B supplies)
VAT Registration Requirements for Non-EU Businesses
The obligation to register for German VAT depends on your business model:
Scenario 1: Selling from Outside Europe
When shipping directly from non-EU locations to European customers, import VAT (and possibly customs duties) typically applies at the destination country. No German VAT registration is required unless goods are stored in Germany.
Scenario 2: Storing Goods in Germany for Domestic Sales
Maintaining inventory in Germany triggers immediate VAT registration requirements, regardless of your company's location. Non-EU businesses may need to appoint a German fiscal representative.
Scenario 3: German Storage with EU-Wide Sales
German VAT registration is mandatory when storing goods in Germany. Additional VAT registrations may be required in other EU countries once distance selling thresholds are exceeded.
Scenario 4: Direct Shipping to Germany from Abroad
Import VAT applies when goods enter Germany, but no VAT registration is required unless goods are stored domestically.