The Essential Guide to VAT for Freelancers in Germany

Are you a freelancer who needs to charge and report VAT in Germany? With a number of regulations that self-employed people have to deal with, VAT can be quite confusing. Here is a guide to VAT for freelancers in Germany.

When you become self-employed or a freelancer in Germany, you have to understand VAT more precisely, calculate it accurately, charge it and pay it to the Finanzamt.

Whether you are a trader or freelancer or have your own business, sooner or later you will have to deal with VAT in Germany. 

All matters relating to the handling of VAT are regulated in the German VAT Act (UStG).

In this post, you can read some important facts about VAT for freelancers in Germany.

But first, here is a glossary of some important German terms and their English meanings in this article.

1. What is VAT For Freelancers in Germany?

 VAT in Germany is a tax levied on the added value of a product or service along the entire value chain. The freelance or company collects this tax when selling a product or service and then pays the VAT to their local tax office.

VAT is levied in Germany on almost all goods and services. From a finance point of view, VAT is a value-added tax, as in the end only the difference between the sales price minus input services is taxed. 

Freelancers in Germany can request their own unique VAT ID number when they register for self-employment in Germany.

2. How Much VAT is Charged in Germany?

Currently, the VAT in Germany is 19% on all products and services. Exceptions are regulated in the German Value Added Tax Act, which currently applies a reduced rate of 7% VAT in Germany.

These exceptions to value-added tax include, for example:

• Some specific food items
• Livestock and plant rearing
• Tickets for cultural events, theatre, music concerts or museums
• Film distribution and screenings
• Circus performances
• Community service
• Operation of swimming pools and spas
• Hotels and overnight accommodations

In case you’re unsure about how much VAT you should charge, we recommend you to consult a tax advisor specialising in VAT in Germany.

3. VAT and Small Business Regulation

Freelancers whose annual turnover does not exceed € 22,000 and whose turnover in the next year is also expected to be below € 50,000, can exempt themselves from the advance return of VAT and do not have to pay VAT to the tax office. 

This is known as Kleinunternehmerregelung.

However, the freelancer in Germany will then no longer be able to claim input tax and will not be able to show VAT on their invoice.

4. How to Charge VAT in Germany, EU Countries and Third Countries

Self-employed and freelancers in Germany have to charge VAT to their clients and customers. VAT in Germany is charged according to the geographical location of the client. This is divided into three areas:

• Germany
• European Union
• Non-European countries or Third Countries

VAT charges must be shown accordingly in the invoices charged to clients from these regions. If you make any VAT-related errors, it could be possible that you may have to make back payments to German tax authorities and get burdened with unnecessary costs.

5. How Do You Pay the VAT to the Tax Office?

The freelancer collects VAT on behalf of the tax office and must, therefore, pay it to the tax office on a regular basis. This is done via the advance return for value-added tax (Umsatzsteuervoranmeldung).

Here, the freelancer reports the turnover and the collected VAT.

At the same time, the freelancer must also report the VAT they have paid to other companies for services, etc. in order to be able to deduct input tax. If more VAT was paid than input tax, the difference must be paid to the tax office.

If the input tax amount is higher than the VAT received, this results in a credit that is paid out by the tax office.

You have TWO options for submitting your advance VAT return in Germany

• Do it manually: Either you go through all your income and expenditure for the advance return period, calculate the VAT collected and spent and enter all the figures manually, field by field, on the advance VAT return form in Elster Online.
• Do it automatically with just a few clicks: A much quicker and easier way is to submit it through a dedicated VAT filing software for freelancers such as Sorted. With a tool like Sorted, you can create the advance return for VAT in English and file it directly to your local Finanzamt.

The UI of Sorted uses very simple English which makes it extremely helpful for expat freelancers who are uncomfortable with complicated legal or finance German terminologies.

You don’t even need an Elster certificate for this – Sorted sends the VAT return directly to the tax office. In addition, you can manage all your invoices and expenses in one place and have an overview of your business finances at all times.

Freelancers registered as Kleinunternehmer can use this tool for FREE. You only need a paid account when you charge VAT to your clients.

6. What Are the deadlines for the advance VAT return?

Freelancers in Germany are obliged to submit an advance VAT return by the 10th of each month. 

Quarterly registration is possible, in case no more than €7,500 VAT liability has arisen in the previous year. 

Read more: FAQs about VAT in Germany

So here was my guide to VAT for freelancers in Germany. Do you have to charge and register VAT? Let us know your tips for dealing with VAT in Germany in comments below.