What is a VAT Number? A Complete Guide for Businesses and Freelancers in Germany
If you’re starting a business, working as a freelancer, or offering services in Germany, you’ll likely come across the term VAT number or Umsatzsteuer-Identifikationsnummer. Understanding what a VAT number is, how to get one, and when it’s required is essential for staying compliant with German tax laws. This guide will walk you through everything you need to know about the VAT number in Germany, including how it works, who needs it, how to apply for it, and additional frequently asked questions.
What is a VAT Number (Umsatzsteuer Identifikationsnummer)?
A VAT number, also known as a Umsatzsteuer-Identifikationsnummer (USt-IdNr) in German, is a unique identifier assigned to businesses that are subject to Value Added Tax (VAT). VAT is a consumption tax applied to the sale of goods and services throughout the European Union, including Germany. The VAT number is used for cross-border transactions within the EU and allows businesses to charge, collect, and report VAT on eligible sales.
In Germany, VAT is called Mehrwertsteuer (MwSt), and the standard rate is 19%, with a reduced rate of 7% for specific goods and services. Businesses use the VAT number to invoice clients, file VAT returns, and reclaim VAT on business expenses. For businesses and freelancers dealing with clients or suppliers in other EU countries, the VAT number is crucial for tax reporting and compliance.
Who Needs a VAT Number in Germany?
Not every business in Germany needs a VAT number, but most businesses that charge and collect VAT must have one. Here’s a breakdown of who needs a VAT number in Germany:
1. Businesses Selling Goods and Services
If you run a business that sells taxable goods or provides services, and your annual turnover exceeds €22,000, you are required to charge VAT and must obtain a VAT number. This includes e-commerce businesses, retailers, and service providers.
2. Freelancers and Self-Employed Individuals
Freelancers and self-employed individuals who earn more than €22,000 per year from taxable services or goods must also charge VAT and apply for a VAT number. Examples include graphic designers, consultants, web developers, and translators.
3. Businesses Engaged in Cross-Border Transactions
If your business is involved in cross-border transactions within the EU, such as selling goods to other EU countries, you will need a VAT number to comply with EU tax regulations. Having a VAT number allows you to benefit from VAT exemptions on cross-border transactions within the EU.
4. Small Businesses under the Kleinunternehmerregelung
Small businesses with an annual turnover below €22,000 can opt for the small business regulation (Kleinunternehmerregelung), which exempts them from charging VAT. In this case, they do not need a VAT number. However, they cannot claim VAT on business expenses or charge VAT to clients.
How to Get a VAT Number in Germany
If you’re required to have a VAT number in Germany, the application process is relatively straightforward. Here’s how to apply for a VAT number:
1. Register Your Business
Before applying for a VAT number, you must first register your business with the local tax office (Finanzamt). This involves filling out the tax registration form (Fragebogen zur steuerlichen Erfassung), where you will provide information about your business activities, estimated annual revenue, and whether you expect to charge VAT.
2. Submit the VAT Application
When registering your business with the Finanzamt, you will also indicate whether you need a VAT number. If applicable, the tax office will automatically assign you a VAT number (USt-IdNr).
If you’re engaging in cross-border transactions within the EU, you may also need to request an EU VAT number(separate from the standard VAT number). This can be requested from the Bundeszentralamt für Steuern (Federal Central Tax Office).
3. Receive Your VAT Number
Once your application is processed, the Finanzamt will issue your VAT number. This process usually takes a few weeks, so plan accordingly if you need to start charging VAT or engage in cross-border business activities.
How to Use a VAT Number in Germany
Once you have your VAT number, it must be included on all official documents related to your business, including:
- Invoices: When invoicing clients, your VAT number should appear on the invoice, and you should clearly indicate the VAT charged on the goods or services.
- Contracts: Any contracts with clients or suppliers within the EU must include your VAT number if VAT is applicable.
- VAT Returns: As a VAT-registered business, you’ll need to file regular VAT returns, which involve reporting the VAT you’ve collected from customers and the VAT you’ve paid on business expenses.
Difference Between a VAT Number and a Tax Number
It’s important not to confuse the VAT number (USt-IdNr) with the Tax Number (Steuernummer). While both numbers are issued by the tax office, they serve different purposes:
- VAT Number (Umsatzsteuer-Identifikationsnummer): This is used specifically for VAT purposes, particularly for cross-border transactions within the EU. It identifies businesses that are registered for VAT and allows them to charge, collect, and report VAT.
- Tax Number (Steuernummer): The Steuernummer is a general tax number issued to all businesses and freelancers for income tax purposes. It’s used for all other tax-related filings and communications with the tax authorities, including your income tax return.
Filing VAT Returns in Germany
If you have a VAT number, you are required to submit VAT returns (Umsatzsteuererklärung) to the tax office regularly. This is typically done quarterly, but in some cases, businesses may need to file monthly returns.
To file your VAT returns, follow these steps:
- Calculate VAT Collected: Add up the VAT you’ve charged customers on your sales or services (output tax).
- Calculate VAT Paid: Add up the VAT you’ve paid on business expenses or supplies (input tax).
- Submit Your Return via ELSTER: Use the German online tax portal, ELSTER, to submit your VAT return. You will report both the output tax and input tax, and either pay the balance to the tax office or claim a refund if you’ve paid more VAT than you collected.
- Make Payments or Receive Refunds: If the VAT you’ve collected exceeds the VAT you’ve paid, you’ll need to pay the difference to the tax office. If your input tax is higher than your output tax, you may be eligible for a refund.
