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Economic Development Dortmund

Sales Tax

What is the sales tax?

The sales tax is raised on the whole private and public consumption. For the purchase of goods and services, the sales tax has to be paid in addition to the actual price received by the seller. The sales tax will be paid to the local tax office by the sellers.

Accordingly, the sellers have to add the sales tax to the actual selling price each time they sell something and have to pay it afterwards to the local tax office. At the same time, the enterprise can subtract the so-called tax on input (“Vorsteuer”) of this tax liability. This is the sales tax already paid by the enterprise itself, for instance for the purchase of production goods (cf. example).

What is the level of the sales tax?

The sales tax knows two different tax rates:

1. the general tax rate of 16 %. This rate counts for nearly all sales.
    
2. the reduced tax rate of 7 %. It counts for food (except for beverages and sales in the catering industry), public transport, books, newspapers, and certain articles of virtue.

What is subject to tax?

The sales tax is subject to all sales of an enterprise. These may be:

• deliveries and services
• own consumption
• import from non-EU countries
• import from EU countries (so-called intra-community purchase)

How does it work? An example

A sports store purchases goods from a sports goods manufacturer at a value of € 1,000. The sports goods manufacturer calculates the value of goods plus sales tax of 16 % the store has to pay:

The sports goods manufacturer now must pay a sales tax of € 160 to the local tax office. The sports store now sells the goods to an end customer at a price of € 2,000. The according sales tax has to be added here as well:

Now the sports store must pay the sales tax withheld subtracted by the tax on input (sales tax paid to the sports goods manufacturer) as tax liability at the local tax office:

Basically, the sales tax is only a transit item for the sports store. Only the end customer pays the real sales tax (better known to him as value-added tax).

Tax exemption for small enterprises

There is an exemption of the sales tax for small enterprises. As long as the sales of an enterprise have not surmounted the amount of € 17,500 in the previous year and will not surmount € 50,000 in the current year, the enterprise is exempted from the sales tax. But that also means that no tax on input can be claimed and that no sales tax can be included in the invoice for sales made.

When do you have to pay the sales tax?

In general, a so-called sales tax advance announcement has to be delivered up to the 10th of the following month (cf. downloads). In this document, the tax on input paid as well as the sales tax withheld is included.
Together with the delivery of the advance announcement (by cheque or bank transfer), the tax liability calculated has to be paid at the same time. If you have a negative balance, i.e. paid more tax on input than withheld sales tax, you, of course, do not have to pay anything, but you will receive a tax refund by the local tax office.

Please consider: that the local tax office is entitled to send a tax auditor without having informed you in advance. He is entitled to get knowledge of all sales tax relevant documents. For this reason, you should take painstaking care of the vouchers for the tax on input paid and those for the sales tax withheld!

Enterprises of which the sales tax in total has not surmounted more than € 6,136 in the previous year, may announce their tax on input also quarterly.

In addition to the advance announcements, each enterprise has to deliver a yearly tax declaration up to the 31st May of the subsequent year. The complete payment included here has to be made in between one month after the delivery of the declaration to the local tax office.

Why is a sales tax identification number (“Umsatzsteuer-Identifikationsnummer”) necessary?

Since the sales of goods from one EU member state into another is exempted from sales tax, there is a special regulation for this case. If you participate in the so-called intra-community goods trade (“innergemeinschaftlicher Warenverkehr”) (i.e. the sales and purchase of goods – not services – into or from EU member countries), you need a sales tax identification number.

For the purchase of a good from a EU member country, you transmit your sales tax identification number to the seller. It identifies you as entrepreneur and that you do not have to pay any sales tax in this case.

For the new foundation of your enterprise, you receive a questionnaire from the local tax office, where you can directly make an application for the sales tax identification number. You will receive then a message with the number.

If your enterprise has already been existing for some time, you can make an application for the number at the German Ministry of Financial Affairs (“Bundesfinanzministerium”) (cf. tax authority).

Go-To-Do is a service of the Economic Development Dortmund.
URL: www.go-to-do.com /content_eng/steuern/steuerarten/umsatzsteuer.html

Last modified: 19.08.2005 | © Wirtschaftsförderung Dortmund | Email: go-to-do@stadtdo.de