For many self-employed in Germany—whether freelancers or Gewerbe—handling VAT (Umsatzsteuer) and filing VAT returns (Umsatzsteuervoranmeldung) can be a daunting task. It’s no wonder, given the complexity involved: How does input tax deduction work? What’s the difference between VAT and input tax? And how can you use business expenses to reduce your tax burden?
This guide will illuminate the essentials and help you streamline your tax processes!
What is VAT, and why should self-employed care?
VAT, commonly referred to as Mehrwertsteuer in Germany, is a tax levied on the sale of goods or services. As a self-employed individual, you must include VAT on your invoices and remit it to the tax office (Finanzamt).
Key VAT rates:
Standard rate: 19%
Reduced rate: 7% (for specific goods and services)
❌ VAT is not your money—it belongs to the tax office. You act as a “collector” for the government, passing the tax from your clients to the tax office.
The difference between VAT and input tax
Here’s the key distinction:
VAT (Umsatzsteuer): The tax you charge your customers for your goods or services.
Input tax (Vorsteuer): The VAT you pay when purchasing goods or services for your business.
If you’re entitled to input tax deduction, you can subtract the input tax you’ve paid from the VAT you owe. This means you only pay the difference to the tax office.
How does input tax deduction work?
The input tax deduction is a significant advantage of being self-employed in Germany. It helps you reduce costs on business-related purchases.
How to apply input tax deduction:
Collect receipts: Keep all invoices for business expenses that show VAT.
Organize your finances: Maintain a record of all income and expenses, including VAT amounts.
Calculate the difference: Subtract the input tax you’ve paid from the VAT you’ve collected.
File your VAT return: Submit your VAT return on time, either monthly or quarterly, depending on your revenue.
👩💻 Use Norman to automatically collect receipts, calculate taxes, and file your VAT returns digitally—no stress, no paper clutter!
Example of VAT Filing
Let’s break it down with an example:
Income (including VAT): €10,000 (VAT at 19% = €1,597)
Business Expenses (including VAT): €3,000 (Input tax at 19% = €479)
Calculation:
VAT Collected: €1,597
Minus Input Tax: €479
Payable to Tax Office: €1,597 - €479 = €1,118
Thanks to input tax deduction, you only owe €1,118 in VAT and save €570 on your business expenses.
What is VAT filing (Umsatzsteuervoranmeldung)?
VAT filing is a periodic report that self-employed individuals subject to VAT must submit to the tax office. It details how much VAT you’ve collected and how much input tax you’re claiming.
Filing frequency:
Monthly filing: Required if last year’s VAT liability exceeded €9,000 (common for high-revenue businesses).
Quarterly filing: For VAT liability under €9,000 in the previous year (suitable for most small businesses).
Annual filing: Possible if your VAT liability is below €1,000.
Deadlines:
File by the 10th of the following month (e.g., February 10 for January).
Extension: Apply for a permanent extension (Dauerfristverlängerung) for an additional month. This requires a prepayment of VAT.
💡 Missing deadlines results in penalties. The tax office imposes a 1% late fee per month on the outstanding VAT amount. Repeated delays may trigger audits or additional sanctions.
How Norman simplifies VAT filing
Norman automates the entire process:
Collect receipts digitally.
Calculate VAT and input tax automatically.
File your VAT returns directly with the tax office.
📅 Norman also sends reminders for deadlines, ensuring you never miss a submission. Say goodbye to stress and late fees!
Claiming business expenses to reduce the tax burden
What qualifies as a business expense?
These are costs directly tied to your professional activity:
Office supplies: Pens, paper, printer cartridges.
Equipment: Laptops, printers, mobile devices.
Software: Accounting tools, design programs.
Utilities: Internet and phone bills (business portion only).
Travel expenses: Flights, train tickets, accommodation, and meals for business trips.
Vehicle costs: Fuel, insurance, and maintenance for business use.
💡 We have a portal dedicated to tax deductibles. Check it out!
Key tax deductions for self-employed
Advertising Costs: Marketing expenses like ads, social media campaigns, and websites.
Professional Development: Seminars, webinars, and industry certifications.
Home Office: Deduct a portion of rent and utilities for a dedicated workspace.
Insurance: Professional liability or industry-specific insurance.
Legal and Accounting Fees: Costs for accountants or tax advisors.
Small business regulation (Kleinunternehmerregelung)
If your annual revenue is under €22,000 (as of 2023), you may opt for the Small Business Regulation. This exempts you from charging VAT on your invoices and filing VAT returns (mostly, read more about VAT filing as a Kleinunternehmer here). However, you won’t be eligible for input tax deduction.
Conclusion: Effortless VAT filing
Understanding VAT and input tax can save you significant money and streamline your tax responsibilities. With Norman, managing your bookkeeping, calculating taxes, and filing VAT returns becomes effortless. Let us take the stress out of your taxes so you can focus on growing your business.