Many entrepreneurs dream of their own self-employment, which they would like to realize. But there are quite a few hurdles that need to be considered when starting a business. In Germany, this includes above all the issue of taxes, which entrepreneurs should not underestimate. This is because there are numerous taxes in the Federal Republic and other countries, such as sales tax, trade tax, corporate income tax, to name just a few types of tax.
In this article you will learn what you need to know about sales tax.
What is the sales tax?
Value added tax (VAT) is used to tax consumption or consumption. For you as an entrepreneur, this means that sales tax is added to the price of each sale and paid by the end consumer with the invoice. The entrepreneur pays the VAT to the tax office.
In Germany, the tax rate for almost all consumer goods is 19%. But some products of daily use, such as food or books are subject to a reduced tax rate of 7%.
Entrepreneurs doing business in other countries must pay attention to the typical tax rates of the country. Outside of Germany, you will often come across the English term for sales tax: VAT (Value Added Tax).
What is subject to sales tax?
As a general rule, the entire turnover of a company that is exported within the country is subject to VAT. This is also referred to as taxable sales.
This includes the following:
- Deliveries, such as sales of goods
- other services, for example services
Are there also tax-exempt sales?
There are also sales that are exempt from sales tax in Germany.
For example, the following counts:
- Sale, renting and leasing of real property
- Sales from the activity as a physician, dentist, alternative practitioner or midwife, but not sales from the activity as a veterinarian
- Sales of certain cultural, educational or vocational institutions (such as schools)
- As a small business owner you can be exempt from sales tax in Germany
- Sales tax belongs to the types of transaction tax
- Instead of sales tax, one often hears the term value added tax (VAT) in common usage. Sales tax is the legally formally correct term.
When do we start talking about an entrepreneur?
If you are self-employed in a commercial or freelance activity and generate income from it, then you are an entrepreneur.
This means that if, for example, you provide services or sell goods and charge a fee for them, you meet the requirements for a commercial or freelance activity. It does not matter whether your activity is regular or occasional, or whether you make a profit.
What does an invoice with sales tax look like?
For entrepreneurs, the preparation of a proper invoice plays an important role.
An invoice is any document with which an entrepreneur invoices a service to the recipient of the service. Accordingly, a contract may also be considered an invoice.
The following figure shows the most important components that an invoice with sales tax must contain.
These points must contain a proper invoice (over 250 €):
- Full name and address of the entrepreneur making the payment
- Full name and address of the beneficiary
- Tax number or VAT number
- Date of issue (invoice date)
- Consecutive number (invoice number)
- Quantity and commercial designation
- Time of delivery or other services
- Charges (broken down by tax rates)
- Tax rate and amount
A proper invoice for an amount less than €250 does not have to include all the items listed above. For this type of invoices, it is sufficient to list the full name and address of the performing entrepreneur. Furthermore, the date of issue (invoice date), description of the service, as well as the remuneration and the tax amount due on it must be stated in one sum. The tax rate must also be recognizable on the invoice.
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