For businesses in Germany, invoicing can pose several challenges. One challenge is how to handle value-added tax (VAT) on shipping costs. This issue becomes even more complex when orders contain multiple products with different tax rates.

In this article, we explain how VAT is applied to shipping costs in Germany, including shipping tax rates and shipping costs on orders with differing tax rates. We also provide an overview of handling VAT on free shipping, discounts, vouchers, returns, and different shipping methods.

Key takeaways

• Shipping costs are generally considered ancillary services in the context of the delivery of goods. They are treated the same as the main service for value-added tax (VAT) purposes.
  
• Shipping costs for typical taxable supplies of goods can be subject to VAT at either 19% or 7%, depending on the goods being shipped.
  
• When processing orders that contain goods taxed at different rates, businesses must correctly allocate the shipping costs to each item.
  
• Free shipping does not result in a separate delivery fee for customers, while discounts can potentially reduce taxable shipping costs.
  
• For businesses in Germany, correctly allocating shipping costs, discounts, and returns is important to correctly calculate and bill VAT.
  

How is VAT applied to shipping costs in Germany?

A business incurs shipping costs when it ships goods to customers. These costs can be broken down into multiple cost components, such as postage, packaging materials, carrier costs, and staff to handle dispatch.

Therefore, the term “shipping costs” refers to more than just the postage paid to the carrier or postal service. Rather, it is about what costs the business incurs to process and perform delivery and which of these costs are passed on to the customer.

How to handle VAT on shipping costs

For VAT, it is important to differentiate between a main service and an ancillary service. When a business delivers goods, the goods typically constitute the main service. On the other hand, shipment involves delivering the goods to the customer and is generally regarded as an ancillary service that supplements the delivery of goods.

The main service determines how VAT applies to an ancillary service. If the supply of goods is subject to a specific VAT rate, then this tax rate must also be applied to any associated shipping costs.

Importance for businesses

Businesses can indicate shipping costs as separate items on their invoices. This can make the invoice easier to understand and make the amount the business charges for shipping clear to the customer. However, with respect to VAT, it is important that the shipping costs be allocated to the relevant main service.

What is the VAT rate on shipping costs?

The rate of VAT due on shipping costs depends on how the goods being supplied are taxed. In Germany, typical taxable supplies of goods primarily attract a regular VAT rate of 19% or a reduced rate of 7%.

Example: Order with 19% VAT

A business sells an electronic item for €500 net, plus an additional €10 for shipping. The total amount of €510 has a VAT rate of 19% (i.e., €96.90 in VAT). Therefore, the gross amount is €606.90.

Example: Order with 7% VAT

An online business sells a book—which is subject to a discounted tax rate—for €30, plus an additional €5 for shipping. The supply, including shipping, has a reduced VAT rate of 7%. Therefore, VAT of €2.45 is due on the total amount of €35. The invoice total is €37.45 gross.

Digital solutions can help you calculate the correct amount of VAT. Stripe Tax factors in different product and location information to determine the correct amount of VAT that applies to every sale.

How are shipping costs taxed when products have different tax rates?

If an order contains goods that are subject to different VAT rates, the total shipping fee must be correctly allocated to each supply of goods. The corresponding shipping cost components are then taxed at the rate applicable to each of the goods.

Example: Order with 19% and 7% VAT

A customer orders an electronic item for €100 net and a book for €30 from an online business. The electronic item has a VAT rate of 19%, and the book has a VAT rate of 7%. The business charges an additional €10 for shipping.

To calculate the amount of VAT due on the shipping costs, the shipping fee must be split between the two supplies of goods. In this example, this is done according to the ratio between the net sales prices. The electronic item costs €100 net, and the book is €30 net.

€100 ÷ €130 = 0.7692 = 76.92%

€30 ÷ €130 = 0.2308 = 23.08%

With a total merchandise value of €130, the electronic item accounts for 76.92% of the total, and the book accounts for 23.08% of the total.

Those percentages are applied to the €10 shipping fee, meaning that €7.69 in shipping costs is allocated to the electronic item.

