In 2025, Germany has introduced several important changes to its Value Added Tax (VAT) system, which affect both domestic and foreign companies conducting business in Germany. Companies involved in cross-border transactions, e-commerce, or providing services within Germany should be aware of the new rules and thresholds.
This article provides an overview of the most relevant VAT changes effective from January 1, 2025.
1. Standard VAT Rate Remains Unchanged
The standard VAT rate in Germany remains at 19% in 2025. The reduced VAT rate applicable to certain goods and services, such as food, books, and public transport, stays at 7%.
There was political discussion in 2024 about a possible VAT increase due to budget deficits, but no changes have been implemented for 2025.
2. Digital VAT Reporting System (E-Rechnungspflicht) Introduced
As part of the ongoing digitalization of tax compliance, Germany has introduced a mandatory electronic invoicing (e-invoicing) obligation for domestic B2B transactions:
Key points:
- From January 1, 2025, all invoices between German businesses must be issued in a structured electronic format (e.g., XRechnung or other compliant XML formats).
- PDF invoices will no longer be sufficient for B2B domestic supplies.
- The introduction of mandatory e-invoicing also aims to prepare for the upcoming ViDA (VAT in the Digital Age) package from the EU.
Foreign businesses registered for VAT in Germany (without a permanent establishment) are exempt for the time being but should prepare for a likely extension in 2026.
3. One-Stop-Shop (OSS) — Small Adjustments for E-Commerce Sellers
The One-Stop-Shop (OSS) scheme remains applicable for cross-border B2C sales within the EU. The following minor changes apply:
- Adjustment of EU-wide thresholds for micro-businesses to €12,000 annual turnover (previously €10,000).
- Clarifications on reporting deadlines and correction mechanisms.
E-commerce businesses selling to German consumers should ensure that these new limits are considered when applying the OSS scheme.
4. New VAT Exemptions for Renewable Energy Projects
In line with Germany’s energy transition strategy (Energiewende), certain supplies related to renewable energy are VAT-exempt from 2025 onwards:
- Supply and installation of small photovoltaic systems and battery storage units
- Applicable only if specific technical conditions and thresholds are met
Companies providing installation services in Germany should check if these exemptions apply to their projects.
5. VAT Refund Procedure — Faster Digital Process
The VAT refund procedure (Vorsteuervergütungsverfahren) for foreign businesses has been simplified:
- Faster digital communication between tax authorities across the EU
- Expected reduction of processing times for refund applications submitted from 2025 onwards
Foreign companies without a German VAT registration can benefit from this streamlined refund process if eligible.
6. VAT Compliance Recommendation for 2025
Foreign companies doing business in Germany should:
- Prepare for the upcoming e-invoicing requirements, even if not yet directly affected
- Review OSS and VAT registration status
- Ensure correct application of VAT rates and exemptions, especially in energy and B2C sectors
- Keep documentation and invoicing fully compliant to avoid penalties
Expert Support from WW+KN | VAT-Germany.com
At WW+KN, operating the platform VAT-Germany.com, we assist international companies with VAT registration, compliance, reporting, and communication with the German tax authorities. In cooperation with VAT specialists and tax lawyers from Baker Tilly, we offer comprehensive support for your German and cross-border VAT matters.
Important Note
This article provides general information only and does not constitute legal advice. Please consult a qualified advisor for a detailed assessment of your specific situation.
If you have any questions regarding VAT compliance in Germany, please feel free to contact us.
We are WW+KN, a Baker Tilly Company.
You can reach us at info@vat-germany.com.
