Businesses in Germany that pay their taxes late can expect to be issued a fine by the tax office. These fines are called late payment penalties. This article will tell you exactly what a late payment penalty is, how the tax office calculates it, and the common reasons for receiving a penalty. We’ll also walk you through the circumstances under which a late payment penalty can be waived, and how automated bookkeeping can help businesses in Germany avoid fines.

What’s in this article?

• What is a late payment penalty?
  
• How do tax authorities calculate late payment penalties?
  
• Common reasons for late payment penalties
  
• When can a late payment penalty be waived?
  
• How automated processes can protect you against late payment penalties
  

What is a late payment penalty?

A late payment penalty is a fine businesses in Germany are required to pay if they fail to pay the tax authorities what they owe. It is levied when a tax, fee, or social security contribution is not paid or is paid late. A late payment penalty can be applied to both monthly and annual tax payments. What matters is that the tax office will only issue a penalty if a declared tax sum is not paid by the specified deadline.

The primary purpose of the late payment penalty is to cover the administrative costs the tax office incurs when a payment is late. It also compensates the tax office for the time it loses chasing taxes that are not received on time. A late payment penalty can only be levied by federal government bodies, such as the tax office, not private organizations or third parties.

The legal basis for the late payment penalty is Section 240 of the German Fiscal Code (Abgabenordnung, or AO). This section also stipulates the amount of the penalty, which is to be paid in addition to the original outstanding tax.

Late payment penalties vs. late payment fees

Unlike a late payment penalty, a late payment fee (sometimes also referred to as a dunning fee) can be charged by private businesses or public institutions when an invoice is not paid on time. Late payment fees can be charged for any kind of payment, not just taxes. They cover costs of materials and mailing of payment reminders, as well as costs for return debits (aka chargebacks) or address tracing.

How do tax authorities calculate late payment penalties?

The process for calculating late payment penalties is legally defined in Section 240.1 of the AO. As soon as a payment deadline is missed, a penalty of 1% of the outstanding tax amount is charged for every month of delay. This rule ensures the penalty is calculated automatically, with no need for the tax office to conduct an additional review.

Example: Calculating a late payment penalty

A company owes €1,200 in back taxes. This sum was initially due September 5, but wasn’t paid until October 10—meaning a penalty of 1% of €1,200 is charged for the first month of default. In this case, the late payment penalty is €12.

It's important to note that the late payment penalty is calculated only for months that have commenced. This means that being late on a payment for just a few days within a month will result in the same penalty as, say, being late for two weeks in that month—the only decisive factor is whether a new month has begun. If payment still hasn’t been received by the following month, an additional penalty of 1% will be charged. In the example above, paying two months late—in November—results in a total late payment penalty of €24.

The late payment penalty therefore grows with every month the payment remains past due, until the total outstanding tax amount, including all penalties, is settled.

Rounding down tax

When a late payment penalty is being calculated, the tax owed is rounded down to the next amount that is divisible by 50. A repayment of €1,070, for example, is rounded down to €1,050 to make the calculation simpler. The penalty is then applied to the rounded amount. In this case, the monthly late payment penalty would be €10.50.

Grace period

The tax office grants taxpayers a grace period of three days before it charges a late payment penalty. This grace period is granted to all taxpayers who use electronic payments, wire transfers, or direct debit to pay their taxes. Taxpayers who pay by check, on the other hand, do not get a grace period (see Section 240.3 of the AO).

Example: Grace period on a late payment penalty

Taxes must be paid by May 10. The tax office grants a grace period until May 13. If May 13 falls on a weekend or public holiday, the end of the grace period is the next business day. The late payment penalty will only be charged after the end of this period.

Common reasons for late payment penalties

There are a number of reasons why the tax office might issue a late payment penalty. Below are some typical examples.

Late VAT returns

A common reason for late payments is failing to file your VAT return on time. If a company files its return too late, then the amount of VAT owed will also be paid late. This usually results in a late payment penalty. Businesses that miss their filing deadline or file their return too late risk not only a late payment penalty, but also potential default interest charges and additional administrative costs.

Payment errors

Errors in payments can also trigger late payment penalties. Typical errors include entering the wrong bank details, accidentally paying less than what is owed, or encountering technical issues in the payment process. Even though the company has, in principle, paid what it owes, these kinds of errors can result in a payment being classified as late and a penalty being levied accordingly.

Delays caused by payment methods

Some payment methods are inherently prone to delays. Check payments, for example, take longer to process, meaning the amounts owed don’t always reach the tax office on time. The tax office considers a payment made only when the money has actually been credited to its account.

Liquidity issues

In some cases, businesses want to pay the tax they owe, but are unable to do so before the deadline due to a shortage of liquidity. When this happens, the business incurs the late payment penalty because they need to prioritize other payments, rather than doing so accidentally.

Organizational and procedural causes

As well as the common triggers listed above, late payment penalties can also be the result of internal organizational factors. These include ambiguities over responsibilities on the accounts team or a lack of controls in the payment process, meaning deadlines are overlooked or payment orders aren’t approved in time. Changes in bookkeeping systems or the introduction of new software can also cause temporary delays if workflows haven’t yet become established practice. Equally, mistakes in communication between a business and its tax advisors can result in incorrect amounts being submitted or payments being made late. These kinds of internal obstacles can often be avoided by using clearly defined processes and transparent responsibilities.

When can a late payment penalty be waived?

In certain special cases, the tax office can waive, offset, or refund late payment penalties, partially or in full: Section 227 of the AO stipulates that penalties shall be “remitted” (waived) where their collection would be unreasonable given the circumstances. In practice, this predominantly applies to situations where a late or outstanding payment is the result of unforeseen or extraordinary circumstances beyond the control of the company. These include force majeure events, such as natural disasters, pandemics, or government-imposed restrictions on business operations. Major disruptions to banking or unexpected IT outages that block payments and are not the result of negligence can also be taken into account. Equally, a serious illness can be factored in if the person in question had sole responsibility for tax obligations and no immediate replacement could be arranged.

A waiver of penalties must be applied for. The business in question must file a written application with the relevant tax office, justifying in clear terms why the delay in payment was not their fault. This includes providing a precise description of the circumstances, along with supporting evidence. The tax office will then review the application and decide on a case-by-case basis whether there are grounds to waive the late payment penalty.

How automated processes can protect you against late payment penalties

One effective way of avoiding late payment penalties is to automate your bookkeeping processes. There are lots of manual steps and processes that need to be done every day, especially for VAT, and delays or inconsistencies can quickly become an issue. Automated systems give businesses a stable tool for managing these kinds of complex processes and ensuring they meet all their tax deadlines without fail.

Stripe Tax offers businesses an efficient way to significantly minimize this risk. Stripe Tax calculates, charges, and reports VAT for every amount automatically. This automation reduces manual errors and helps businesses meet their filing deadlines. Plus, with Stripe Tax, businesses have access at all times to all the tax data they need for filings and refunds.

Automated systems also help businesses make their tax workflows more stable long term. They capture and structure data in a central location, meaning information can be accessed in full anytime, making internal reconciliation easier. This improves your ability to trace payments and transactions if the financial authorities have questions or during external audits, and it ensures that all your tax information is documented consistently. All of this gives you a solid foundation for managing your tax processes proactively and meeting your compliance requirements consistently.