VAT Exemptions and Reduced Rates in Germany
While the standard VAT rate in Germany is 19%, certain goods and services are subject to a reduced rate of 7%. Examples of goods and services that fall under the reduced rate include:
- Books and Newspapers: Printed materials, such as books and newspapers, are taxed at the reduced 7% rate.
- Public Transportation: Many forms of public transport also benefit from the lower VAT rate.
- Medical Services: Some medical services and pharmaceuticals are VAT-exempt or subject to a reduced rate.
Additionally, certain industries and services may be exempt from VAT altogether, such as educational services or non-profit organizations. Always check with the Finanzamt or a tax advisor to confirm whether your business activities are subject to VAT and at what rate.
How Long Does it Take to Get a VAT Number in Germany?
Once you’ve registered your business or freelance activity with the Finanzamt (local tax office), it generally takes about two to four weeks to receive your VAT number. The process involves filling out the Fragebogen zur steuerlichen Erfassung (tax registration form), where you declare your intent to charge VAT if applicable. The Finanzamt will then review your application and issue the VAT number.
In some cases, it might take longer if additional information is needed or if there is a backlog of applications. If you need to start charging VAT before receiving the official VAT number, you can begin collecting VAT and inform your clients that the VAT number will be provided later on the invoice.
Can Freelancers Get a VAT Number in Germany?
Yes, freelancers in Germany can and, in many cases, must get a VAT number. If your freelance income exceeds the €22,000 annual threshold, you are required to charge VAT on your services and must apply for a VAT number.
If you’re a freelancer and fall under the Kleinunternehmerregelung (small business regulation), which exempts you from charging VAT due to earning less than €22,000 per year, you don’t need a VAT number. However, if you anticipate your income will grow beyond this limit, it’s wise to apply for a VAT number in advance to ensure you can comply with VAT regulations once your income exceeds the threshold.
Freelancers offering services like consulting, graphic design, web development, and similar fields are commonly required to register for VAT once they surpass the income limit. Keep in mind that by charging VAT, you’ll also be able to reclaim VAT on business-related expenses, which can be advantageous.
Do I Need a VAT Number for Cross-Border Transactions in the EU?
Yes, you need a VAT number for cross-border transactions within the European Union. If you are selling goods or providing services to customers in other EU countries, the VAT number allows you to manage VAT reporting and qualify for VAT exemptions when applicable.
When selling to another VAT-registered business within the EU, you may be eligible for a VAT reverse chargemechanism, meaning the buyer is responsible for reporting and paying VAT in their own country. In such cases, both you and your client must exchange VAT numbers, and the invoice should note that the reverse charge applies.
For cross-border e-commerce or digital services, the VAT number is also required to comply with the EU’s OSS (One-Stop-Shop) scheme, which simplifies VAT reporting for businesses that sell to consumers across multiple EU countries. The OSS scheme allows businesses to report VAT in a single return, even if they operate in multiple EU states, using their VAT number to track transactions.
What Happens if I Don’t Get a VAT Number?
If you are required to have a VAT number and fail to obtain one, you may face serious penalties or fines from the tax authorities. In Germany, businesses and freelancers that meet the criteria for VAT registration must charge and remit VAT to the Finanzamt. Failing to do so is considered tax evasion, which can result in fines or legal action.
Additionally, without a VAT number, you won’t be able to claim VAT refunds on business expenses. This can result in higher costs, as you won’t be able to offset the VAT you’ve paid on supplies, services, or business-related purchases.
Furthermore, if you engage in cross-border transactions within the EU and do not have a VAT number, you won’t be able to take advantage of the reverse charge mechanism, which could create complications in your invoicing and tax reporting.
What Information Do I Need to Apply for a VAT Number in Germany?
To apply for a VAT number in Germany, you will need the following information and documentation:
- Business Information: This includes the legal form of your business (sole proprietorship, partnership, etc.), your business name, and details about your business activities.
- Personal Information: Your name, contact details, and your Tax Identification Number (Steuer-ID).
- Bank Account Information: Your bank account details, as VAT refunds and payments will be processed through your German bank account.
- Estimated Income: You’ll need to provide an estimate of your expected annual turnover. If it’s above the €22,000 threshold, you will need to register for VAT.
- Address: Your business address or registered address in Germany.
- Cross-Border Activity: If applicable, provide details about any planned transactions with customers in other EU countries.
Once submitted to the Finanzamt, they will review your application and assign your VAT number.
Can You Voluntarily Register for VAT Below the Threshold?
Yes, even if your annual turnover is below the €22,000 threshold, you can choose to voluntarily register for a VAT number. This might be beneficial in some cases, especially if your business incurs high VAT expenses on goods and services you purchase.
By registering voluntarily, you can:
- Reclaim VAT on business-related expenses, reducing your overall tax burden.
- Appear more professional to clients, as many businesses prefer to work with VAT-registered entities.
- Be prepared for growth if your income increases above the threshold in the near future.
However, keep in mind that once you voluntarily register for VAT, you will be responsible for filing VAT returns and charging VAT on your services, even if your income remains below the threshold.
Understanding and obtaining a VAT number in Germany is essential for businesses and freelancers who are required to charge VAT on their goods or services. Whether you’re selling products within Germany or engaging in cross-border transactions in the EU, having a VAT number ensures that you comply with tax regulations. Remember to include your VAT number on invoices, contracts, and VAT returns to avoid legal issues and ensure that your business runs smoothly. If you’re unsure about your VAT obligations, consider consulting a tax advisor to help navigate the process.
