Vorsteuer explained: Definition, calculation, and deduction for freelancers and businesses
Diana
Updated on:
Aug 31, 2025
Vorsteuer is the input VAT you pay on business purchases in Germany. Any time you buy goods or services for your business and the invoice shows German VAT (7% or 19%), that VAT is your Vorsteuer. If you are VAT-registered, you’re allowed to reclaim it.
Why does this matter? Because Vorsteuer directly lowers your tax bill. In your VAT return you offset the input VAT you’ve paid (Vorsteuer) against the VAT you’ve charged customers (Umsatzsteuer). If Vorsteuer is higher, you receive a refund; if it’s lower, you pay the difference. Done right, this keeps cash flowing and prevents you from “eating” VAT as a cost.
In this guide, you’ll get a complete, beginner-friendly walkthrough: clear examples that show how the math works, practical bookkeeping entries, what counts as deductible Vorsteuer (and what doesn’t), where and when to enter it in your VAT filings, plus common mistakes to avoid. By the end, you’ll know exactly when to talk about Vorsteuer vs. Umsatzsteuer, how to calculate it, and how to claim it—confidently and correctly.
What is Vorsteuer?
In German tax law, Vorsteuer means the VAT you pay on business-related purchases. Put differently: whenever your supplier invoices you for goods or services, the VAT amount shown on that invoice is considered Vorsteuer from your perspective. You pay it first, but later you can reclaim it from the tax office—provided you’re registered for VAT and the invoice meets all legal requirements.
This is where the terminology often gets confusing. Mehrwertsteuer, Umsatzsteuer, and Vorsteuer all refer to the same tax but from different viewpoints:
Mehrwertsteuer (MwSt.) is the everyday, colloquial term—what consumers see on receipts.
Umsatzsteuer (USt.) is the official legal name used in tax law and invoices. From the seller’s side, it’s the tax they collect and pass on to the Finanzamt.
Vorsteuer is the exact same tax, but viewed from the buyer’s side. When a business pays VAT on incoming invoices, it’s called Vorsteuer.
So, who actually pays Vorsteuer (vorsteuer wer zahlt)? Every business that buys goods or services in Germany initially pays it. But unlike private consumers, VAT-registered businesses don’t carry the cost. They report the Vorsteuer to the Finanzamt in their VAT return and deduct it from the VAT they’ve collected on their own sales.
And why do companies pay Vorsteuer in the first place (warum vorsteuer zahlen)? The system is designed so that VAT is only a final cost to the end consumer. Businesses act as middlemen: they pay VAT to their suppliers, reclaim it as Vorsteuer, and charge VAT on sales to customers. This chain ensures the state collects tax at every stage of value creation—without burdening companies unnecessarily.
👉 In short: Vorsteuer is not an extra cost for businesses but a temporary cash flow item. The key is filing correctly so you get it refunded or offset against your VAT liability.
Vorsteuer vs. Umsatzsteuer
At first glance, Vorsteuer and Umsatzsteuer sound like two different taxes. In reality, they are just two sides of the same VAT coin. The difference lies in perspective:
Vorsteuer is the VAT you pay on incoming invoices (your business expenses).
Umsatzsteuer is the VAT you collect on outgoing invoices (your sales).
So, when Vorsteuer, when Umsatzsteuer?
You speak of Umsatzsteuer when you issue an invoice to your customers. You add 19% or 7% to the net price, collect it, and owe it to the Finanzamt.
You speak of Vorsteuer when you receive an invoice from a supplier. You pay the VAT included, but can deduct it later in your VAT return.
Quick comparison:
Perspective | What it means | Example | Effect |
Umsatzsteuer (Output VAT) | VAT you charge on your own sales | You invoice a client €1,000 + €190 VAT | You collect €190 and owe it to the Finanzamt |
Vorsteuer (Input VAT) | VAT you pay on purchases | You buy office equipment for €500 + €95 VAT | You can reclaim €95 from the Finanzamt |
In short, Umsatzsteuer is money you collect for the tax office, Vorsteuer is money you advance to the tax office. When you file your VAT return, both amounts are offset against each other. If your input VAT is higher, you get a refund. If your output VAT is higher, you pay the difference.
