How do I deal with the issue of sales tax as a founder?
March 8, 2024 | 40,00 EUR | answered by Isabel Müller
Dear tax advisor,
I am about to start my own business and I have some open questions regarding value-added tax. As a prospective owner of an online shop, I am unsure about how to properly handle this topic.
Currently, I am not obligated to pay VAT, as my annual turnover falls below the threshold for the small business regulation. However, I plan to expand and increase my turnover in the future. Therefore, I am thinking about when and how I need to register for VAT and what consequences this could have for my business.
My concern is that I might make mistakes in VAT accounting and risk high repayments or penalties. Additionally, I am unsure about which VAT rates apply to my products and how to correctly show them on my invoices.
Could you please explain to me at what point I become liable for VAT and how I can best prepare for it? Are there any specific forms or deadlines I need to be aware of? And what documents do I need to keep for the VAT return?
Thank you in advance for your help and support.
Best regards,
Luisa Engel.
Dear Mrs. Engel,
Thank you for your inquiry regarding value-added tax in the context of your planned business start-up. It is good that you are already thinking about this important topic in advance to avoid possible errors and to successfully build your business.
First of all, it is important to know that as a small business owner according to § 19 UStG, you are exempt from value-added tax as long as your annual turnover is below the limit of 22,000 euros (or 50,000 euros for small businesses). However, if you plan to increase your turnover and exceed this limit, you must register for VAT.
Usually, you must register for VAT with the competent tax office no later than one month after exceeding the turnover limit. To do this, you need to fill out a corresponding form, which you can obtain online or directly from your tax office. It is important to meet this deadline, as otherwise you may face penalty payments.
Once you are liable for VAT, you must specify the corresponding VAT rate on your invoices. Currently in Germany, the tax rates are 19% and 7%. The rate that applies to each of your products depends on the type of products. Many goods and services are subject to the standard rate of 19%, while items like food or books are taxed at the reduced rate of 7%.
To prepare for the VAT registration, you should carefully keep all relevant documents such as invoices, receipts, bank statements, and records of your turnover and expenses. These documents are required for the VAT return, which usually takes place quarterly.
It is advisable to seek support from a tax advisor to ensure that you comply with all tax regulations correctly and avoid errors in VAT. A tax advisor can also assist you in completing and submitting the VAT return properly.
I hope that this information has been helpful to you. If you have any further questions, please feel free to contact me.
Best regards,
Isabel Müller
