For private end consumers, it is VAT that is levied on numerous products and services. In most cases this is 19 percent, in exceptional cases seven percent. However, some services and products, for example activities in the care sector or the brokerage of life insurance, are VAT-free (Section 4, VAT Act). Sales tax itself plays an important role for producers, sellers or service providers.
- The assessment basis for sales tax is the price for a good or a service.
- The sales tax is added to the transaction taxes, as it results from the movement of goods or services.
- In principle, every entrepreneur whose business activity is listed as mandatory in the sales tax law is also obliged to invoice and pay sales tax.
Assessment base for sales tax
The assessment basis for sales tax is the price for a good or a service. The question of whether the provider has to apply a tax rate of 19 percent or seven percent is determined by the regulation in the Value Added Tax Act (§ 12, UStG). The reorganization of certain business transactions in 2010, however, also led to criticism from the Federal Audit Office due to the lack of clarity. If a restaurateur sells take-away food, sales tax of seven percent is due. If the guest eats the same meal in the restaurant, 19 percent must be charged.
The tax allocation of sales tax
Short for ST by abbreviationfinder, the sales tax is added to the transaction taxes, as it results from the movement of goods or services. It is considered an indirect tax. The price of a commodity increases the greater the number of participants from the source to the end consumer. Here is a calculation example: The manufacturer sells his product to the wholesaler for 10 euros plus 19 percent sales tax. So this pays 11.90 euros. For resale to the retailer, the wholesaler, without taking his profit into account in this example, already has to charge EUR 11.90 plus 19 percent, a total of EUR 14.16. For the end consumer, the price rises to EUR 16.85 when the goods are purchased, without the retailer making a profit.
Inconsistent amount across the EU
The sales tax is the same in all countries of the European Community, but differs in amount. In 2014, the front runner in sales tax in Europe was Hungary with 27 percent, the lowest rate calculated with 15 percent Luxembourg. For entrepreneurs, deliveries and services within the EU are exempt from sales tax, a fact that makes cross-border business transactions very attractive. A prerequisite for so-called intra-community traffic is the VAT identification number, the VAT ID. The tax-free deliveries and services are communicated to the Federal Central Tax Office in a separate report with reference to the respective recipient resident in another European country. This shifts taxation to the recipient country.
The sales tax settlement
The sales tax is not added to the income, but has to be paid monthly or quarterly as a transitory item to the tax office, depending on the volume. The sales tax to be paid by a company is on the other hand offset by the sales tax paid for business-related expenses. This is offset against the sales tax collected. A seller achieved 1190 euros from the sale of goods, of which 190 euros are sales tax. Operationally, he had expenses of 585 euros, which included 85 euros sales tax. From the 190 euros received, he can deduct 85 euros spent on sales tax; his debt to the tax office is now only 85 euros.
The small business regulation in sales tax
In principle, every entrepreneur whose business activity is listed as mandatory in the sales tax law is also obliged to invoice and pay sales tax. However, there is one exception, the small business regulation (§ 19 UStG). This means that a business owner does not have to charge sales tax if his income does not exceed 17,500 euros in the current year and does not exceed 50,000 euros in the following calendar year. The facts must be clearly stated on the invoice and also prevent the accounting of sales tax that you have paid yourself to the tax office.