VAT and Sales Tax in Germany

What is German Umsatzsteuer and who must charge it?

Germany's value-added tax is known as Umsatzsteuer (USt) or colloquially as Mehrwertsteuer (MwSt). It is levied under the Umsatzsteuergesetz (UStG) -- Germany's domestic implementation of EU VAT Directive 2006/112/EC -- and administered jointly by the local Finanzamt (tax office) for registration and the Bundeszentralamt fuer Steuern (BZSt) for VAT identification numbers and the One Stop Shop (Bundesministerium der Finanzen / BZSt, gesetze-im-internet.de). Any entrepreneur (Unternehmer) making taxable supplies in Germany must register, charge VAT on outgoing invoices, offset Vorsteuer (input tax) on qualifying purchases, and remit the net balance to the Finanzamt. Individuals and non-business activities fall outside scope. A business registers by completing the Fragebogen zur steuerlichen Erfassung with its local Finanzamt; there is no separate registration form for VAT -- it is bundled with business registration.

What are the standard and reduced VAT rates?

The standard rate (Regelsteuersatz) of 19% applies to the majority of goods and services: electronics, clothing, most professional services, alcohol, software, and restaurant meals (the temporary 7% COVID hospitality rate expired 31 December 2023 and 19% resumed for restaurant food from 1 January 2024) (UStG ss 12(1), Bundesministerium der Finanzen). The reduced rate (ermaessigter Steuersatz) of 7% applies under UStG ss 12(2) to a defined list of essential and cultural supplies. From 1 January 2026 restaurant and catering services (excluding beverages) were reduced back to 7% by legislative amendment (vatcalc.com, 2026). Below is a summary of the two rates and their main categories:

Zero-rated supplies include exports outside the EU and intra-EU B2B supplies supported by valid VAT identification documentation. Certain supplies are exempt (umsatzsteuerbefreit) -- notably residential rent, most financial services, healthcare, and education -- and businesses making only exempt supplies cannot register to recover input tax.

How does the Kleinunternehmerregelung small-business exemption work?

Under ss 19 UStG, entrepreneurs below defined turnover thresholds may opt out of charging VAT entirely -- the Kleinunternehmerregelung (small-business regulation). Effective 1 January 2025, the German legislature raised the thresholds materially as part of implementation of EU Directive 2020/285 (Accountable.de, daniel-kanzlei.de):

• Prior-year domestic turnover: must not exceed EUR 25,000 (net, raised from EUR 22,000 gross).
• Current-year domestic turnover: must not exceed EUR 100,000 (net, raised from EUR 50,000 gross).

Importantly, the new thresholds are net amounts (excluding VAT), whereas the old limits were gross figures. Assuming a 19% rate, the gross equivalents are roughly EUR 29,750 (prior year) and EUR 119,000 (current year) -- a significant practical expansion. If the EUR 100,000 current-year ceiling is crossed mid-year, standard VAT status applies immediately from the invoice that pushes turnover over the threshold, not from the following year. Kleinunternehmer invoices must carry the statement: "Umsatzsteuerbefreit gemaess ss 19 UStG." The trade-off is that Kleinunternehmer cannot deduct any Vorsteuer on their own purchases. The election binds for five calendar years; opting back out requires written notification to the Finanzamt. From 2025, Kleinunternehmer are also exempt from filing annual VAT returns (Umsatzsteuererklaerung) -- a further administrative simplification. A new EU-KU-Regelung (EU small-business cross-border scheme) allows German-based Kleinunternehmer to claim exempt status in other EU member states, subject to mandatory quarterly reporting to the BZSt.

How do advance VAT returns (Voranmeldung) and Vorsteuer deduction work?

VAT-registered businesses file periodic Umsatzsteuer-Voranmeldungen (advance VAT returns, UStVA) via ELSTER, Germany's mandatory electronic filing portal. Filing frequency is determined by the prior-year VAT liability (ss 18 UStG, Finanzamt Baden-Wuerttemberg portal, firma.de):

• Monthly (monatlich): prior-year VAT liability exceeded EUR 7,500.
• Quarterly (vierteljaeehrlich): prior-year liability between EUR 1,000 and EUR 7,500.
• Annual only (jaehrlich): prior-year liability below EUR 1,000 -- no advance returns required.

All returns are due on the 10th of the month following the reporting period. Businesses that cannot meet this deadline may apply for a Dauerfristverlaengerung (permanent one-month extension), which requires monthly filers to pre-pay 1/11 of the prior-year VAT liability by 10 February. In addition, an annual Umsatzsteuererklaerung (annual VAT return) is due by 31 July of the following year (or end of February the year after that where a Steuerberater files). Vorsteuer (input tax) is the VAT a registered business has paid on its own purchases, and it is offset directly against the VAT charged to customers in the same return period. The net balance -- output VAT minus Vorsteuer -- is either remitted to the Finanzamt or, where Vorsteuer exceeds output VAT, refunded. Input tax deduction requires a compliant invoice (Rechnung) from the supplier meeting all 14 mandatory fields under UStG ss 14 (supplier name and address, recipient name, tax number or USt-IdNr, invoice date, sequential invoice number, quantity and description of supply, net amount, applicable VAT rate, and VAT amount). Mixed-use assets -- used for both taxable and exempt or private purposes -- must be apportioned; only the taxable-use portion yields a Vorsteuer deduction.

How does the USt-IdNr VAT identification number work, and when is it required?

The Umsatzsteuer-Identifikationsnummer (USt-IdNr) is a separate identifier from the local Steuernummer and is issued exclusively by the Bundeszentralamt fuer Steuern (BZSt) free of charge. The format is DE followed by 9 digits (example: DE123456789) (BZSt, taxfix.de). It is required for any cross-border transaction within the EU: selling goods or services to VAT-registered businesses in other member states (intra-EU B2B), purchasing from EU suppliers, or participating in triangular supply arrangements. Businesses apply via their local Finanzamt during initial registration or directly through the BZSt online portal; the number is issued by post, typically within one week for established businesses (longer for new registrations). For cross-border B2C distance sales exceeding the EU-wide EUR 10,000 threshold, German-established businesses should register for the EU One Stop Shop (OSS) through the BZSt rather than registering separately in every destination member state. The OSS consolidates reporting into a single quarterly return, which the BZSt distributes to each destination country. For intra-EU B2B supplies, the reverse-charge mechanism shifts VAT liability from supplier to recipient: the German customer self-assesses German VAT (output) and simultaneously claims the corresponding Vorsteuer deduction in the same UStVA, resulting in a net-zero cash effect but a mandatory compliance entry. For a broader look at the German tax system, see the Germany country overview. Every situation is different, and this page summarises publicly available rules only -- a qualified Steuerberater registered with the Steuerberaterkammer is the right person to advise on any specific VAT position.