Any individual in Germany who conducts business with the goal of generating revenue, must pay the value added tax (VAT). Any person conducting business in Germany, regardless of citizenship or residency, is responsible for VAT. Traders within the European Union may verify a VAT number of a business at any time through the VAT information exchange system (VIES).
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Any person or business enterprise conducting business in Germany is required to register for a tax reference number. This number applies to all applicable taxes in Germany including VAT. Businesses supplying goods only to the European market must register for an additional VAT number, specifically for goods and services traded within the European Union. German tax laws do not require foreign corporations to establish a local business to register for a VAT number. However, no foreign company may conduct business in Germany or through the European Union without a registered VAT number.
VAT Eligible Transactions
The tax law in Germany is based on the European Union VAT directive, that provides direction for all member states in terms of registering for a value added tax number and when VAT applies. Any goods being shipped from Germany are subject to VAT, as well as any goods or services imported into Germany for the purpose of making money. Goods and services traded within the EU member states are also liable for the value added tax. Items sold to a person or business in Germany over the Internet are also subject to the VAT, in addition to businesses that organise concerts, conferences and plan other events.
Point of Origin
German VAT regulations are determined in part by where the goods or services originated. The determination is made based on whether the service is provided to a customer or a traditional business. If the service is provided to a private customer, the point of origination is where the business is located. However if the service being provided from one business to another, the point of origin is where the customer's business is located. For goods, German VAT depends on where the goods originated and where they are when the buyer acquires them. Goods shipped from non-EU states are also subject to German VAT as soon as the goods reach the final destination.
The German Value Added Tax Act, or Umsatzsteuergesetz provides for exceptions to the regulations set forth by the European Union and implemented by German federal states. Section 19 of the VAT Act exempts small business with minimal profits, however they may still choose to pay in an effort to lower input taxes. Services relating to telecommunications, radio and television require VAT where the paying customer resides. Electronic goods shipped into Germany from a non-EU member state to private consumers require a VAT rate for the customer's residence.
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