Sales tax is a Europe-wide excise tax that is levied on the value of all goods and services in the EU. All member states of the EU have their own guidelines and tax rates.
A large number of tax reforms are planned in Europe at the beginning of the year, in the course of the year and also in 2021. We recommend our Quick Fixes Guide and our country-specific sales tax updates 2020 in our blog to always get the latest information. Please do not hesitate to contact us if you have any questions.
What is sales tax?
The sales tax is one of the main taxes in Germany. This is not least due to the fact that sales tax is charged for almost all business transactions, for example when purchasing third-party services, but also for everyday consumer spending. The sales tax is not paid by the consumer, but by the company providing the service or the like provides, collected. The consumer, on the other hand, pays the sales tax to the company, which in turn is obliged to pass the collected sales tax on to the tax office. The company thus acts as an extension of the tax office. As you calculate sales tax you need to be specific on these matters.
In this construct, sales tax is also described as an indirect tax. This is due to the fact that the tax debtor (company) the one who forwards the tax to the tax office and the taxpayer (consumer) – the one who bears the tax economically differ.
How much is the sales tax?
For many goods, the taxable percentage in Germany is 19 percent. In contrast, some groceries and basic necessities are only taxed at 7 percent. The same applies to cultural topics such as visits to the theater or books, local public transport and hotel visits.
What does sales tax mean for the self-employed?
In Germany there is a general obligation to show sales tax on an invoice. However, it must be clarified in advance whether the company is required to report sales tax under tax law. Our sales tax guide explains in detail how and when you have to show sales tax on your invoices.
If you as an entrepreneur are obliged to report sales tax or if you voluntarily decide to do so, you will receive the gross invoice amount. However, tax law states that you can only withhold the net amount. Conversely, this means that the sales tax collected must be paid indirectly to the tax office. Withholding the tax is not possible and can result in criminal prosecution. Thus, the sales tax is not profit or loss for the company because it is a transitory item.