Foreign companies operating in Germany sometimes overlook the necessity of VAT registration, leading to significant legal and financial consequences. This article discusses the repercussions of failing to register for VAT in Germany, the actions taken by German tax authorities, and the potential personal liabilities for company directors.
Failing to Register for VAT in Germany
Foreign companies engaged in taxable activities in Germany are required to register for VAT. However, some businesses neglect this obligation, either due to unawareness or oversight. When the German tax authorities (Finanzamt) identify such oversights, they take steps to enforce compliance and recover unpaid taxes.
Actions by German Tax Authorities
Retrospective VAT Assessments
The German tax authorities have the power to retrospectively assess VAT liabilities for several years. They can demand unpaid VAT, along with interest and penalties, for periods during which the foreign company was conducting taxable activities in Germany without proper VAT registration.
Communication in German
When the Finanzamt identifies non-compliance, they typically send formal communications to the company’s registered address, often in the foreign country. These notices are usually written in German, which can lead to misunderstandings or underestimation of their importance by the foreign recipients.
Ignoring German Tax Notices: A Critical Error
EU Execution Directive
Under the EU Execution Directive, tax authorities in one EU member state can request the assistance of tax authorities in another member state to enforce tax claims. This means that German tax demands can be pursued and enforced in other EU countries. Ignoring notices from the German tax authorities can therefore lead to enforcement actions in the company’s home country.
Potential Penalties and Liabilities
Financial Penalties
Non-compliance can result in substantial financial penalties. The German tax authorities can impose fines and interest on unpaid VAT, significantly increasing the total amount owed.
Personal Liability of Directors
In severe cases, directors of non-compliant companies can be held personally liable for unpaid VAT. German law allows for personal liability if directors are found to have negligently or deliberately evaded VAT obligations.
Arrest Warrants
In extreme cases, where substantial amounts of VAT are owed, the German tax authorities can obtain arrest warrants against company directors. This is a measure of last resort but underscores the seriousness with which VAT compliance is enforced in Germany.
Role of WW+KN, a Baker Tilly Company
WW+KN, as part of Baker Tilly Germany, offers comprehensive support to foreign companies dealing with VAT compliance issues. Our services include:
- VAT Registration Assistance: Helping businesses understand and fulfill their VAT registration obligations in Germany.
- Handling Retrospective Assessments: Assisting companies in managing and negotiating retrospective VAT assessments and penalties.
- Liaising with Tax Authorities: Representing clients in communications and negotiations with the German tax authorities to resolve compliance issues.
- Personal Liability and Legal Defense: Providing legal defense for directors facing personal liability or legal actions, ensuring that their rights and interests are protected.
Legal Support for Tax Offense Proceedings
In addition to our VAT compliance services, WW+KN benefits from the broader expertise of Baker Tilly Germany, one of the largest multidisciplinary firms worldwide. This includes specialized legal support for tax offense proceedings. Our legal experts can assist with:
- Defense in Tax Offense Cases: Providing legal representation for companies and individuals accused of tax offenses, including VAT evasion.
- Negotiation with Authorities: Engaging with German tax authorities to negotiate settlements or reductions in penalties and interest.
- Court Representation: Offering robust legal defense in court, if necessary, to challenge wrongful claims and protect the rights of our clients.
- Compliance Advisory: Advising on best practices to avoid future tax compliance issues and mitigate risks associated with tax offenses.
Conclusion
Failing to register for VAT in Germany can lead to severe financial and legal consequences. Ignoring notices from the German tax authorities is a critical error, as these demands can be enforced across EU borders under the EU Execution Directive. Moreover, directors of non-compliant companies may face personal liability and even arrest warrants. It is essential for foreign businesses to take VAT compliance seriously and seek professional assistance when needed.
For personalized guidance on VAT compliance and dealing with retrospective VAT assessments in Germany, contact us at info@vat-germany.com. Our team of experts at WW+KN, a Baker Tilly Company, is ready to assist you with tailored solutions to meet your business needs, including legal support for tax offense proceedings.