👉 Understanding this difference helps avoid one of the most common mistakes: forgetting that Vorsteuer is never a business expense if you’re VAT-registered—it’s always reclaimable.
How to calculate Vorsteuer
When people ask how to calculate the input tax, the math is simple once you know which VAT rate applies (19% standard or 7% reduced).
Step 1 — Identify the VAT rate on the invoice.
Most business purchases in Germany carry a 19% tax; some goods and services (e.g., books, some food, overnight stays) are subject to a 7% tax.
Step 2 — Apply the right formula.
If you know the net price:
Vorsteuer = net price × VAT rate
(e.g., 1,000 × 19% = 190)If you only know the gross price:
Vorsteuer = gross price × rate / (1 + rate)
For 19%: gross × 19/119
For 7%: gross × 7/107
Step 3 — Record it as input VAT from the supplier’s invoice.
You don’t expense it if you are VAT-registered—you reclaim it in your VAT return by offsetting against your collected VAT.
Example 1: Business purchase with 19% VAT
You buy a laptop for €1,000 net, plus €190 VAT (19%), for a total of €1,190 gross.
Your Vorsteuer on this invoice is €190.
If the invoice only showed €1,190 gross, you could compute the VAT portion as 1,190 × 19/119 = €190.
Example 2: Sale and offsetting input VAT against collected VAT
In the same month, you invoice a client €2,000 net, plus €380 VAT (19%), for a total of €2,380.
Collected VAT (Umsatzsteuer): €380
Input VAT (Vorsteuer) from the laptop: €190
VAT to pay = €380 − €190 = €190 to the Finanzamt.
If your Vorsteuer in a period is higher than the VAT you collected (for example, due to large equipment purchases or a quiet sales month), you’ll have a refund instead of a payment.
Tip: The deduction only works if the invoice is correct (supplier and buyer details, invoice date/number, clear description, net amount, VAT rate, VAT amount). Keep every qualifying receipt and book it to the correct tax period—this is the backbone of getting your Vorsteuer back smoothly.
Which Vorsteuer is deductible?
Not every euro of VAT you pay counts as deductible Vorsteuer. The rule of thumb is: only business-related expenses that are necessary for your entrepreneurial activity qualify.
Deductible Vorsteuer – typical cases
If the invoice is correct and the expense is for business use, you can usually reclaim the VAT. Examples include:
Office equipment and furniture (desks, chairs, laptops, printers)
Software and online tools (subscriptions like project management, design, or accounting software)
Business rent and utilities (proportional VAT on office space or co-working desks)
Business travel (train tickets, hotel stays, taxi rides — if the invoice shows VAT)
Professional services (consultants, marketing agencies, IT support)
Telecommunication costs (mobile, internet, phone bills with VAT shown)
Non-deductible Vorsteuer – watch out for exclusions
Certain costs are explicitly not deductible, even if you have a VAT invoice:
Private use expenses – anything not tied to your business activity (home furniture, groceries, children’s toys).
Gifts above €35 (net) per year per recipient – VAT on them cannot be claimed back.
Expenses for personal taxes – e.g., Einkommensteuer, Kirchensteuer, or Solidaritätszuschlag.
Entertainment or luxury spending – e.g., private parties, vacations.
Invoices with missing or incorrect details – without proper VAT information, no deduction is allowed.
Special cases: partial and mixed-use expenses
Some purchases are tricky because they serve both business and private purposes:
Company car (Pkw): If you use a car 70% for business and 30% privately, you can only reclaim 70% of the VAT on purchase, fuel, and maintenance. Documentation (e.g., Fahrtenbuch / logbook) is required.
Home office equipment: A desk or monitor explicitly bought for your workspace is deductible, but a sofa in your living room isn’t.
