The VAT Return process
Under current situation, German Government announces a temporary reduction of the German VAT Rates from 19% to 16% (regular VAT Rate) and from 7% to 5% (reduced rate), respectively. The reduced VAT rates were scheduled to come into effect on 1st of July, 2020 and remain in force until 31st of December, 2020.
Steuernummer, VAT ID and §22F
In Germany, you will receive two numbers within the VAT process. The first number is the tax number (Steuernummer), which is a general number used by the tax authorities. It serves as a reference for your (monthly) VAT filings and general correspondence.
The VAT ID is a 9-digits long number including the appropriate country code (e.g. DE123456789). You will receive this number after receiving your tax number. It serves as identification in terms of intra-community supplies, which comes to use whenever you do business with companies from other European countries (B2B).
From 01.01.2019, all online marketplaces are liable for every online seller who is not VAT compliant. Consequently, online marketplaces (e.g. Amazon) now require their sellers to provide a Tax Certificate (§22F), stating their tax compliance in Germany, in order to prevent suspension.
Every Ecommerce has to report its intra-Community supplies in a European Community sales list (ZM report). The purpose of the European Sales List is to monitor whether or not the recipient of an intra-Community supply or service has properly reported the VAT in the country of destination.
The Ecommerce also needs to file an Annual Summary VAT Return. This declaration is a summary of the year that you must retain records and documents that are relevant for tax purposes and must submit them to the tax office upon request.
As a rule, periodic VAT returns in Germany must be filed and paid by the 10th day of the month following the reporting period.
Seller with warehouse in the European Union
A normal sale is a commercial exchange between a Company and a Customer usually of goods/services and money. In the Ecommerce world, this transaction happens in Internet.
The seller must pay the VAT return in the provider EU country of the goods, which means where the delivery starts. Accordingly, the seller has to VAT registered the Company in the Tax Authority of the country where the products coming from in the European Union.
If your company is located in another European country and you comply with one of the following two conditions, you have the liability of the VAT register and VAT compliance in Germany.
- If the warehouse where you stored your goods is located in Germany or
- If you exceed the German Threshold of annual sales (€ 100.000 Net price).
The Option / to waive the distance selling threshold
The Option / to waive the distance selling threshold to other EU-Countries is the possibility to renounce to exceed the Threshold and pay the VAT rate from the arrival country since the first order. That means that the seller must register in the Tax Authority and pay the VAT return in the EU country where wants to avoid exceeding the threshold in the sales. Consequently, the seller must agree to pay for two years in the country where he applies for the Option.
The liability of VAT compliance is in charge of the seller. If there is false information or a mistake in the VAT rate of the invoices, it could be possible penalties from the Tax Authority as pay the double of the VAT rate of Germany.
In consideration of the German VAT rate is 16%, we advise to use the German warehouse because is one of the lowest VAT rates in Europe.
If you are a seller based in a different EU country than Germany and you sell or want to sell your goods in Germany, we strongly advise taking the Option. In that way, you do not have to wait to exceed the German Threshold (€100.000). Therefore, you can have the 16% VAT rate since the first order.
In Poland, the seller who wants to apply to the Option should fill out the VAT 21 Form and send it to the polish Tax Authority.
Drop shipping sales
It is a retail sell where the seller does not stock the goods in its own warehouse, instead transfers its customer's orders to the manufacturer, another retailer, or warehouse, who ships the goods directly to the customer.
It´s mean that three parties participate in the whole process: Seller, Customer and manufacturer/ warehouse.
The drop-shipper must pay the VAT rate of the country where the delivery ends, therefore, where the final customer is located.
As a drop-shipper, if you have an order from any EU country, you must register in the Tax Authority of that EU country and comply with the VAT return. Do not sell in countries where you do not plan to register in the TA.
The drop-shipper must be aware of the Import Tax if the good comes from a Non-EU Country and reclaim.
Regarding the business expenses invoices (E.g. Amazon Services, advertising...), perhaps, you may be able to claim some expenses as tax deductions to reduce your German taxable income.
For the new drop-shippers, we advise selling only in large markets such as Germany, France, or the UK because in the market where you sell, you will have to register in the Tax Authority and that takes money and time.
Only when you have a big Ecommerce business with a high income expand your sales to smaller markets is a good idea.
Be careful about the markets you activate on Amazon. It is not a good idea to sell everywhere without thinking about tax obligations.