Is Germany’s strict inspection on VAT reasonable? How should the enterpreises respond to that?

Germany intensifies its efforts to deal with China’s electricity supplier to avoid the problem of value-added tax

According to German newspaper Handelsblatt, Chinese companies have continued to evade VAT in the online trading market in Germany e-commerce for many years. At present, the German taxation department took measures to intervene for the first time, detained the goods of the e-commerce and will further increase the legal punishment.

In Germany, businesses that sell goods to individuals are usually obliged to pay VAT. The rules apply to German companies and companies outside the European Union, including China.

When Chinese for-profit sellers sell products from China to Germany’s individual customers, the sellers have a tax liability in Germany. However, these sellers have not fulfilled their obligations for a long time, leading the Finance Bureau of Berlin-Neckeln, Germany, to start investigating the seller’s tax evasion. The Ministry of Finance is responsible in Germany for companies that have no place of residence in Germany.

Therefore, the tax audit department strictly examined online distribution platforms such as Amazon. Since it is not possible to contact these Chinese companies in Germany and these companies do not have significant assets in Germany, the direction of the investigation is to exert pressure on the distribution platform to make it more rigorous in checking its customers and close the seller’s account when suspected of breaking the law. Platform policies also need to take measures and improvements. Currently considering the distribution of the distribution platform into tax liability in the law (but the feasibility is problematic).

Therefore, it is necessary for Chinese e-commerce companies and enterprises engaged in trade in Germany to actively understand relevant matters such as the application for German value-added tax and value-added tax so as to protect their own interests in compliance with German laws and regulations.

Introduction to German VAT and VAT Numbers

1. VAT

VAT is a type of tax that is required to be paid when the product is sold. It is part of the selling price and is paid by the consumer. The VAT collected by the seller shall be paid to the tax authority. The legal basis for German VAT is the German VAT Act (USTG.

The official governing body of the German VAT (Umsatzsteuer, referred to as USt.) is the Bundeszentralamt für Steuern.
If it is a company established in Germany, or a foreign company (outside Europe), but the goods are sent to Germany’s end consumers from the German warehouse, no matter how much sales, you need to register the German VAT number and pay taxes.
If the goods are sent from non-German warehouses in the European Union to German end-consumers and the sales volume does not exceed 100,000 Euros in a natural year, there is no need to apply for German VAT.
Sellers sell goods from countries other than the European Union to German buyers, provided that the seller or his agent is responsible for customs clearance of sales of goods, and both need to register a German VAT number and pay taxes.

2. European Union VAT threshold (SCHWELLENWERTE) (from April 2017)

VAT Threshold
Countries Threshold for remote business Threshold for native business
National Currency Euro Equivalent National Currency Euro Equivalent
Great Britain £70,000 € 82,489 £83,000 € 97,808
Germany € 100,000 € 17,500
France € 35,000 € 82,800
€ 42,900
€ 33,100
Italy € 35,000 € 50,000
€ 45,000
€ 40,000
€ 30,000
€ 25,000
Spain € 35,000 /
Poland PLN 160,000 € 37,154 PLN 200,000 € 46,442
Czech Republic CZK 1,140,000 € 42,189 CZK 1,000,000 € 37,008

 

3. Registration VAT number

The VAT identification code VAT ID (Umsatzsteuer/Identifikationsnummer, abbreviated as USt-IdNr.) is issued by the German Federal Taxation Authority. It is an independent number other than the tariff number used to clearly identify each company in the EU.

Ways to apply for VAT identification code:

Set up a company
At the beginning of the establishment of the company, the relevant taxation department can apply for a VAT identification code. The tax department will issue a questionnaire at the beginning of the company’s establishment. The company’s supervisor can check the questionnaire with the options related to the application for a VAT number. This application will be submitted to the IRS together with the required VAT registration information.

Netshen
You can also click this link to apply for an online VAT number https://www.formulare-bfinv.de/

Written application
The IRS submitted it in written form. The Federal Taxation Administration did not give a specific deadline, but according to past experience, the process is two to six weeks.

4. How to collect VAT and how to refund it?

To levy VAT, the first step is to register for VAT and get a VAT number. After registration of VAT, you must follow the VAT regulations of the registered country. You must collect VAT on the goods or services you sell, and display this VAT on the VAT invoice. Please consult our ECOVIS Beijing tax advisor for specific advice on invoice requirements.

If you sell goods in Germany, the applicable VAT rates vary depending on the type of goods you sell. Currently, the applicable VAT rate is 19%, 7% or 0%. It is worth noting that most products sold in Germany are subject to a 19% tax rate. If you are not sure which VAT rate your product applies to, consult your tax advisor.

The value-added tax paid to the local tax bureau, which is the value-added tax charged to the buyer, can be credited to the VAT generated by your business purchases/costs. For example, when you pay the German VAT generated at the time of purchase, you can use this VAT to offset VAT generated from your sales in Germany in the German VAT returns. Please consult ECOVIS Beijing to find out which costs can be returned to VAT.