€10 x €100 ÷ €130 = €7.69

And €2.31 in shipping costs is allocated to the book.

€10 x €30 ÷ €130 = €2.31

The €7.69 for the electronic item is taxed at 19% VAT, and the €2.31 for the book is taxed at 7% VAT.

€7.69 × 19% = €1.46

€2.31 × 7% = €0.16

Consequently, €1.46 in VAT is due on the €7.69 shipping fee for the electronic item. A further €0.16 in shipping is due for the book. Therefore, in total, €1.62 in VAT must be charged on the €10 shipping fee.

How is VAT handled with free shipping, discounts, and other common ecommerce scenarios?

In ecommerce, various shipping models and discounts can affect the calculation of VAT. The key factor is the amount the business charges for each supply.

Free shipping

If a business offers free shipping, then it does not charge a separate fee for delivery. The business bears the costs for postage, packaging, and carrier fees. Since no separate shipping fee is charged, there is no need to charge VAT on the shipping costs.

However, free shipping does not affect the VAT due on the goods sold. The supply of products is still taxed at the applicable VAT rate.

Fixed shipping fees

Businesses can charge a fixed shipping fee regardless of the actual shipping costs. For VAT purposes, what matters is the amount charged and the tax treatment of the associated main service, not whether the flat rate corresponds to the business’s internal shipping costs.

For example, if a business charges €6 in shipping costs for a delivery of goods, this amount is part of the fee for the associated delivery and generally shares its VAT treatment. The business’s actual shipping expenses are not relevant.

Discounts and coupons

Discounts—such as those granted by redeeming discount codes—generally reduce the amount due for a shipment. If the discount is applied to the total order value—including shipping costs—the amount due for shipping is reduced accordingly. VAT is then generally calculated on the amount remaining after the discount has been deducted.

For example, if a business sells an item for €100 net and charges €10 in shipping costs, the total amount due is initially €110 net. If the business then grants a 10% discount, the taxable amount is reduced to €99 net. At a VAT rate of 19%, this results in €18.81 in VAT. Therefore, the customer pays €117.81 gross.

The calculation can differ if the discount applies exclusively to the value of the goods and excludes shipping costs. Therefore, businesses need to clearly specify which parts of an order qualify for a discount when designing discount promotions.

With coupons, the German VAT Act (Umsatzsteuergesetz) differentiates between single-purpose and multipurpose vouchers. With single-purpose vouchers, the place of supply and the tax due is already known at the time of issue. VAT on this type of voucher is treated the same as for the related supply. With multipurpose vouchers, the actual supply—of goods or services—is only taxed when the coupon is redeemed.

Returns and refunds

For a full or partial return, the VAT base can change. If a taxable supply is returned or the fee is reduced, the amount of tax due must be adjusted accordingly. This also applies to refunded shipping charges—to the extent that they form part of the adjusted tax base.

For a partial return, VAT treatment depends on which goods are returned and which amounts the business refunds. For orders with different VAT rates, it is important for businesses to precisely allocate the amounts to the relevant goods.

Multiple shipping options

If a business offers various shipping options—such as standard or express shipping—it can charge different fees for each option. VAT treatment depends on the respective main service to which the shipping option is assigned.

Businesses in Germany must configure their accounting and tax systems so shipping costs, discounts, coupons, and refunds are correctly factored into VAT calculations. Automated solutions such as Stripe Tax can help reduce manual allocation and calculation errors, especially for businesses with high order volumes or varying tax rates.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful API.

Stripe Tax helps you monitor your obligations and alerts you when you exceed a tax registration threshold based on your Stripe transactions. It can also register to collect tax on your behalf in the US, automate US filings in the Dashboard, and manage global filings through trusted partners. Stripe Tax automatically calculates and collects sales tax, VAT, and GST on:

• Digital goods and services in all US states and over 100 countries
  
• Physical goods in all US states and 42 countries
  

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration, or add tax collection with the click of a button in the Stripe Dashboard.

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FAQs about value-added tax (VAT) on shipping costs