Understanding VAT (Umsatzsteuer) · 2.1
How does VAT work?
Every business adds Umsatzsteuer (VAT) to its prices, deducts the VAT from its own purchases, and remits the difference to the Finanzamt (tax office). In the end, the end consumer bears it. For your company, it is a transitory item.
Key points
Umsatzsteuer (VAT) applies to supplies of goods and services that a business provides domestically for remuneration. Your company owes the tax that it invoices.
Example:
- A designer invoices an agency €1,000 + €190 VAT and remits €190.
- The agency invoices a private customer €2,000 + €380 and remits €380 − €190 = €190.
- The private customer pays €380 VAT and cannot deduct any of it.
You must always display prices to private customers inclusive of VAT. Do not confuse net and gross prices, otherwise you will be missing 19%. Exceptions such as Kleinunternehmer (small business owners), tax-exempt services, or customers abroad have their own rules.
Legal basis
§ 1 UStG§ 13a UStG§ 15 UStG§ 3 PAngV
Continue
- Next video: What Is Input Tax?
- Related: Myth: "The VAT in my bank account belongs to me."
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