Depending on your registration status as a "Kleinunternehmer" (small business) or "Subject to VAT", the obligations are different.
What is a VAT ID?
A VAT ID (Value Added Tax Identification Number) is a European tax number required for cross-border business transactions within the EU. It ensures that VAT (Value Added Tax) is correctly handled and declared, particularly when doing B2B transactions (business-to-business) within the EU.
In Germany, you are assigned a Steuernummer (tax number) by the Finanzamt (tax office), which is your German business tax number. This number is used for invoicing clients, collecting VAT, and filing taxes within Germany. However, it is only valid within Germany. If you're doing business outside of Germany, you need a VAT ID.
The VAT ID follows the format DExxxxxxxxx, where “DE” represents Germany and is followed by a unique identification number for your business.
When do you need a VAT ID?
Transactions with other European businesses:
If you're involved in B2B transactions (i.e., with other businesses) within the EU, you require a VAT ID. In this case, the reverse-charge procedure applies: You will issue invoices to clients with a 0% VAT rate, as your client will declare VAT in their own country.Purchasing from providers within the EU:
When buying from suppliers in other EU countries, you will also apply the reverse-charge procedure. You will pay 0% VAT, but you are required to declare and deduct VAT in Germany.
Kleinunternehmer (small business owner) and VAT ID
As a Kleinunternehmer (small business owner) under Germany’s small business regulation, you are generally exempt from charging VAT within Germany. However, this rule is more complex when it comes to transactions across the EU.
While there is an EU-wide small business regulation for VAT (EU-Kleinunternehmerregelung), it’s still in development and not fully established yet. Therefore, it’s generally recommended not to rely on this regulation alone.
If you regularly issue B2B invoices abroad, it is advisable to apply for a VAT ID, especially if you want to use the reverse-charge system for invoicing clients in other EU countries.
Switching to standard VAT taxation (Regelbesteuerung) might actually be beneficial if your business primarily has B2B income. By doing so, you can reclaim VAT on your purchases, which is advantageous, especially if your business involves significant purchasing costs.
For more information about this, you can contact our Tax Coaches.
How to apply for a VAT ID
If you're required to obtain a VAT ID (for example, for regular B2B transactions abroad), you can apply for it through an official form on the website of the Federal Central Tax Office (Bundeszentralamt für Steuern). The application process is straightforward and necessary if you plan to use the reverse-charge procedure for invoicing clients in other EU countries.
Apply for VAT ID:
You can find the application form directly on the website of the Federal Central Tax Office: Apply hereMore information on VAT ID allocation:
Further details on how VAT IDs are assigned can also be found on the official website: More information here
Conclusion
The Steuernummer (tax number) assigned by the German tax office is valid only within Germany. For B2B transactions outside of Germany, you will need a VAT ID in the format DExxxxxxxxx.
As a Kleinunternehmer, you typically do not need a VAT ID unless you regularly issue B2B invoices abroad. In this case, obtaining a VAT ID is recommended.
Switching to standard VAT taxation may be advantageous, particularly if you primarily deal with B2B clients and have significant purchase costs, as you can reclaim VAT on your business expenses.
If you're still unsure about how the VAT ID works or have any other questions, feel free to contact our Tax Coaches via chat for further guidance.