Travel expenses with mixed purpose: If a trip is half business, half private holiday, you can only deduct the VAT on the business-related share.
👉 Bottom line: Vorsteuer is deductible only for business-related purchases backed by proper invoices. Before claiming VAT, ask yourself: Is this expense truly for my business? If the answer is yes—and the invoice is correct—the Vorsteuer is almost always reclaimable.
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How to claim Vorsteuer in practice
Knowing what Vorsteuer is doesn’t help much if you don’t know where and how to claim it back. The good news is that once you understand the filing routine, it becomes a simple monthly or quarterly task.
Where to enter Vorsteuer in the VAT return
When you file your Umsatzsteuervoranmeldung (UStVA) electronically via ELSTER or tax software, you’ll see dedicated fields for input VAT.
Line 55 / Field 66 – Vorsteuer from domestic invoices (the most common case).
Additional fields exist for import VAT and intra-EU purchases. Still, the principle is the same: you declare the input VAT you’ve paid and later offset it against your collected Umsatzsteuer.
Filing frequency: monthly, quarterly, or yearly
Your filing rhythm depends on the amount of VAT you owed in the previous calendar year:
Monthly: if your VAT liability was more than €9,000.
Quarterly: if it was between €2,000 and €9,000.
Yearly: if it was below €2,000 (rare for active businesses).
This system ensures that businesses with higher VAT volumes report more often, while smaller ones have less administrative work.
Deadlines and the 10th-day rule
The UStVA is always due by the 10th day of the following month (or following quarter, if you file quarterly).
Example: Your January return must be submitted and paid by 10 February.
If the 10th falls on a weekend or public holiday, the deadline shifts to the next working day.
You can apply for a permanent filing extension (Dauerfristverlängerung), which gives you an extra month to submit. This can be especially helpful if your bookkeeping is complex or you need extra time to reconcile invoices.
Special rules for founders
Newly registered businesses face stricter rules:
For the first two calendar years, you must file quarterly, regardless of the amount of VAT you collect.
This is how the Finanzamt supports new entrepreneurs in their first years.
The advantage: you can reclaim Vorsteuer on expenses much faster, because your refunds are processed monthly instead of quarterly.
👉 In practice: claim every valid Vorsteuer amount by entering it in the correct UStVA line, stick to your filing schedule, and never miss the 10th-day deadline. This keeps you in good standing with the Finanzamt and ensures your cash flow isn’t disrupted.
Vorsteuer in bookkeeping
Beyond the tax return itself, Vorsteuer also shows up in your accounting records. Recording it properly ensures that your books stay balanced and makes your VAT filings traceable in case of an audit by the Finanzamt.
How Vorsteuer is recorded
Every time you receive an invoice with VAT, the net amount goes into the appropriate expense account (e.g., office supplies, travel costs), while the VAT portion is booked separately as Vorsteuer. This way, your profit & loss statement shows only the net business costs, while the VAT is held on a dedicated account until it’s offset.
The Vorsteuer account explained
In double-entry bookkeeping, Vorsteuer is usually recorded on a special asset account called “Vorsteuer.” Technically, it’s not an expense (Aufwand) in the profit-and-loss sense—it’s a receivable from the tax office. But many accounting frameworks treat it similarly to an expense account during the year, before it is cleared against Umsatzsteuer.
At the end of the filing period, the Vorsteuer account is reconciled with the Umsatzsteuer account. The difference determines whether you owe money or get a refund.
Example booking entries
Double-entry bookkeeping:
You buy a computer for €1,000 net + €190 VAT (total €1,190).
Debit: Office Equipment €1,000
Debit: Vorsteuer €190
Credit: Bank €1,190
At the end of the month, Vorsteuer (€190) will be offset against the VAT collected.
EÜR (income surplus calculation):
If you use the simplified Einnahmen-Überschuss-Rechnung, you don’t create separate ledger accounts. Instead, you record the gross expense (€1,190) and list the VAT portion separately in the UStVA form. The Finanzamt then refunds the VAT portion or reduces your liability.
