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Germany: VAT relief for “small undertakings” and start-ups

Germany: VAT relief for “small undertakings,” start-ups

Changes to the German value added tax (VAT) law (UStG) included in tax law enacted in late 2019 concern:

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An increase of the small undertaking threshold as of 1 January 2020: In principle, supplies made for consideration by a business within Germany as part of its business activities are subject to VAT. VAT is currently not levied for domestic businesses if the turnover did not exceed the threshold of €17,500 in the previous calendar year and is not expected to exceed €50,000 in the current calendar year. In return, no input tax deduction is possible within the system.

Effective 1 January 2020, the threshold will be increased from €17,500 to €22,000. This is therefore already significant for 2020 in terms of verifying whether the previous year’s turnover in 2019 exceeded the threshold of €22,000.


Change to the reporting period for start-ups as of 1 January 2021:
According to the VAT law, the period for submitting preliminary VAT returns is generally the calendar quarter.

If the amount of VAT for the previous calendar year exceeds €7,500, the business owner must submit monthly preliminary returns.

If the tax for the previous calendar year does not exceed €1,000, the tax authorities may exempt the business owner from the obligation to submit preliminary returns and to make advance payments.

In addition, business owners may choose the calendar month as the reporting period instead of the calendar quarter if there is a surplus in their favor of more than €7,500 for the previous calendar year.

A special provision in the VAT law exists for start-ups. Business owners must submit VAT returns per calendar month for the year in which they start carrying out a business or commercial activity and for the subsequent calendar year. Beginning 1 January 2021 to 31 December 2026, this provision will be suspended for start-ups. Instead, the general rules will apply with some modifications.


Read a December 2019 report [PDF 309 KB] prepared by the KPMG member firm in Germany
 

Other VAT items or developments described in the KPMG report include:

  • Federal Council approves Annual Tax Act 2019 (government document 552/19 of 29 November 2019)
  • Update to the e-invoicing ordinance (Federal Law Gazette I 2017)
  • VAT exemption of cost-sharing groups (CJEU, judgment of 20 November 2019 – case C-400/18 ‒ Infohos)
  • Waiver of back payment of interest in the case of errors of law regarding the identity of the taxpayer (German Federal Tax Court, decision of 26 September 2019, V R 13/18)
  • Netherlands: New VAT identification numbers beginning 1 January 2020 for registered sole traders (BMF, guidance of 22 November 2019)
  •  Guidelines of the VAT committee on quick fixes (VAT expert group, draft of 15 November 2019, VEG No 084 REV1))

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