In 2020 everyone in Germany was talking about value added tax (VAT). Because at the beginning of the year mentioned the VAT rate was raised from 16 to 19%. The end consumers in particular noticed this in their wallets.
For the tax authorities, VAT is the most important source of income:
In 2019, the state received a total of 203 billion euros. The share of VAT is around 30% of the total tax revenue.
- Since this is a so-called community tax according to tax law, part of the income goes to the federal states and municipalities. The federal government is entitled to around half, the municipalities receive around 2.2%. The remaining portion goes to the federal states.
- Everything to do with VAT is anchored in the VAT Act. This shows who has to pay this and when. In the guide we explain what exactly this tax is and how VAT is to be calculated. We also go into the reimbursement of VAT in Germany.
- Value added tax was introduced in the 20th century and is now an important source of income for states around the world. The VAT rate in Germany is 19%, which is the average of all EU member states. A value added tax of 7% is levied on basic foodstuffs. Using the sales tax calculator is useful in this case.
The term “VAT” already suggests that VAT is taxed. This tax applies to every production process and the added value that is created is taxed.
How do you calculate VAT?
However, since it is an indirect tax, not every single entrepreneur who is involved in the production pays the tax, but only the end consumer.
- So if a company buys goods from a dealer, he charges 19% VAT in addition to his net price.
- The dealer must report the VAT received from the entrepreneur in a sales advance notification to the tax office and transfer the amount to them.
- The entrepreneur processes the purchased product further, so he creates added value and can resell the product at a higher price. He also charges 19% VAT. Since the value of the product is increased, the entrepreneur receives absolutely more taxes than the dealer.
The trader can now deduct the VAT already paid to the entrepreneur. In technical jargon, this process is called input tax deduction. The dealer must now pay the remaining amount to the tax office. So mathematically, he never paid any VAT.
By deducting input tax, it can be ruled out that the goods are taxed multiple times during the production process and that all parties only pay or receive the net value. If the goods finally arrive at the consumer, they also have to pay the VAT, but this is not reimbursed by the tax office.