blog
12/07/2024

VAT in Germany: A Detailed Guide for Japanese Companies

For Japanese companies entering the German market, understanding the intricacies of the German VAT system is essential. This guide provides a comprehensive overview of the VAT system, including registration requirements, compliance obligations, and special considerations relevant to businesses from Japan.

Overview of the German VAT System

VAT Basics

  • Standard Rate: 19%.
  • Reduced Rate: 7%, applicable to specific goods and services such as food, books, and cultural services.
  • Legal Framework: Governed by the German VAT Act (Umsatzsteuergesetz, UStG).

Registration Requirements

When to Register

  • Compulsory Registration: Japanese companies must register for VAT if they make taxable supplies of goods or services in Germany. This includes direct sales to German customers or providing services within Germany.
  • No Threshold: Unlike EU businesses, there is no minimum threshold for VAT registration for non-EU companies, including Japanese firms.

Registration Process

  • Application: Done through the responsible Tax Office Berlin International (Finanzamt Berlin International) and the German Federal Central Tax Office (Bundeszentralamt für Steuern, BZSt).
  • Required Documentation: Proof of business registration in Japan, details of business activities in Germany, and identification documents of company directors.

VAT Compliance

Invoicing Requirements

  • Invoice Elements (Section 14 UStG): Must include the supplier’s and recipient’s names and addresses, supplier’s VAT ID, invoice date, unique invoice number, description of goods/services, net amount, VAT rate, total VAT amount, and any applicable VAT exemptions.
  • Reverse Charge Mechanism (Section 13b UStG): The VAT liability may shift to the German recipient. The invoice must clearly state this with a note such as “Steuerschuldnerschaft des Leistungsempfängers.”

Filing and Payment

  • Periodic Returns (Section 18 UStG): Filed monthly, quarterly, or annually, depending on the business’s turnover. Most foreign businesses file monthly returns.
  • Electronic Filing: Must be submitted through the Elster portal.
  • Payment Deadlines: VAT payments are due by the 10th day of the month following the reporting period.

Special Considerations for Japanese Companies

Import VAT

  • Applicability (Section 21 UStG): Japanese companies importing goods into Germany must pay import VAT, usually at the point of entry, based on the customs value, including cost, shipping, and customs duties.
  • Deferred Payment: Germany allows deferred import VAT payment, improving cash flow for businesses.

Distance Selling Rules

  • VAT Obligations: Japanese companies selling goods directly to German consumers must account for German VAT on these sales.

VAT Refunds

  • Eligibility (Section 18g UStG): Japanese companies not registered for VAT in Germany but incurring VAT on business expenses can claim a VAT refund through the 13th Directive refund procedure.

Understanding the German Market

For Japanese companies, understanding the cultural and regulatory landscape is vital. German business practices can differ significantly from those in Japan, emphasizing formal contracts, thorough documentation, and punctuality.

Market Entry Strategies

  • Local Partnerships: Collaborating with German companies can ease market entry, leveraging local expertise and networks.
  • Trade Shows: Germany hosts numerous industry-specific trade shows, offering opportunities to establish connections and understand market dynamics.
  • Digital Presence: Establishing a robust online presence can attract German customers, who often research online before making purchasing decisions.

Practical Tips for Compliance

  1. Accurate Record Keeping: Maintain comprehensive records of all transactions, including sales, purchases, and VAT payments.
  2. Professional Advice: Consult with VAT experts to ensure compliance and leverage tax benefits.
  3. Reliable Logistics Providers: Ensure logistics partners offer detailed documentation for import VAT and proof of transport.

Assistance from WW+KN

WW+KN, a Baker Tilly Company, specializes in helping Japanese businesses navigate the complexities of the German VAT system. Our services include VAT registration, compliance support, and liaison with German tax authorities. Additionally, Baker Tilly Legal provides expert legal support in tax law, ensuring comprehensive service for our clients.

Support Services:

  • VAT Registration and Compliance: Assistance with VAT registration, filing, and payment procedures.
  • Legal Representation: Expertise in handling disputes with tax authorities, audits, and compliance checks.
  • Consultation and Training: Providing training to your team on German VAT laws and ongoing consultation to ensure continued compliance.

For more information and professional assistance, contact us at info@vat-germany.com. We act as a single point of contact for all your VAT compliance needs, helping you navigate the complexities of German tax law effectively.