Connection with the Umsatzsteuer account
Think of Vorsteuer and Umsatzsteuer as two balancing sides:
Umsatzsteuer account: liability to the Finanzamt (VAT you’ve collected on sales).
Vorsteuer account: receivable from the Finanzamt (VAT you’ve paid on purchases).
At the end of each reporting period, both accounts are netted out. The resulting balance is either:
a VAT liability (you pay the difference to the Finanzamt), or
a VAT credit (the Finanzamt refunds you).
👉 Vorsteuer is never a real expense in your books. It’s an advance you pay that either reduces your liability or comes back to you. Keeping it on a separate account ensures clarity and compliance.
Who is entitled to deduct Vorsteuer?
Not every business can reclaim input VAT. The right to deduct Vorsteuer depends on whether you are VAT-registered and whether your sales are subject to VAT.
General rule: VAT-registered businesses
All businesses that are registered for VAT (Umsatzsteuerpflichtig) are also entitled to deduct Vorsteuer. That means: if you charge VAT on your sales, you can also reclaim the VAT you paid on your purchases. This applies equally to GmbHs, freelancers, and sole traders.
The Kleinunternehmerregelung
If you use the small business scheme (Kleinunternehmerregelung), you don’t charge VAT on your invoices. That also means you cannot deduct Vorsteuer. For some low-revenue businesses this is simpler, but if you expect high startup costs or investments, waiving this option and registering for VAT usually pays off.
Freelancers and professionals
Freelancers (Freiberufler) such as designers, writers, IT consultants, or lawyers follow the same rules as other businesses:
If you charge VAT on your invoices, you can deduct Vorsteuer.
If you are a Kleinunternehmer or your work is VAT-exempt, you cannot.
Special cases: exempt industries
Some sectors are exempt from charging VAT under German law. Because they don’t collect VAT, they also can’t reclaim Vorsteuer. Common examples include:
Real estate rentals to private tenants
Healthcare services (doctors, therapists, dentists)
Education (schools, many private teachers, some training providers)
These businesses treat the VAT they pay on purchases as a regular expense, since the Vorsteuer deduction is not allowed.
👉 Bottom line: If you’re VAT-registered, Vorsteuer works for you. If you’re exempt, Vorsteuer becomes a cost. Choosing the right setup (especially at the beginning of your business) can make a big difference in your finances.
Common mistakes with Vorsteuer
Although the principle of Vorsteuer is straightforward, there are a few pitfalls that often trip up many freelancers and small business owners. Avoiding these mistakes can save you both money and stress during a Finanzamt audit.
1. Missing invoice details
For Vorsteuer to be deductible, the supplier’s invoice must meet all formal requirements under the German VAT Act (§14 UStG). If key details are missing—such as the supplier’s tax number, invoice date, or a proper description of the goods or services—the Finanzamt may reject the deduction. Always check invoices before paying them.
2. Wrong VAT rate applied (7% vs. 19%)
Some goods and services are taxed at a reduced rate of 7%, while others are taxed at the standard rate of 19%. If your supplier applies the wrong rate and you claim that amount as Vorsteuer, the Finanzamt can disallow it. Double-check invoices for plausibility: hotel stays should be 7% (on the accommodation part), office software 19%, books 7%, etc.
3. Deducting private or non-business expenses
Vorsteuer is only for business-related purchases. Trying to deduct VAT on groceries, home furniture, or private vacations is a red flag. Mixed-use items (like a car or mobile phone) must be split proportionally between private and business use—otherwise, you risk losing the deduction altogether.
4. Wrong timing: not recording Vorsteuer in the correct filing period
You can only claim Vorsteuer in the tax period when both conditions are met:
You’ve received a proper invoice.
The underlying service or goods have been delivered.
If you record it too early or too late, the Finanzamt may reject it, forcing you to correct your filings. For example, if you pay an advance invoice in December but the delivery takes place in January, the Vorsteuer is only deductible in January.
