VAT Rates in Germany
German VAT rates
Check also our VAT news article on temporary and recent changes on the German VAT rates.
Germany has not introduced a super-reduced VAT rate. Reduced VAT rates apply on a number of items allowed by the VAT Directive (source: European Commission):
German VAT deduction limits
Unlike most EU countries, Germany only restricts VAT deduction on a few items. In general, input VAT incurred in the course of a business in hotel expenses, restaurants, attendance to conferences, telephone, taxi or entertainment is 100% deductible.
The following items are not VAT deductible:
- Gifts to non-employees with a value over 35€ or 60€ depending on the recipient
- Luxury goods
- Employees private telephone bills (regardless if landline or mobile)
Any other input VAT is fully deductible as long as it is incurred as part of a business activity. Where the business use of an item is below 10%, this item is generally not deductible.
Input VAT prior to start a business (e.g. before a VAT registration) may be deductible, however, this should be agreed with the competent tax office, particularly for material amounts.
Company Car. Input VAT Deduction
Where goods or services are used for both business and private purposes, input VAT recovery is permitted only to the extent of business use. The recoverable proportion is determined by the degree to which the asset is used for taxable business activities.
In the specific case of company cars that are also used for private purposes, the business may initially recover all input VAT in its periodic VAT return. However, the private element gives rise to a self-supply, which must be accounted for as output VAT. The taxable amount for this self-supply is calculated on the basis of all costs associated with operating the vehicle, including costs on which no VAT was originally charged.
Two methods are available for calculating the taxable amount attributable to private use.
- The first is the standard 1% rule, under which the taxable amount is set at 1% of the vehicle's catalogue list price per calendar month.
- The second is the logbook method, which requires detailed recording of every journey as either business or private; the private-use proportion is then calculated from actual usage data.
Businesses may choose whichever method is more advantageous, subject to consistent application.
Regarding electric vehicles and bicycles, the BMF confirmed in February 2022 that the same general principles apply as for conventional vehicles. Notably, the income tax concession that allows the gross list price to be reduced for the purpose of calculating the benefit-in-kind — introduced to encourage the adoption of electric vehicles — does not carry over to VAT. The full catalogue list price must therefore be used when applying the 1% rule for VAT purposes, regardless of any income tax reduction available.
Import VAT must be deducted in the VAT return for the period in which the import takes place. If it is missed in that return, it can generally still be claimed within the 4-year statute of limitations, counted from 31 December of the year in which the import and the right to deduct arose; this still requires correcting the VAT return from the reporting period in which the import took place.
German Statute of limitations
The statute of limitations is the period in which the authorities can go back to investigate a tax liability. This is normally the same period in which a taxpayer can go back to request a tax credit.
The statute of limitations in Germany is 4 years. This start point of this period is the 31st December of the year in which the annual VAT return was filed. In any case, this period cannot start being counted later than 3 years from the time VAT became due. If no annual VAT return was filed, the statute of limitation is 7 years.
There is an extended period of 10 years in case of tax evasion.
German tax point rules
The tax point is the time when VAT becomes due in a transaction. VAT due should be distinguished from VAT payable. VAT is due when the tax point occurs. VAT is payable between the day after the end of the reporting period and the due date to submit and pay the VAT return.
- General rule: Tax point arises when the goods are put at the disposal of the customer or when the service is completed
- Prepayments: In case of prepayments of all or part of the agreed price, VAT is due at the end of the VAT return period in which the payment was received
- Continuous supplies of services: The tax point occurs when the service is completed or, if partial payments are made periodically (e.g. Lease payments), these payments are considered separate supplies, hence VAT becomes due as per the general rule for each payment
- Intra-Community acquisitions: Tax point occurs at the end of the month in which the IC-acquisition happened. If an invoice is issued, the tax point is on the date of the invoice
- Intra-Community supplies: The tax point occurs on the end of the month in which the IC-supply was made
- Import: Tax point arises when the goods are released for free EU circulation (customs cleared or outside the customs suspension regime). The payment of import VAT can be delayed up to 45 days (deferred import VAT).
German use and enjoyment rules
Use and enjoyment rules can deviate the place of supply rules according to the country where the service is effectively consumed. This article explains the meaning and scenarios on which use and enjoyment rules apply.
Germany has introduced the positive use and enjoyment, hence deviating the place of supply to the country where the service is actually used when the customer is outside the EU and the service is also carried outside the EU. In consequence, when the service is used on enjoyed in Germany, and the supplier is established outside the EU, the place of supply is Germany. This rule applies to the following list of services:
- Advertising, consultancy and data processing services
- Banking and financial services
- Hiring of means of transport
- Transfer of copyrights to a legal entity under public law residing in Germany
- Supply of staff to a legal entity under public law residing in Germany
- Access rights to gas and electricity to a legal entity under public law residing in Germany
- Telecommunication, broadcasting and TV services.
Bad debt relief in Germany
Bad debt relief is available in Germany provided the supplier has sufficient evidence that the relevant transaction became a bad debt.
The process to recover this VAT is simpler than in most countries. There are no time limits, threshold or specific application to be made. The adjustment is made in the current period by reducing the output VAT. In case the adjustment refers to historic VAT periods for which the annual VAT return has already been submitted, a corrective annual VAT return should be filed.
Businesses claiming input VAT in bad debt supplies must keep all relevant documentation to prove that the invoice has not been paid. There is no exhaustive list of documents that must be kept, however, such documentation must provide enough evidence of the VAT credit.
