Value Added Tax (Umsatzsteuer) is a tax levied at every economic stage from the manufacturer to the retailer and is ultimately borne by the end consumer. Depending on the kind of product or service, German VAT of 7 % or 19 % (until December 31st, 2006: 16 %) is charged.
Entrepreneurs registered in Germany can deduct the paid VAT from the VAT they charge to customers. Therefore, VAT is only a transit item for those entrepreneurs.
For entrepreneurs that are not registered in Germany because they are not resident in Germany and don’t achieve revenue in Germany, VAT paid in Germany is no transit item in a first instance. However, Germany and all other EU countries are bound by the 8th EU-regulation to repay VAT paid by a foreign entrepreneur under certain circumstances.
This 8th EU-regulation has been transferred into German law with Art. 18 sec. 9 Umsatzsteuergesetz (UStG, German VAT code).
According to Art. 18 sec. 9 UStG entrepreneurs that are not resident in Germany and that do not achieve revenue that is liable to German VAT can apply for a refund of VAT paid in Germany.
Primarily, this concerns entrepreneurs who paid travelling and trade fair costs in Germany in 2006. But it is also possible for those foreign entrepreneurs who bought i.e. material and equipment, consulting and telecommunication services etc. in Germany.
The refundable VAT amount depends on the residency of the entrepreneur, as there are differences between those resident in another EU country and those resident in a so called third country.
EU residents can claim for a refund of German VAT for a period of at least 3 consecutive months up to a calendar year. The refundable VAT needs to amount to 200 € or more (20 € or more if the application period is the calendar year).
Non-EU residents (third country residents) can only claim for a refund if the country of residency doesn’t have a VAT system or paid German VAT is not deductible in this system.
The German Ministry of Finance has published a table of countries that meet the requirements for a VAT refund.The table includes i.e. the United States, Canada, Switzerland, Norway, Korea etc.Entrepreneurs that are residents of these countries can claim for a refund of German VAT that is not VAT on fuel.
In addition, the refundable VAT needs to amount to 500 € or more (for a period of at least 3 consecutive months) or 250 € or more (if the application period is the calendar year).
Responsible for the review of application forms is the Bundeszentralamt fuer Steuern (www.bzst.bund.de). The website of the Bundeszentralamt fuer Steuern also provides a download of the application forms. However, a complete online application is not possible as it is mandatory to attach the original invoices the VAT refund is claimed for.
In addition, a certificate from a foreign institution needs to be attached that certifies that the applicant is registered as an entrepreneur and has a valid tax number.
As mentioned above, the deadline for filing a refund application for VAT paid in 2006 is June 30th, 2007. Extensions are not possible. The refund application will be reviewed within 3 to 6 months. After that, the refund will be paid out and the original invoices will be sent back to the applicant.
As told before, the VAT refund procedure is mandatory in any EU country. Therfore, it also works vice versa: German based entrepreneurs can apply for a refund of VAT paid in other EU countries. The deadline for filing a refund application 2006 in other EU countries is June 30th 2007, too. However, the minimum amount that needs to be reached to file an application varies depending on the involved country.
It is recommendable to contact the responsible tax authorities or your tax accountant for further information or guidance.
Martin Brune is a Certified Tax Advisor (Steuerberater) in Duisburg. For more details see www.stb-brune.de. The above article contains information of a general nature and should not be considered as legal advice.