The amount of VAT that should be paid to the tax office is based on your German sales tax minus the net value of the refundable German input tax! If the tax is output during the declaration, the tax will be refunded. Within 3 months, you can apply for a refund in the application form.

Annual declaration of value-added tax declaration once a month, once a month (if the annual sales of 1.000 EUR – 7.500 EUR can be quarterly declaration), but the new registration, the need for monthly reporting in the first two years.

5. For foreign companies outside Europe

If you are a foreign company established outside of Europe, you do not have a registered address in Europe, nor do you store goods in Europe, and export goods to European countries for sale, usually you will need to pay Import VAT to the tax bureau of the importing country (possibly also There are import tariffs). Please note that if you store your product in a European country, you will need to register for VAT. There are many ways to structure and pay import VAT. If you need more detailed advice, you are advised to consult with our tax advisor.
If you are a foreign company established outside of Europe and store your goods in Germany and only sell to German buyers, you need to register German VAT (from the moment the goods enter Germany), also if you store the goods in any other European country All need to register VAT in this country. Overseas (non-European) companies may also need to appoint German tax representatives.
If you are a foreign company established outside of Europe and store your goods in Germany and sell them to non-German buyers (usually called remote sales), you may also need to register VAT in the European countries that receive the goods (exceeding the country’s remote sales VAT threshold).
6. For companies established in Europe
If you sell goods from one European country to another European country, when your sales exceed the VAT registration threshold, you need to register VAT in this country. If you transfer your merchandise from one European country to another, this type of transfer may also be considered a transaction that requires VAT.
You store your goods in Germany and sell them only to German buyers. When your sales exceed the German VAT registration threshold, you need to register for VAT.
On November 30, 2017, the finance ministers of the German Federal states held a meeting on e-commerce platforms to fulfill their VAT obligations and decided to step up efforts to crack down on E-commerce VAT tax evasion. The following three main measures have been announced, according to German media reports. The German Inland Revenue Department will submit a plan to the new German government before the end of March 2018. At that time, both parties will discuss and decide on the feasibility of the VAT program:

Launched an online trading market with joint responsibility system. Similar to the joint responsibility system introduced in the United Kingdom last year, if the e-commerce vendors do not pay VAT, the online trading market may assume joint and several liability unless they promptly stop the illegal e-commerce account after receiving the notification from the tax office. The Treasurer claimed that the law could be passed as early as the first quarter of 2018. There are still problems with the feasibility of this measure.
It is proposed that the online trading market be deducted from VAT. Following the pace of the United Kingdom, Germany also plans to propose in the coming months that the online trading market directly withholds VAT from the consumer’s payment directly to the tax bureau, and the balance will be paid to the seller’s electricity supplier. The deduction of the VAT system may indeed be an effective method. However, this system is not easy to implement.
Strengthen customs management.
In short, in 2018, Germany will join in cracking down on e-commerce VAT tax evasion. E-businesses should consult tax experts as soon as possible, and compliance with laws and regulations in dealing with VAT in Germany is the company’s long-term business strategy.

ECOVIS (Beijing) offers you comprehensive consulting services

The trend of investigating and punishing VAT compliance is becoming more and more severe, and it is an area that requires a great deal of attention. Due to the differences in taxation and customs regulations in various countries, the issue of VAT is often very complicated. However, VAT compliance is of the utmost importance because failure to comply with these rules may result in problems with the business and penalties.

In order to ensure that businesses comply with VAT regulations and reduce your burden, it is advisable to hire a professional tax consultant. Because tax experts are more capable and more effective in controlling the overall value-added tax business.

ECOVIS Beijing provides one-stop VAT administration services for cross-border companies/sellers:

Ask if you need to register for VAT
German tax number
VAT number and EORI number registration
VAT compliance services
Ensure your company complies with all legal obligations of German VAT law
Regularly reported VAT report
European Sales Listing (EC Sales Listing)
Monthly Intrastat Report
Representative prepares and declares
VAT return
VAT audit assistance
Tax structure optimization
Notify you of potential VAT issues
If you are interested in investing in Germany, no matter what kind of way you can communicate with us, Ecovis Beijing will develop a practical business plan for your business ideas and implement it. We always welcome your inquiries: richard.hoffmann@ecovis-beijing.com

 

Richard Hoffmann

Mr. Richard Hoffman is one of the partners of Sinopec (Beijing) Consulting Co., Ltd. He holds a master’s degree in law and is an expert in dealing with complex legal and tax issues. So far, he has published more than fifty articles in numerous international journals and has frequently been invited to attend important occasions at home and abroad. Mr. Hoffmann has more than 10 years of experience working with companies in various countries. He is familiar with English, German and Chinese. For more detailed information, please contact richard.hoffmann@ecovis-beijing.com

Ecovis Beijing

Ecovis Beijing is the trusted tax and legal advisor to several embassies and official institutions in China. It specializes in mid-sized international companies and is focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up for our Newsletter, give us a call +86 10-65616609 or contact us directly via service@ecovis-beijing.com.

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