An annual VAT return is an important basis for a company to correctly account for its value-added tax (VAT). The annual return determines the final tax assessment, and it also has a significant impact on the company’s liquidity and tax burden. Careful, timely filing is therefore key to avoid potential legal and financial risks.

In this article, you can find out what an annual VAT return is, who needs to file it, what information it should contain, and more.

What’s in this article?

• What is an annual VAT return?
  
• Who has to submit an annual VAT return?
  
• What deadlines apply to an annual VAT return?
  
• What information needs to be included in an annual VAT return?
  
• How is VAT calculated in an annual return?
  

What is an annual VAT return?

The annual VAT return is a tax return that taxable companies and self-employed people in Germany must submit to the tax office once a year. It is used to calculate the VAT levied on deliveries and other services.

Entrepreneurs subject to VAT are generally required to submit monthly or quarterly VAT returns to the relevant tax authority. These list how much VAT the companies have collected from their customers. VAT returns also include the input tax paid by companies on their own purchases and business expenses. The difference between the VAT collected and the input tax paid determines any VAT liability, which must be paid to the tax office. If the amount of input tax paid is greater than the VAT owed, the difference can be claimed by the company as a refund. However, business owners should keep in mind that preliminary VAT returns are provisional, meaning they are subject to change.

The annual VAT return summarizes all the provisional VAT returns for the year. It is also used to make any corrections and final settlements for advance VAT returns already filed. In an ideal case, there would be no discrepancies between the information in the provisional returns and the annual return. The actual amount of VAT is determined on the basis of the annual VAT return, which is either paid by the company or refunded by the tax authority.

Who has to submit an annual VAT return?

In principle, all entrepreneurs and self-employed people who are subject to VAT must submit an annual VAT return. According to Section 2 of the VAT Act, all entrepreneurs who independently carry out a commercial or professional activity and sell goods or services to generate income are liable to pay VAT.

Companies that make use of the small-scale entrepreneur rule, according to Section 19 of the VAT Act, do not pay sales tax. However, a business must confirm it is using this regulation in its annual VAT return by making a zero declaration. This means that even small-scale entrepreneurs must submit annual VAT returns.

Freelance professionals also need to submit annual VAT returns. However, according to Section 4 of the VAT Act, some freelance activities are exempt from VAT (i.e., a 0% tax rate is levied on them). This exemption rule is intended to promote—among other things—medical, social and charitable activities. A freelancer should therefore check on a case-by-case basis whether they have to submit an annual VAT return.

What deadlines apply to an annual VAT return?

An annual VAT return is generally due to the tax authority by July 31 of the following year. This means a 2024 return would be due by July 31, 2025.

However, if a return is prepared by a tax advisor, the deadline is automatically extended; it becomes February 28 or 29, as applicable, of the year after next. This means the deadline for a 2024 annual return would be February 28, 2026. You can read Section 149 of the Fiscal Code for more information.

VAT returns must be submitted to the tax office electronically via the ELSTER portal. Companies can do this themselves by registering with ELSTER or using compatible software solutions. It is also possible to commission tax consultants to submit the information.

The basis for a correct annual VAT return is accurate data. Therefore, companies must always ensure that all sales and the associated tax rates are accurately documented. In addition, the return itself must be filled out correctly. Stripe Tax can help with this: it automatically determines the correct amount for all revenue and calculates any VAT amount owed to the tax office. It can also transfer all data for the preparation of the annual VAT return quickly and easily. These features can help prevent oversights that result in errors and, as a result, problems with the tax office.

What information needs to be included in an annual VAT return?

To ensure the complete and correct calculation of any VAT due, an annual VAT return must contain key information, such as:

• General details about the company: This includes the name, address, and legal form of the company, as well as the tax number or the VAT identification number.
  
• Sales achieved: This is the sum of all sales generated during the financial year, including both taxable and tax-free sales.
  
• Determined sales tax: Any sales that were taxed must be broken down by the tax rates that were levied. In each case, it must be stated whether the regular tax rate of 19% or the reduced tax rate of 7% was applied.
  
• Input tax: This is the VAT shown on incoming invoices. Input tax corrections due to returns, credit notes, or errors must also be listed.
  
• Special cases: Small-scale entrepreneurs must also declare the VAT that was collected in their annual VAT return—even if it was €0. In addition, companies must report VAT under the reverse charge procedure, in which case the service recipients owe the sales tax.
  
• Result of the tax calculation: The VAT calculated on all sales minus the input tax results in the company’s VAT liability. The advance VAT payments are deducted from this figure to determine the final VAT payment. If the advance payments exceed any VAT liability, the company receives the difference in the form of a refund from the tax office. Otherwise, the difference must be paid to the tax authority.
  

How is VAT calculated in an annual return?

Calculating VAT in an annual return is necessary to determine a company’s final tax liability. With ELSTER, the process is straightforward: businesses simply enter the relevant figures, and the program does the calculations for them. Without ELSTER, it’s usually a multistep process. Here is how it works.

Calculating VAT for the annual return

Determination of taxable sales

The calculation of VAT in an annual return begins with the determination of taxable sales. This includes all sales made by the company during the year. These must be broken down according to the relevant tax rates. Sales that are exempt from VAT are entered as a separate line item.

Calculation of owed VAT

Next is the calculation of any sales tax due. The VAT is calculated by multiplying each taxable sale by the appropriate tax rate. The sum of the VAT amounts for sales at 19% and 7% is the total VAT owed by the company for the year.

Determination of input tax

The input tax that a company pays on goods and services purchased during the year is determined next. The input tax amount can then be deducted from the sales tax owed. However, this requires the relevant incoming invoices to be available. The company records input tax for both tax rates as well, at 19% and 7%.

Calculation of payment amount or refund

The payment or refund amount is calculated by subtracting the deductible input tax from any VAT owed. If the VAT owed is higher than the input tax, a payment obligation arises. If the input tax is higher than the VAT owed, there is a refund claim.

Consideration of advance payments

The advance payments already made by the company during the year through VAT returns are taken into account last. These prepayments are deducted from the determined payment amount, resulting in the final figure the company either has to pay or receive back as a refund.