Which VAT rate to charge as freelancer in Germany?
Becoming a freelancer in Germany means that you are going to get paid at some point. On your invoice, you need to know which VAT rate to charge in Germany, to local client & to clients abroad.
The following information is for guidance only. If you’re unsure, it’s always better to ask your Steuerberater for rock-solid tax advice rather than risk the wrath of the Finanzamt.
19% VAT for most freelancers, most of the time
It’s no secret that paying tax in Germany isn’t the most straightforward activity, and paying VAT is no different. In Germany, there are two different VAT rates: 19% is the standard, but there is also a reduced rate of 7%. On top of that, some services are exempt from VAT and so don’t get charged at all.
In general, if you’re a freelancer and wondering what VAT rate to include on your invoice, it’s a safe bet to go with 19%. About 95% of services charge this amount, and there are only a few selected goods and services that charge less VAT.
When is charging 7% VAT applicable?
It’s important to remember that the reduced tax rate does not apply to titles or professions, but to specific goods and services. If you provide a range of different services, you might end up charging different VAT rates depending on what the services are.
Some goods that are eligible for the reduced VAT rate include:
- Food and some drinks.
- Many agricultural products.
- Most books, newspapers, and magazines – but not e-books or audiobooks.
- Medical and nursing supplies such as wheelchairs and prosthetics.
- Works of art such as drawings, paintings, and sculptures (most artists charge a reduced VAT rate).
Beneficiary services that are eligible for the reduced VAT rate include:
- Dental services.
- Entrance fees for cultural and educational events,
- Overnight stays in hotels, restaurants, and campsites.
- The services of nonprofits, charities, church associations, and similar institutions.
Of course, the above examples are a guideline, and it might be difficult to know exactly which VAT rate to charge for the specific services of your business. In this case, it’s better to contact your Steuerberater or the Finanzamt directly and ask for some guidance on the matter.
If you’re unsure how much VAT to charge, it’s always better to go with 19% just to be safe. The reason being, if you charge 7% VAT when you should have charged 19%, and happen to get audited by the Finanzamt, they will tell you to pay back the 12% difference. At this point it would be too difficult to change the invoice and get the tax back from your client, and so you would likely end up paying for it yourself.
When do I charge 0% VAT rate in Germany?
There are also certain cases in which you might not have to pay any VAT at all. If you’re a small business owner – Kleinunternehmer – that had a turnover in the previous year of less than 22,000 euros and is unlikely to turn over 50,000 euros in the current year, then you’re exempt from paying VAT. This means you don’t have to worry about getting the right VAT right, showing VAT on your invoices, or making advanced VAT declarations every month. This doesn’t mean you don’t have to pay income tax, however.
What VAT rate should I charge for customers located abroad?
If you provide services to customers outside of Germany, then you don’t have to charge any VAT.
If you provide services to customers in the EU but outside of Germany, you also don’t have to charge any VAT because of something in article 194 of the EU VAT directive called the “reverse charge procedure.” This article states that when invoicing for services to other EU member states, you just have to include a line on your invoice that says something along the lines of, “the reverse charge procedure applies to this invoice, so no VAT is applicable.”
We show you how exactly in this article.
How should the VAT rate be displayed on the invoice?
As a freelancer or self-employed person, you’re pretty much playing the role of a tax collector for the finanzamt, so it’s important that you charge and pay your VAT in the correct manner. All of the services that you’re charging for should be clearly stated on the invoice, along with the amount that you’re charging.
If you’re applying a standard VAT rate like 19%, simply multiply the net subtotal of the invoice by 19%. Write down the VAT below the net amount, then add the two together to get your gross total. It should look something like this:
Service 1 – XXX: 50.00 EUR
Service 2 – XXX: 50.00 EUR
Total amount (Net): 100.00 EUR
VAT 19%: 19.00 EUR
Total amount (Gross): 119.00 EUR
If you’re invoicing for a number of services with different VAT amounts, then each invoice line should clearly state the different tax rate. If no VAT is shown, the reason for the tax exemption must be stated on the invoice. You can read here a complete view on how to format an invoice in Germany.