Especially important for self-employed professionals, entrepreneurs & freelancers
In Germany, VAT generally applies to almost every transaction, with only a few exceptions (for example certain voluntary associations or non-profit organizations). The standard VAT rate is 19%, although some goods and services are subject to a reduced VAT rate.
This means that as a self-employed person or freelancer, you will almost always deal with VAT, officially called “Umsatzsteuer” in German.
Only businesses that qualify for the small business regulation (Kleinunternehmerregelung) are exempt from charging VAT. However, they also cannot reclaim any VAT they pay on business expenses.
What you need to know about VAT
Whenever you sell a product or provide a service, VAT applies — regardless of whether you are a manufacturer, reseller, or service provider. As soon as you create added value, that value is taxed through VAT.
Example 1
You are a self-employed hairdresser and charge a customer €50 for a haircut. In B2C transactions, prices are usually shown including VAT.
Out of the €50, 19% VAT equals €7.98.
This means you owe €7.98 to the tax office (Finanzamt).
Example 2
You are a jeweler and sell a silver ring for €129.
Again, 19% VAT applies, so you owe €20.60 in VAT to the tax office.
You must show VAT on your invoices according to the applicable tax rate (usually 19%).
Offsetting VAT (Input vs. Output VAT)
The amount of VAT you owe at the end of a tax period does not depend only on your sales — it also depends on how much VAT you paid yourself during that period.
Example 1 (Hairdresser)
The hairdresser didn’t just earn income; they also had business expenses. Suppose they bought new equipment for €250, including VAT. In that case, they paid €39.92 VAT.
This VAT can be offset against the VAT collected from customers.
Example 2 (Jeweler)
The jeweler bought the ring for €50 including VAT, paying €7.98 VAT.
This amount is offset against the €20.60 VAT generated from the sale.
Why working with a tax advisor is highly recommended
Ideally, you should have a professional tax advisor (Steuerberater) handle all of this for you. Managing VAT deadlines, advance VAT returns, and tax payments is a huge administrative burden — and outsourcing this gives you time to focus on your actual business.
Depending on the size of your business and the number of receipts, tax advisors typically charge from €150–200 per month. For this, you hand over your documents, and they calculate your taxes, submit VAT returns, and monitor all deadlines.
Deadline monitoring is especially critical and absolutely worth the cost. You should authorize your tax advisor to receive mail from the tax office and communicate with them on your behalf.
The German tax office is very strict with late payments. Missing a letter or a deadline can, in some cases, lead to bank account seizure within weeks. That’s why it’s very smart to have all official correspondence sent to your tax advisor as well.
Personal example
I run an online business myself. In my case, VAT is due every three months. I send all incoming and outgoing invoices to my tax advisor every month, and she takes care of everything else, and simply tells me when and how much I need to pay.