As the name suggests, the Value Added Tax Act (in short: UStG) deals with the taxation of sales that are relevant in connection with different processes.
This includes not only deliveries and other services between domestic companies, but also the import of items for which payment is made accordingly.
What is regulated by § 1 UStG?
1 UStG forms the basis of the Value Added Tax Act to the extent that it is used to determine which sales are actually subject to VAT. Interestingly, there have been changes in some areas over the past few years, so that some of the original services are no longer affected by sales tax.
The list of currently (as of 05/2019) taxable sales currently consists of three main categories. These stated that sales related to …:
- Deliveries and other services performed by a company or an entrepreneur in Germany (for a fee)
- the import of objects in Austria or in parts of Austria
- the intra-Community acquisition in Germany (paid)
must be taxed.
However, if you dig a little deeper into the VAT Act, you will quickly see that not only the main points mentioned, but also the corresponding subdivisions can be of interest.
In addition, the UStG not only regulates taxable sales, but also other details, such as sales tax-free services, the small business regulation and the generally applicable tax rate in Germany.
The term entrepreneur according to § 2 of the Value Added Tax Act
One thing is certain: both entrepreneurs and private individuals pay sales tax. Nevertheless, companies are of course obliged (unless they are subject to the small business regulation) to repay the sales tax they collect – minus input tax – back to the state.
But who is actually considered an entrepreneur according to the UStG? Who is affected by this regulation? Exactly this question is regulated in § 2 of the Value Added Tax Act. Here it is defined that a person who “carries out a commercial or professional activity independently” is an entrepreneur. And it also says that any activity that is carried out to generate income is, according to the said paragraph, as commercial or professional.
Paragraph 2 of the aforementioned paragraph also refers to the fact that natural or legal persons can also be regarded as entrepreneurs if, for example, they are “integrated into a company in such a way that they are obliged to follow the instructions of the entrepreneur” or “according to the overall picture of actual circumstances financially, economically and organizationally integrated into the company of the controlling body ”.
Definition according to § 3 UStG what is a delivery?
According to § 3 of the UStG, it is a delivery if an entrepreneur ensures through his corresponding activity that another party can dispose of a certain item. However, further special cases and details are defined within this paragraph.
Definition according to § 3 UStG – what are other services?
According to sciencedict.com, anyone who deals with the various definitions of the VAT Act for the first time quickly recognizes that there seem to be clearer definitions here with regard to the area of deliveries than in connection with other services. Because: while a delivery is described as “providing power of disposal” (see above), classic exclusion criteria are used with regard to the other services mentioned.
Or to put it another way: Services that do not fall within the scope of deliveries are other services. However, it is also important not to be deceived by the term “service” in the sense of value added tax law. Because: this does not have to be an active act. Tolerating an action (or a corresponding failure to do so) can also be rated as a performance. Classic examples for the area of other services include …:
- different types of services
- Surrender of use or surrender of use that become interesting, for example, in connection with leases or rentals
- Travel services.
§ 4 UStG: which services are exempt from sales tax?
In § 4 UStG it is regulated which services or sales in connection with services are tax-free. This area includes …:
- Export deliveries (more details can be found in § 6 UStG)
- Subcontracting of objects and export (the corresponding further definitions are set out in § 7 UStG)
- Sales related to aviation and shipping
- Other, other services, such as – in certain cases – the cross-border transport of objects.
§ 12 UStG: the tax rate
The basic rules for the tax rates to be used in Germany are set out on the basis of Section 12 of the UStG. This is divided into two different “categories”, the general and the reduced tax rate.
The paragraph shows that the general tax rate is the well-known (and correspondingly widespread) 19 percent.
In exceptional cases, however, 7 percent, the reduced tax rate, is applied. But what exactly are the exceptions?
Paragraph 2 of the paragraph deals with precisely this question. Among other things, it includes …:
- the “raising and keeping of cattle”
- various services related to the promotion of animal breeding
- Services that result from working as a dental technician
- Circus performances
- Services in connection with the operation of swimming pools
- (depending on the distance covered) the transport of people by ship or rail
to the services that are considered with the reduced tax rate.
§ 15 UstG: the input tax deduction
The legal requirements that become relevant in the course of a company’s advance VAT registration show that the entrepreneur is entitled to deduct the input tax he has paid from the total VAT payable burden. Of course, this only applies if the corresponding costs were related to the respective company.
Section 15 of the UstG specifies which input tax amounts are deductible. Furthermore, this paragraph addresses the basic requirements that must be met in order to reduce the sales tax burden accordingly.
It is important, for example, to be able to present a complete invoice (according to §§ 14, 14a UstG ). Furthermore, the respective input tax can of course only be deducted if the corresponding business partner is also an entrepreneur and not a private person.
§ 19 UStG: the small business regulation
Another important part of the UStG is the so-called small business regulation . Small business owners do not have to pay sales tax by law. But who actually falls into this status?
To be able to apply, it is important that the turnover of the respective previous year (plus tax) does not exceed the “magic” limit of 17,500 euros. In addition, it must apply that a maximum turnover of 50,000 euros will not be exceeded during the current calendar year. On the relevant invoices issued by the small business owners, a final sentence is used to refer to the relevant status. Among other things, this means that the small business’s customer cannot deduct any input tax for the service used.
Anyone who falls into the field of small business owners is well advised to keep an eye on their current company figures. Because: anyone who is no longer considered a small business owner by law (and according to the corresponding sales figures) and does not report this to the tax office, risks back payments. After all, as a non-small business owner, sales tax must also be paid.
Changes to the sales tax law in 2018
Just as in connection with other laws, it is of course the case that the UStG is also subject to continuous change and is accordingly constantly re-adjusted.
For example, at the turn of the year for 2018, new regulations relating to the management of special funds were established.
Since then, it has been the case that …:
- Undertakings relating to collective investment in transferable securities
- various alternative investment funds
- Pension institutions that fall under the provisions of the Insurance Supervision Act,
are considered tax-exempt. The corresponding regulations were laid down in Section 4 No. 8 letter h UStG.
There were other changes in connection with the submission deadlines for all tax returns. These have been extended from the original five to seven months. The new deadline is July 31 of the corresponding year. Exception: if you have your tax return prepared by a tax advisor, you can even take your time until December 31st to submit the relevant submission.