What is VAT anyway, is there a difference between sales tax and VAT, and what do I have to pay attention to when it comes to invoices? You can read the answers to these and other questions here.
Value added tax or sales tax: is there a difference?
The terms value added tax and sales tax refer to the same tax, but are used differently. While one usually speaks of value added tax (VAT) for goods that consumers buy, one uses sales tax for businesses. In fact, however, it is the same tax in each case. So there is no difference between VAT and sales tax.
However, the usual rates for sales tax are applied here as well. Entrepreneurs can retain this input tax as part of the input tax deduction. For companies subject to VAT, this means that they can have the VAT on goods and services they purchase in the course of their business activities refunded. This saves them 19 and 7 percent respectively.
However, the input tax deduction only applies to companies subject to sales tax. Small businesses that are exempt from VAT cannot claim the input tax deduction.
What is the value added tax (VAT)?
In principle, the value-added tax is an additional source of revenue for the state. In this sense, it is a community tax that is used to finance the federal and state governments. Since the value-added tax is paid by the consumer, i.e. consumers, it is also called consumer tax.
However, companies gain nothing from VAT – except additional expense. This is because companies merely help the state to collect this tax. In this sense, value added tax is a transitory item for entrepreneurs, because it may not be retained. Instead, the VAT is passed on directly to the tax office.
Since VAT thus takes a circuitous route from the consumer via the entrepreneur to the tax office, it is also called an indirect tax. From the consumer, who actually pays the VAT, it does not go directly to the tax office. Instead, the entrepreneur ensures that it is paid to the state.
Identification on invoice is mandatory
Since VAT must be paid on all goods and services, this must be indicated on the invoice. This is usually done by showing the net amount and the amount for VAT including the applicable VAT rate.
This is not only clear for entrepreneurs and customers. The correct invoice helps to avoid problems with the tax office. Because with the invoice, the entrepreneur can prove that the VAT was shown correctly and paid in the next move.
Formulas for calculating the value added tax
Calculate amount with 19% VAT: Net price * 1.19 = Gross price (with VAT)
Calculate amount with 7% VAT: Net price * 1.07 = Gross price (with VAT)
How much is the value added tax?
In Germany, there are two different tax rates for VAT:
- Standard tax rate of 19 percent
- Reduced tax rate of 7 percent
The reduced tax rate applies to so-called everyday goods. These include, for example:
- Food (with the exception of luxury foods)
- Some beverages, such as milk
- Agricultural and forestry products and animal feeds
- Books and newspapers
- Tickets for museums, theaters, cinemas…
- Tickets for public transport and cabs
Für alle anderen Erzeugnisse und Dienstleistungen, die nicht zu den Gütern des täglichen Bedarfs zählen, wird dagegen der reguläre Steuersatz von 19 Prozent fällig.
Reduction of the VAT rate: New regulations until 31.12.2020
Because of the corona pandemic, the government has decided to reduce VAT for 6 months:
- instead of 19 percent, 16 percent became due and
- instead of 7 percent, 5 percent value added tax became due
The changes will apply until the end of 2020, after which VAT rates will be raised back to the original level.
VAT – simple with easybill
Different rates for VAT, correct display on the invoice and then also a temporary VAT rate that is lower than normal – quite a lot of things to consider there.
Let us help you! Our invoicing software is up to date. Changes that are passed by the legislature are immediately taken up and observed by us. This means that you do not have to worry about them any further. All invoices that you issue with easybill also contain a correct display of the value-added tax and the gross and net amounts. This way, both customers and the tax office are satisfied. What more could you want?