👉 In short: make sure invoices are correct, VAT rates make sense, expenses are clearly business-related, and Vorsteuer is claimed in the right month or quarter. These small checks prevent big headaches later.
How Norman helps with VAT & Vorsteuer reporting
Managing Vorsteuer sounds simple in theory—but in practice, freelancers and small business owners often lose hours each month sorting receipts, checking VAT rates, and typing numbers into ELSTER. That’s exactly where Norman makes the difference.
Automated detection of VAT on invoices
Connect your bank account and upload invoices: Norman automatically reads the VAT amounts, recognizes whether 19% or 7% applies, and classifies them correctly.Checks for deductible vs. non-deductible Vorsteuer
Norman flags cases where Vorsteuer can’t be reclaimed—like private expenses, missing invoice details, or non-deductible items—so you don’t get caught in a Finanzamt audit.Pre-filled Umsatzsteuervoranmeldung
Instead of manually entering numbers into endless ELSTER fields, Norman prepares your VAT return with the correct Vorsteuer amounts in the right lines. All you need to do is review and confirm.Direct filing with the Finanzamt
Submit your VAT return in just a few clicks—no need to wrestle with certificates or forms. Norman handles the transmission securely, straight to the Finanzamt.
👉 The result: less admin, fewer mistakes, and faster refunds when your Vorsteuer is higher than your Umsatzsteuer. You focus on running your business—Norman makes sure your VAT stays under control.
Frequently asked questions (FAQ)
1. What exactly is Vorsteuer?
Vorsteuer is the input VAT you pay on business purchases in Germany. If you are VAT-registered, you can reclaim it by offsetting it against the VAT you collect from your own customers.
2. Who pays Vorsteuer and who gets it refunded?
All businesses initially pay Vorsteuer when they buy goods or services that include VAT. Unlike private consumers, VAT-registered businesses can reclaim it in their Umsatzsteuervoranmeldung.
3. Is Vorsteuer an expense for the company?
No. Vorsteuer is not a real cost if you are entitled to deduct it. In bookkeeping, it’s treated as a receivable from the Finanzamt. Only if you are not VAT-registered (e.g., under the Kleinunternehmerregelung) does VAT become a business expense.
4. Where do I enter Vorsteuer in my VAT return?
In the Umsatzsteuervoranmeldung (UStVA), Vorsteuer is entered in the designated fields (e.g., Line 55 / Field 66 for domestic invoices). Your software or ELSTER form guides you to the right boxes depending on the type of expense.
5. Can freelancers deduct Vorsteuer?
Yes. Freelancers follow the same rules as other businesses: if you charge VAT on your invoices, you can also reclaim Vorsteuer. If you use the Kleinunternehmerregelung or work in VAT-exempt sectors (like healthcare or education), you cannot.
6. What happens if Vorsteuer > Umsatzsteuer?
If your input VAT (Vorsteuer) is higher than the VAT you’ve collected on sales (Umsatzsteuer), you have a Vorsteuerüberhang. In this case, the Finanzamt refunds you the difference—improving your cash flow.
👉 These FAQs cover the basics, but the key takeaway is simple: Vorsteuer lowers your tax burden, provided you’re VAT-registered and your invoices are correct.
Conclusion
Vorsteuer may sound technical, but the idea is simple: it’s the VAT you pay on business purchases and can reclaim from the Finanzamt. For VAT-registered businesses, this means VAT is never a true cost—provided you keep proper invoices and file your returns correctly.
The two golden rules are:
Check your invoices – only correct and complete invoices give you the right to deduct Vorsteuer.
File on time – enter the amounts in the right place in your VAT return, and respect the deadlines.
Handling this manually can be tedious and prone to errors. That’s why automation makes such a difference. With Norman, you don’t have to worry about mismatched VAT rates, missing invoice details, or forgotten deadlines. The system automatically detects Vorsteuer, fills out your Umsatzsteuervoranmeldung, and submits it directly to the Finanzamt—saving you time and preventing costly mistakes.
👉 Want to make freelancing in Germany even easier?
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