VAT in Germany 2025: Rules, Registration, and Compliance Guide

VAT in Germany: Rules, Registration, and Compliance Guide

Germany applies Value Added Tax (VAT) on most goods and services. The standard rate is 19 % and a reduced rate of 7 % applies on food, books, newspapers, cultural services, short-term accommodation and some medical products. From 1 January 2025, a business with a previous year turnover of €25,000 or less and a current year projection of €100,000 or less will qualify for the small business exemption. Foreign companies supplying taxable goods or services in Germany must register for VAT on all sales regardless of turnover. This blog explains VAT rates, registration requirements, compliance steps, cross-border regulations and potential penalties.

VAT Rates and Applicability in Germany

Germany applies VAT on most supplies of goods and services within the country. The standard rate of VAT is 19 percent while a reduced rate of 7 percent applies on a range of selected items including food, books, newspapers, cultural services, short-term accommodation and certain medical goods. Some supplies may qualify for a zero percent rate especially on cross-border trade such as exports and intra-EU supplies when the required conditions of documentation and proof of delivery are met. Businesses must confirm that their goods or services meet these conditions to charge the correct VAT rate.

Other supplies are exempt from VAT. which means VAT is not charged on them and the input VAT cannot usually be recovered. Examples include certain financial services, insurance, long-term real estate rentals and some health or social services. The liability to charge VAT depends on the type of supply, the status of the supplier and the recipient as a business or a consumer and the applicable thresholds or cross-border rules.  

VAT Registration and Small Business Exemption

Domestic Business Registration

From 1 January 2025, the threshold for the small business (Kleinunternehmer) exemption is set so that if turnover in the previous year ≤ €25,000 and the projected turnover in the current year ≤ €100,000, a domestic business may opt not to charge VAT.

If a business exceeds either threshold, it must adopt regular VAT treatment (charge VAT, file returns, deduct input VAT).

Before 2025, the thresholds were €22,000 (previous year) and €50,000, but they have been raised under the new guidance.

Foreign / Non-resident Business Registration

Foreign businesses that supply taxable goods or services in Germany do not benefit from a threshold and generally must register immediately.

For EU businesses supplying goods or services into Germany (especially B2C distance sales), the EU distance sales threshold is €10,000. Once sales into Germany exceed this, German VAT must be applied. Participation in the One Stop Shop (OSS) simplifies declaration for EU sellers.

Under the EU SME scheme, a cross-border small enterprise with a turnover across the EU of 100,000 euros or less will benefit from simplifications of VAT compliance. This includes a single registration with the tax authorities and quarterly reporting of all sales to other EU countries. The scheme will reduce the administrative burden on a business and make managing VAT obligations on cross-border supplies easier to track and file.

VAT Compliance: Returns, Deadlines, and Records

VAT-registered businesses in Germany must fulfill all compliance obligations including filing returns, submitting advance returns, and maintaining records.

Frequency of filings:

• If the VAT liability of a business in the previous year exceeded 9,000 euros, monthly advance returns will be required.

• If the liability is between 2,000 euros and 9,000 euros, quarterly returns will be acceptable.

• A very small liability of a business may allow only a single annual return.

Due dates:

• Monthly or quarterly returns will be due on the 10th day of the month following the tax period.

• Annual VAT return: In addition to preliminary returns, a full annual return of a business must be submitted. In many cases the deadline will be 31 May of the following year or 30 September if filed by a tax advisor.

Record keeping:

Invoices, receipts, contracts, and all tax documents of a business must be kept generally for ten years.

Penalties, Audits, and Risk Mitigation

German tax authorities will impose penalties on a business for late filing, late payment, or mistakes on a VAT return. A late payment will generate interest or a surcharge on the unpaid VAT while late filing may result in fines calculated on the amount owed. Authorities may review VAT returns and request documents covering a period of four to ten years depending on the situation. Businesses must maintain accurate records of all VAT transactions to meet these requirements.

A business should issue correct invoices and apply the proper rates of VAT on all goods and services. Following reverse charge rules on business-to-business supplies and keeping full documentation of transactions will support compliance. Using reliable accounting systems and consulting a German VAT specialist will reduce errors and ensure filings are handled correctly.

Cross-Border Rules for Germany VAT

Goods exported outside the EU will have VAT applied at a zero percent rate when the required export formalities are completed and evidence of shipment is maintained. A business must retain proof of export to apply the zero rate and meet the requirements of the German tax authorities.

For intra-EU supplies, if the buyer is a VAT-registered business and the goods are transported to another member state, the supply will qualify for a zero percent intra-community rate. Business-to-consumer sales into Germany from other EU states must register for German VAT once the sales exceed the ten thousand euro threshold. Using the One Stop Shop will simplify VAT declaration and reporting for EU sellers on cross-border sales.

Steps to Register and Commence VAT in Germany

1. Identify the competent German tax office (Finanzamt) depending on location or nature of business.

2. Gather required documents: proof of business registration, charter documents, bank details, description of business operations, projected turnover.

3. Submit VAT registration application (often via German tax portal or via representative).

4. After receiving the VAT number, issue invoices with VAT, collect the tax, file returns and remit VAT to the authorities.

5. Monitor turnover on domestic and cross-border sales to maintain the correct VAT status.

Conclusion

Germany applies VAT of 19% on most goods and services and 7% on specific items. Certain goods and services have 0% or exemptions. From 2025 a business with previous-year turnover of under €25,000 and current-year turnover of under €100,000 will qualify as a small business. Foreign companies must register on any turnover. Businesses are required to file returns, issue correct invoices, and maintain full records. Errors or late submissions can result in fines or audits. Anyone doing business in Germany should verify their VAT status and consult local tax experts to comply.

FAQs

1. What is Germany’s standard VAT rate?
    The standard rate is 19 % and will apply on most goods and services supplied in Germany.

2. What is the reduced VAT rate in Germany?
    The reduced rate is 7 % and will apply on food, books, newspapers, cultural services, short-term accommodation, and some medical products.

3. Who can use the small business exemption in Germany?
   A domestic business whose previous year turnover ≤ €25,000 and projected current year turnover ≤ €100,000 may use it.

4. Do non-resident businesses have a threshold for VAT registration in Germany?
   No, they generally must register immediately (threshold is nil).

5. What happens if VAT returns in Germany are filed late?
   Penalties, surcharges, or interest may be charged by German tax authorities.