VAT in Germany: A Practical Guide for International Businesses

Germany is the largest economy in Europe, with over 83 million consumers and one of the most stable business environments worldwide. For many foreign companies, it represents an attractive opportunity. Yet before selling even a single product or digital service, there is one hurdle every entrepreneur must face: VAT in Germany.

VAT is not simply a bureaucratic step. It is a legal requirement and a vital element of doing legitimate business in Germany. Failure to comply can result in fines, blocked accounts, and even criminal charges in serious cases. On the other hand, correct VAT registration and reporting build trust with customers and ensure smooth business operations.

This guide explains the essentials: the German VAT number (USt-IdNr.), current VAT rates, when foreign businesses need registration, how to apply, and how to remain compliant once registered.

The German VAT Number (USt-IdNr.): Your Key to Compliance

Every business trading in Germany will come across the Umsatzsteuer-Identifikationsnummer, or USt-IdNr. for short. This is the official German VAT number. It must not be confused with the general tax number, in German: “Steuernummer”, which covers broader tax obligations such as income or corporate tax.

Think of it as two separate keys:

• The Steuernummer (tax number) handles domestic tax matters.
• The USt-IdNr. (VAT number) unlocks cross-border VAT compliance, particularly within the EU.

Without a German VAT number, you cannot legally invoice B2C German clients for taxable supplies. For foreign businesses, this number is therefore the entry ticket into the German market.

German VAT Rates in 2025

When planning sales in Germany, you must understand which VAT rate applies.

• Standard VAT rate: 19%
  This applies to most goods and services: clothing, electronics, consulting, and digital products.
• Reduced VAT rate: 7%
  This applies to essential goods and services, such as food, books, newspapers, public transport, and some medical products.

Germany’s rates are stable. The standard rate has been 19% since 2007, with only temporary reductions during the COVID-19 pandemic. For 2025, the rates remain unchanged. This stability allows businesses to plan with confidence, unlike in countries where VAT is frequently adjusted.

Do I Need a VAT Number in Germany?

This is the question most foreign entrepreneurs ask first. The answer depends on your business model, customer type, and sales volume.

You need a VAT number if you:

• Sell goods to private customers in Germany (B2C).
• Provide digital products or software to German consumers.
• Import goods into Germany before selling them domestically.
• Exceed the EU-wide distance selling threshold of 10,000 EUR, introduced in July 2021 under the One Stop Shop (OSS) system.

You may not need a VAT number if you:

• Only provide services to German companies (B2B), and the reverse charge mechanism applies. In this case, the German business client accounts for VAT.
• Remain under the 10,000 EUR EU-wide threshold and declare VAT through your home country’s OSS registration.

Example 1: A Spanish e-commerce shop selling clothing worth 20,000 EUR within 1 year to German private customers must register for VAT in Germany or use the OSS scheme.

Example 2: A UK consultancy providing services only to German corporations does not need German VAT registration, as reverse charge applies.

Example 3: A Polish company storing products in an Amazon warehouse in Germany for resale must register, as the goods enter Germany before being sold.

Registering for a German VAT Number

The authority responsible for issuing VAT numbers is the Federal Central Tax Office (Bundeszentralamt für Steuern – BZSt).

The process includes:

1. Application form: Complete the official form, using ELSTER.
2. Documents: Provide proof of company registration, articles of association, and evidence of planned activities in Germany. Some documents may require certified translations.
3. Submission: Companies based in Germany always apply for a VAT number at the tax office responsible for their city. Foreign companies and German companies with foreign management, on the other hand, must register for tax purposes at the tax office responsible for their country. You can find a list in the table below the Point 4.
4. Processing time: Standard processing can take 4–8 weeks, but delays are common. Apply well before you begin trading.

Source: ihk.de

Practical advice:

• Engage a local tax adviser or fiscal representative to avoid mistakes.
• Ensure your company address and documents are consistent.
• Keep copies of all submissions in case the authorities request them again.

Letter with a Company VAT number

VAT Compliance in Germany: What Foreign Businesses Must Know

Registration is only the beginning. Once you hold a German VAT number, strict compliance obligations apply.

Invoicing requirements:

Every invoice to German clients must include:

• Your German VAT number.
• The applicable VAT rate (19% or 7%).
• Net amount, VAT amount, and gross total clearly separated.
• In B2B cases under reverse charge: the note “Steuerschuldnerschaft des Leistungsempfängers” and/or in English: “Reverse Charge.”.

Reporting obligations:

• VAT returns: Filed monthly, quarterly or yearly via the electronic ELSTER portal. The frequency depends on the VAT amount, your company needs to pay within one year.
• Annual VAT return: A comprehensive yearly summary, required in addition to periodic returns.
• Deadlines: Usually by the 10th day of the following month. Extensions may be possible.

Penalties:

Late or incorrect submissions can trigger fines, interest charges, or even freezing of business accounts. In severe cases, VAT registration may be cancelled, making re-entry into the German market difficult.

Strategies for Smooth VAT Management

To avoid pitfalls, international businesses should adopt proactive strategies:

• Automated invoicing: Use German accounting softwares, like Sevdesk, Lexoffice or Sage that apply correct VAT rates and formats invoices to German standards.
• Regular reconciliations: Review VAT records monthly to catch errors early.
• Professional support: Partner with German tax consultants to stay compliant and avoid costly mistakes.

Looking Ahead: VAT Trends Affecting International Businesses

VAT law is not static. Several trends are shaping the future:

• Digital services: The EU is harmonising VAT treatment for digital platforms and software providers, meaning more clarity but also stricter obligations.
• Brexit: UK businesses must now treat Germany as a third-country market, often requiring direct VAT registration.
• Sustainability policies: Germany increasingly uses VAT to support green initiatives, with reduced rates for environmentally friendly products.

Conclusion: VAT in Germany as a Competitive Advantage

For foreign businesses, VAT in Germany can seem like a barrier. In reality, it is an entry ticket to one of the world’s most stable and lucrative markets.

The fundamentals are clear:

• The German VAT number (USt-IdNr.) is essential for cross-border trade.
• VAT rates in 2025 remain 19% and 7%.
• The EU-wide threshold of 10,000 EUR means even small sellers may need registration.
• Compliance requires precise invoicing, timely returns, and accurate records.

With preparation and the right partners, VAT compliance in Germany is manageable. More importantly, it demonstrates reliability and professionalism to customers and partners. For ambitious businesses, mastering German VAT is not just an obligation—it is a competitive advantage.

Disclaimer: This article has been prepared with great care and to the best of our knowledge. However, it does not constitute tax or legal advice. We do not accept any liability for the accuracy, completeness or timeliness of the information provided. For individual circumstances, please consult a qualified tax adviser or legal professional.