What is taxable sales in GST

When am I liable for sales tax?

The question 'When am I liable for sales tax'? basically employs all start-ups even before they actually start doing business. And freelancers are also affected by sales tax. This article provides information on the most important framework conditions and shows a tried and tested alternative in order to be able to do without showing sales tax at the beginning.

Taxes and bookkeeping in particular are a headache for many entrepreneurs, as the subject matter is quite complex and the necessary specialist knowledge is usually lacking. Those who were previously employed usually only had to deal with thetax declaration employ. With a view to setting up a business, the question 'When am I liable for sales tax' also raises the question of strategic decisions to be taken. In principle, there is a sales tax liability for every entrepreneur, but in the case of not reaching a specific oneLower limit for the sake of simplicity, no sales tax is charged. In this case one speaks of the taxation asSmall business owner, whereby Paragraph 19 of the Value Added Tax Act is decisive.

Use relevant practical knowledge on VAT liability in this article

First, the conditions are explained under which, for formal reasons, the exemption from sales tax by claiming theSmall business regulation is possible. Since this is a binding and sustainable decision for 5 years, the advantages and disadvantages of the "waiver" of sales tax are also highlighted in a compact way. The aim should be to enable start-ups to assess the scope of their decision so that waiving sales tax does not mean waiving entrepreneurial options.

Basic information on sales tax liability in Germany

Anyone who wants to take up self-employed or freelance work must do so atTax office Report. In this context is onetax registration in the course of which a new tax number is issued, which is to be listed later on the invoices to be issued. As part of this recording, business start-ups have to deal with sales forecasts for the first time, as these are very relevant for sales tax liability: In general, willno sales tax collected when therevenue in the previous or first fiscal year theDo not exceed the limit of 17,500 euros and will not be higher than 50,000 euros in the current year. It should be noted that the gross income includes any sales tax, so that the actual limit must actually be set 19% lower. Those who meet these criteria canSmall business regulation apply and therefore do not show sales tax on the invoices (however, a corresponding note on the invoices is then mandatory).

Business founders then have to meet these limitsCheck again year after yearto assess whether the small business regulation still applies. If the sales limit has been exceeded in one year, it can be used again at a later point in time if sales are lower. This is thatTo notify the tax office in writing, since otherwise requests to submit advance sales tax returns are the rule. As part of the annual tax return, with a view to the operating income generated, it must be stated that the small business regulation is applied.

Small but still enterprising: application of the small business regulation

So small businesses runno sales tax to the tax office, but this must never be shown on the invoices. It should also be noted that small businessesnot entitled to input tax deduction are. With the option for this regulation, start-ups simplify theaccounting, because regular payments to the tax office and documentation on sales tax are no longer required. Essentially, the invoices, which contain a note on the exemption from sales tax liability through the use of the small business regulation, determine the expense of the bookkeeping. Of course, there is no exemption from the income tax that has to be paid on the income generated. A trade must also be registered andBusiness tax be paid, unless it is a freelance activity. The amount of income is not decisive for this corporate tax burden. In terms of sales tax liability, the upper limit of 17,500 euros at the start of self-employment and the development in the following year (maximum 50,000 sales) are decisive. Both conditions must be met and always kept in mind!

Smart entrepreneurs act sustainably through long-term thinking

Since opting for the small business regulation for a period of timebinding for 5 years it should be carefully considered at the beginning. It may be difficult to forecast sales, but this is the only way to be able to estimate the sales tax liability based on numbers in the truest sense of the word. The small business regulation is not generally recommended for all start-ups with likely low sales. The standard taxation can be specifically advantageous if the input tax exceeds the sales tax liability when starting a new business. Small businesses are not entitled to deduct input tax, which can prove to be a disadvantage in the operational business in the start-up phase for larger purchases. Anyone who opts for the so-called standard taxation with payment of sales tax to the tax office has toSales tax return monthly or quarterly Submit to the tax office.

What happens if I cross the limit for the small business regulation?

If the limit of 17,500 euros is exceeded in the current financial year, an option must be made for the following financial year (i.e. sales tax is levied). Entrepreneurs act independently or respectivelyself-reliantso that the tax office does not have to draw attention to this fact. The obligation for sales tax in this financial year applies even if sales below the limit are indicated again for the following year. However, it is then possible to return to the small business regulation. Anyone who overlooks these limits and does not pay sales tax despite the formal obligation must expect back payments to the tax office: Depending on the type of product / service, the income is then reduced by 19%. It is therefore urgently advisable to strictly observe the sales figures and business development, provided that you have decided to take advantage of the small business regulation at the beginning.

What does the decision mean in practice? Overview of advantages and disadvantages of the small business regulation


+ Simplification of the accounting (gross / net distinction is no longer applicable), no constant payments to the tax office

+ Price advantage, as services can be offered more cheaply for end customers (legal savings in VAT)

+ Competitive advantage if certain services have to be offered more cheaply than the competition (without reducing your own income)


- The decision is binding for 5 years. There is a disadvantage in terms of perspective, since when the limit is exceeded, you have to return to regular taxation

- Obligation to control, as sales must always be kept in view

- Possible image disadvantages: In the B2B area, the impression can arise that the provider is not a professional due to lower sales

- Liquidity disadvantages: small businesses are not entitled to deduct input tax, so that operating expenses actually increase. This can be a decisive disadvantage, especially in the start-up phase of investment-intensive business models.

