As a private person as well as an entrepreneur, you have to pay taxes due to various laws. Fortunately, various laws allow exceptions that automatically entitle you to a tax exemption under certain conditions or upon request. In the following article we will explain what this means for you and which areas it affects.
What exactly does the tax exemption mean?
According to gradphysics.com, a tax is usually levied on your income or sales – or based on a specific circumstance. If a law allows a tax exemption, then it is explicitly stated in the case that a certain income, a turnover or the above-mentioned facts are expressly exempt from the tax. Experience has shown that various laws come into consideration, not all of which will affect you.
Personal and material tax exemption
In the case of exemption, a distinction is made between the personal tax exemption based on the person of the taxpayer and the factual tax exemption, which relates to the taxable object.
The tax exemption of relatives for real estate transfer tax (personal tax exemption due to kinship) or the factual exemption for renting or leasing real estate according to the sales tax law is often mentioned here .
Various laws that provide tax exemptions
There are some laws that exempt you from tax under certain conditions. Unfortunately, it is not possible to discuss them in great detail in a short chapter, as they list up to 70 exceptions in an extremely extensive and detailed manner. So you will not be able to avoid studying the laws more closely in order to examine your options for liberation.
The following laws (in alphabetical order) provide for tax exemptions:
- Income tax law: § 3 EStG with 71 listed points and sub-points.
For example, from benefits from the pension or health insurance fund or from part-time activities “as a trainer, trainer, educator, supervisor or comparable part-time activities, from part-time artistic activities or part-time care of old, sick or disabled people on the job or on behalf of a public legal entity Right”. - Inheritance tax and gift tax law: § 13 ErbStG with 18 points listed. However, this is rarely relevant for companies.
- Trade tax law: § 3 GewStG with 31 points listed. This is about the groups of people who do not have to pay trade tax such as the Deutsche Bundesbank or various forest and forest communities, certain corporations, companies, private schools and educational institutions or hospitals, old people’s homes and other companies.
- Corporate Income Tax Act: § 5 KStG with 24 points and sub-points. This includes small insurance associations, professional associations, political parties.
- Motor vehicle tax law: § 3 KraftStG 2002 with 16 points. This includes vehicles of the Bundeswehr, police, fire brigade, but also of non-profit and charitable organizations, tractors of agricultural and forestry companies and other vehicles, which are described in detail in the paragraph.
- Sales tax law: § 4 UStG with 28 listed points and sub-points. The most important examples according to § 4 No. 1: a) the export deliveries (§ 6) and the processing of goods for export (§ 7): b) the intra-community deliveries (§ 6a).
Particularly important: the sales tax law
Regardless of whether you have a company or are a freelancer , there is no avoiding the subject of sales tax. Because it is important to decide whether you have to issue your invoices with or without tax and whether you have to submit your VAT returns to the tax office on a regular basis.
Taxable and non-taxable sales
All sales that you generate are divided into taxable sales (which are always taxable if the law does not expressly declare them tax-free) and non-taxable sales that do not fall under the sales tax law at all because the offense is not listed there.
So you only have to take care of the taxable sales, which in turn can now be either tax-free or taxable.
Taxable and tax-exempt sales
A tax must be paid for your taxable turnover, if you cannot find an exemption reason expressly listed in the UStG. Conversely, your tax-exempt sales are all those listed in the exception regulation of the law.
Real and spurious tax exemptions
These two terms are about whether you have tax-free sales, but where you can still claim input tax . This real tax exemption would be the case, for example, with export deliveries or processing orders in which you import the goods and send them back to the foreign customer after processing. Also for intra-community deliveries within the EU.
The fake tax exemption concerns sales that are tax-free, but which you as a company still cannot claim. This includes, for example, sales from credit institutions, insurance companies, doctors or even those from real estate and securities. But above all the sales of small businesses.
Tax exemptions for deliveries and other services (§ 4 UStG)
As already mentioned, it doesn’t matter whether you are an entrepreneur or a freelancer when it comes to sales tax. As soon as you as an entrepreneur within the framework of this company deliver a delivery or service against payment in Germany, this is subject to tax liability. These points are also called the main components of taxation. If one of the points is omitted, the service cannot be controlled.
Deliveries to third countries are taxable. Third countries are non-EU countries, e.g. our neighboring country Switzerland, but also the USA or China. If you deliver to third countries, you cannot charge sales tax. In this case, there is an exemption according to § 6 UStG according to § 4 No. 1a UStG. When importing from there, however, there is an import sales tax.
In addition, the intra-community acquisition, a transfer of the tax liability to you as the recipient is possible. Or from you to the customer. Because the goods are subject to sales tax in the country to which they are delivered.
The sales tax exemption for small businesses according to § 19 UStG
According to Section 19 of the Sales Tax Act, you can take advantage of the so-called small business regulation. This means that you don’t have to show any sales tax on your invoices and you don’t have to make regular sales tax returns to the tax office.
You have to make sure that you do not exceed a turnover of 17,500 euros per year. In other words: in the previous year you must not have exceeded the amount and in the current year you must not exceed 50,000 euros.
After registering your business, you will automatically receive a questionnaire for tax registration sent by the tax office, on which you state whether you want to take advantage of the small business regulation or not. As a freelancer you do not have a business, here you should ask your tax advisor which decision is more advantageous for you.
In any case, your invoices must contain a reference to the VAT exemption . This can be, for example, as follows: “VAT-free due to the small business regulation according to § 19 of the UStG.”