German VAT at the start of the business, first 2 years
If you are starting a business in Germany, and you are obliged to pay VAT, and you are not a small entrepreneur according to Art. 19 I UStG (Kleinunternehmer), then in the first two calendar years you have to make every month a VAT declaration to the tax office. This regulation is for VAT fraud to be avoided, because in the past companies used under the old rules the gap in the law for fraud.
Special VAT Prepayment
The basic rule (Art. 18 I S. 1 UStG) is that every entrepreneur is obliged to send 10 days after the end of the previous month the monthly VAT declaration to the tax office.
Now, this short term is a great problem for a lot of small companies – and for their accountants, too. To take care of this, the VAT law makes an offer to everybody. Art. 18 VI UStG gives a choice to expand the deadline up to 4 weeks. For this prolongation. the taxpayers have to pay a special VAT prepayment, named Umsatzsteuersondervorauszahlung. This is a standard procedure for most companies.
The Special VAT Prepayment is based on all monthly VAT declarations for the previous year, and it amounts to 1/11 (one-eleventh part) of the total of VAT prepayments for the previous year. This amount is to be paid to the tax office at latest on the 10th of February every year. After that, the extension of the deadline – 1 month +10 days – for the monthly VAT declaration will be granted. However, if you are in the habit to miss this extended deadline, or if you are a bad taxpayer, on the whole, the tax office can terminate the deadline extension. The good news is that you will get back your Special VAT Prepayment at latest after the VAT declaration for December.
German VAT after starting business, 2 years later
After the first two calendar years after starting business in Germany, the VAT rules change:
a) if during the previous year you have paid to the tax office – based on the monthly VAT declaration – in total over 7.500,00 EUR, you have to send a VAT declaration and a VAT prepayment to the tax office – every month.
b) if during the previous year you have paid to the tax office – based on the monthly VAT declaration – in total between 1.000,00 EUR and 7.500,00 EUR, you have to send a VAT declaration and a VAT prepayment to the tax office quarterly.
c) if during the previous year you have paid to the tax office – based on the monthly VAT declaration – in total less than 1.000,00 EUR, you have to send a VAT declaration and a VAT prepayment to the tax office once a year.
MBA for Finance and Financial Services (UK), Steuerfachwirt (GER)