When am I liable for sales tax? A compact conclusion

Basically is every business start-up or entrepreneur is subject to sales taxunless he chooses thatSmall business regulationthat are exempt from VAT. In this case, however, the income may not exceed 17,500 euros in the current or previous financial year and 50,000 euros in the following financial year, otherwise the sales tax liability will automatically apply again in the next year. With the exemption from sales tax, business start-ups feel formal simplifications so that they can put all their energy into their business, especially in the start-up phase.

As stated, the small business regulation can be both operationalPros and cons bring with it, here isno general recommendation possible. However, every business start-up should seriously deal with the expected sales in order to make a reliable decision. The type of activity is also decisive for a sustainable decision: Anyone who makes a lot of investments and purchases products will not want to do without the input tax deduction and will tend to turn down the small business regulation despite presumably low sales. However, anyone who does a creative and artistic activity without major shopping activities will be happy about the simplifications and price advantages for potential customers. If in doubt, comprehensive advice from a tax specialist can also be useful. In the worst case, if the obligation to pay sales tax is 'overlooked', there is a risk of back payments that reduce sales / profit by 19%. Otherwise, the invoicing is simplified by the small business regulation, because with a corresponding note only the incoming payments have to be checked, the sales tax does not have to be administered and paid separately.

Other frequent questions in the context of VAT liability:

Difference in sales tax and sales tax?

Basically, both terms mean the same thing, although VAT can be seen as a more general term. The term value-added tax often appears instead of sales tax, especially on invoices. In tax law, the term value added tax is actually no longer used. With a view to the law, sales tax is to be paid on income generated by self-employed persons and freelancers.

How much is the sales tax?

There are two tax rates. The reduced contribution is 7%, the standard tax rate is 19%. Which tax rate is to be applied for one's own business model results from Section 12 of the Sales Tax Act (UstG). It should be noted that there are always adjustments. In the case of services, it partly depends on where food is consumed or whether service is included.

When do I have to pay sales tax?

If the obligation to pay sales tax is clear, the next step is the question of the timely payment of sales tax. In principle, it depends on the amount of income how often sales tax is to be paid to the tax office. The VAT pre-registration required for this must be made online via ELSTER. If there is a tax liability of more than 7,500 euros per year, the advance VAT return must be made every month. A quarterly advance VAT return is sufficient for between EUR 1,000 and EUR 7,500. As a central deadline, it should be noted that the advance VAT payment must be made no later than the 10th day after the respective pre-registration period has expired. The legal basis can be found in Paragraph 18 of the Value Added Tax Act. If a so-called permanent extension has been granted, the sales tax must be transferred one month later.

Do I have to submit a VAT return? Until when, if applicable?

Overall, it becomes clear that for self-employed / freelancers this is a transitory item that has to be properly recorded from an accounting point of view. In this context, it should be noted that the VAT obligation goes hand in hand with the need to submit a VAT return every year. The deadlines for this have been extended in 2019, so that self-employed by the end of July for submitting the VAT return Allow time for the past year.

Subject to sales tax: What does a proper invoice look like?

Anyone who is subject to sales tax will inevitably have to issue invoices. Apart from the disclosure of sales tax or an explicit reference to the use of the small business regulation, the following information is mandatory in an invoice in accordance with proper bookkeeping:

  • Name and address of the entrepreneur (complete!)

  • Assigned tax number or, alternatively, the sales tax identification number

  • Date of issue and serial number

  • Type and quantity of the goods / services delivered

  • Time of delivery / provision of services

  • Note on the tax rate applied

  • In the case of tax exemption, an indication that no sales tax is due for this service

  • Payment term and bank details

Sales tax liability: do I need a sales tax identification number?

What is the sales tax identification number anyway? With the VAT ID no. it is an identification of the company within the EU. As an entrepreneur, when do I need a VAT identification number? Whenever the company takes part in the movement of goods and services within the EU. It is important to know that the VAT ID no. does not replace the tax number issued by the tax office. Both numbers can appear next to each other.

Where can I apply for the VAT identification number?

The application can be submitted online to the BZSt (Federal Central Tax Office).

What is input tax? What does it have to do with the small business regulation?

This is the sales tax that companies pay when they buy goods or services. If they use them further, the input tax paid can be claimed as part of the advance VAT return. Business start-ups who make use of the small business regulation are not entitled to input tax deduction.

When will I be exempt from sales tax?

Who can be exempt from sales tax? Apart from small business owners who are exempt from sales tax for a limited period of time, German law only recognizes very few exceptions to possible sales tax exemptions. If applicable, it must be checked in each individual case whether a VAT exemption can be obtained as a self-employed teacher or for a private educational institution. Freelance workers in educational institutions can also check whether and under what conditions they can be exempt from sales tax. A look at Section 4 of the Sales Tax Act provides more clarity with regard to the options for sales tax exemption.

When am I liable for sales tax? Summary:

  • In principle, every entrepreneur is subject to sales tax (although not all services and products are subject to sales tax [example: medical services])

  • The exemption from sales tax has nothing to do with payable trade tax or wage tax

  • Business founders can opt for the small business regulation and not pay sales tax (this decision is binding for 5 years)

  • Invoices from small businesses are not allowed to show sales tax, a corresponding legal notice is essential

  • The following limits may not be exceeded for the small business regulation: 17,500 euros in the previous or current financial year and 50,000 euros in the following year

  • Entrepreneurial duty to control: if the limits are exceeded, the sales tax liability automatically applies in the following year (the tax office does not have to draw your attention to this separately)

  • The big advantage of the small business regulation lies in the bookkeeping simplification as well as in price advantages for customers

  • The big disadvantage of the exemption from sales tax is the lack of authorization to deduct input tax for small businesses (especially for business models that are intensive in shopping).