Umsatzsteuer (German sales tax / VAT) generates more revenue than any other German tax — and shows up on every invoice you write as a freelancer or business. Anyone who can compute VAT from net or gross, deduct input VAT under §15 UStG and report the net liability in the USt-Voranmeldung has the bulk of their bookkeeping under control. To skip the math, use the German Sales Tax Calculator.

Umsatzsteuer, Mehrwertsteuer, Vorsteuer — what's what?

The three terms get mixed up constantly. The relevant difference:

  • Umsatzsteuer (USt): The legal term from the UStG. Levied on every taxable supply by an entrepreneur.
  • Mehrwertsteuer (MwSt): The colloquial label — used on invoices interchangeably with USt. The simpler VAT calculator does the same conversion.
  • Vorsteuer: The VAT you paid on supplier invoices. Deductible under §15 UStG.

From a business perspective VAT is a pass-through: you collect it from your customers, deduct the VAT you paid yourself and remit the difference to the tax office.

The two rates (§12 UStG)

RateBasisTypical examples
19 % standard§12 (1) UStGServices, electronics, clothing, restaurant meals, energy
7 % reduced§12 (2) UStG, Annex 2Food, books, magazines, local public transport, hotel stays, theatre/museum admission
0 % exempt§4 UStGMedical treatment, residential rent, insurance, intra-EU supply

Formula 1: VAT from net

If you start from the net amount, the math is straightforward:

  • VAT = Net × Rate
  • Gross = Net × (1 + Rate)

Example: A consulting service costs €1,000 net at 19 %:

  • VAT: €1,000 × 0.19 = €190
  • Gross: €1,000 + €190 = €1,190

Formula 2: VAT out of gross

From a gross amount you cannot multiply by 19 % — you have to back it out:

  • Net = Gross / (1 + Rate)
  • VAT = Gross − Net

Example: An invoice for €119 gross at 19 %:

  • Net: €119 / 1.19 = €100
  • VAT (= input VAT): €19

At 7 %: €107 / 1.07 = €100 net, €7 VAT.

Input VAT deduction (§15 UStG)

Every entrepreneur (except Kleinunternehmer) may deduct the VAT shown on supplier invoices as Vorsteuer. Conditions:

  1. The invoice meets the mandatory information of §14 UStG (issuer and recipient name + address, tax number / VAT-ID, invoice date, sequential number, description of supply, supply date, net amount, rate, VAT amount).
  2. The supply was acquired for the business (no private share).
  3. The supply was actually performed (or paid, in case of advance payments).

Miss a single mandatory line item and the tax office disallows the deduction. Worth a 30-second check before you pay.

Net liability — what you actually transfer

The net liability is the amount you remit through the USt-Voranmeldung:

Net liability = VAT collected (sales) − Input VAT (purchases)

Worked example — Q1 2026 of a German freelancer:

  • Sales gross: €35,700 (= €30,000 net + €5,700 VAT at 19 %)
  • Supplier invoices with input VAT: €1,200 (software, hardware, travel)
  • Net liability: 5,700 − 1,200 = €4,500

The freelancer transfers €4,500 by April 10 along with the electronic ELSTER VAT return.

When is the USt-Voranmeldung due?

Prior-year liabilityFrequencyDeadline
over €9,000monthly10th of next month
€2,000 – €9,000quarterly10th after quarter-end
under €2,000annual return onlyJuly 31 of next year
founding year + nextmonthly (mandatory)10th of next month

With a permanent extension (Dauerfristverlängerung, §46 UStDV — one-time application, 1/11 of the prior year's liability as a special advance payment) the deadline shifts by one month — strongly recommended for ongoing businesses.

Input-VAT surplus — money back from the tax office

When input VAT exceeds VAT collected (negative liability), the Finanzamt refunds the difference. Classic cases:

  • Start-up phase with high investment but few sales
  • Intra-EU or export supplies (zero-rated under §6/§6a UStG, but input VAT fully deductible)
  • Investment months with machinery, IT or vehicle purchases

Refunds above roughly €7,500 often trigger a documentation request. Keep invoices in order — the retention period is 10 years (§14b UStG).

Small-business exemption (§19 UStG)

If your prior-year turnover stayed below €25,000 and your expected current-year turnover does not exceed €100,000, you can opt for the Kleinunternehmer regime:

  • You charge no VAT on your invoices — and must reference §19 UStG.
  • You cannot deduct input VAT on supplier invoices.
  • You file no quarterly/monthly returns — only a simplified annual declaration.

Useful when your customers are private individuals or your input VAT is low. With B2B clients and large investments, opting out is usually better — but you are then locked in for five years.

Common mistakes

  • Multiplying gross by 19 % — wrong. €119 contains €19 VAT, not €22.61. Always divide by 1.19.
  • Not checking mandatory invoice info — a missing tax number kills the input-VAT deduction.
  • Mixing private and business shares — for a company car or phone, only the business portion is deductible.
  • Missing the 10th-of-month deadline — late-filing surcharge up to 10 % of the liability plus 1 % per month interest.
  • Small-amount invoices under €250 — simplified info is enough (§33 UStDV), but rate and gross amount must still appear.

Optimisation tips

  • Apply for the permanent extension — gains you one extra month on every monthly filing.
  • Cash-basis taxation (Ist-Versteuerung) — available below €800,000 turnover (§20 UStG): VAT due only when the customer pays, not when invoiced. Saves cash flow.
  • Book invoices immediately — claim input VAT in the period the invoice is received.
  • Set up a SEPA direct debit — eliminates late-payment surcharges from forgotten transfers.
  • Reverse charge for foreign B2B services — under §13b UStG you self-account for the VAT and deduct it as input VAT in the same return — net effect zero.

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