Germany is one of the most open countries in terms of VAT recovery for businesses, whether or not they are established in its territory. In the case of foreign companies not based in the country, the recovery process will vary depending on whether it is European or not.
In Germany, VAT is known as “Mehrwertsteuer” or by its acronym “MWST”. There are 2 different tax rates: the standard 19% which applies to most goods and services, and the reduced 7% which applies to various foodstuffs, some passenger transport, books, magazines, hotel accommodation (short term only), social services, medical care, takeaway food, flowers and plants.
Due to the exceptional situation we are in because of the COVID-19 pandemic, the German authorities have temporarily lowered this tax to the standard of 16% and reduced it by 5% for a period of one year from July 1, 2020 to July 1, 2021.
Deduction of VAT in Germany for businesses outside its territory
Companies which are neither established nor registered for VAT in Germany may claim a refund of this tax for expenditure incurred in the country to the same extent as German companies, provided that it is related to their business activity.
The application procedure changes depending on whether the country from which the claim is made belongs to the EU or not and which expenses are subject to deduction.
Companies based in an EU country may recover German input VAT in accordance with the terms of European Council Directive 2008/9/EC, which states that
- The application period will be 9 months after the calendar year, with a deadline of 30 September.
- The claim period may not be less than 3 months, nor more than one year, for a minimum amount of 400 Euros, unless it represents the rest of the calendar year (e.g. November and December) in which case the minimum amount will be 50 Euros.
NON EUROPEAN COMPANIES
Companies established in countries outside the European Union may apply for a refund of German VAT under the terms of the 13th European Directive. In this case the deadline for submissions is 30 June of the year following the calendar year in which the tax is incurred. In this case the deductible expenses will depend on the reciprocal agreement between the two countries.
In Germany, practically all expenses are deductible, as long as they are related to the company’s activity and can be justified, as they can be:
- Meal expenses
- Attendance at conferences, exhibitions and training seminars
- Motorway tolls
- Purchase, rental and maintenance of cargo vehicles
To know which expenses can be deducted in the Germanic country it is easier to see which ones cannot be recovered, since it only has 2 limitations: luxury goods and gifts to people outside the company that exceed 35 euros per year. The rest of the input VAT is fully deductible as long as it is for business purposes.