When businesses from different EU member countries trade with each other, it can be tricky to allocate value-added tax between the countries. The value-added tax identification number (VAT ID) makes this system manageable. In this article, we'll explain what businesses need to know about VAT ID numbers, from requesting one to checking them.
What's in this article?
- What is a value-added tax identification number?
- When do businesses need a VAT ID?
- Who needs a VAT ID and who doesn't?
- Where must the VAT ID be disclosed?
- How can you request a VAT ID?
- How can you check a VAT ID?
What is a value-added tax identification number?
A value-added tax identification number is a unique identification number that businesses are given by Germany's Federal Central Tax Office (BZSt) in addition to their tax number. It is sometimes abbreviated as VAT ID or VAT ID no. This number is needed in order to trade in VAT-liable goods and services within the European Union. Every EU country has its own version of the VAT ID.
What does a VAT ID consist of?
Each value-added tax identification number starts with two capital letters for the respective EU country code, based on the International Organization for Standardization (ISO) 3166 alpha-2 standard – so that would be "DE" for Germany (Deutschland). Greece is an exception, where its VAT ID numbers start with "EL" rather than "GR".
The prefix is followed by the nine digits of the German VAT ID (e.g. DE123456789). As the European Commission imposes no binding specifications on the VAT ID format, the number of digits varies between 2 and 12 in other EU countries.
In Germany, a check digit process is used to validate VAT ID numbers, while some other countries use different error detection processes.
What is the difference between the VAT ID, tax number and tax ID?
Germany has three different types of tax identifiers:
- The tax identification number (tax ID)
- The tax number
- The value-added tax identification number
Only businesses can be allocated a VAT ID number, while tax numbers and tax IDs are assigned to natural persons or legal entities. Every German citizen is given an 11-digit tax ID at birth. This remains valid for their whole life. The tax ID ensures that tax returns are matched to the right taxpayers. The first time someone files a tax return or registers a business, they are also allocated a tax number for their dealings with the tax office. This consists of 13 digits in a standard format that applies across Germany. An individual can only have a single tax ID, but they may have several tax numbers over the course of their life. For example, a change may be needed if someone moves to an area where another tax office has jurisdiction.
The long-term plan in Germany is for the tax ID to replace the tax number altogether, but we don't yet know when this might happen.
When do businesses need a VAT ID?
In principle, a business will always need a VAT ID if it wants to trade with businesses in other EU countries. This includes the following scenarios:
- A business provides services or goods for another business within the EU internal market (intracommunity supply)
- A business acquires services or goods within the EU internal market (intracommunity acquisition).
- A business supplies something in accordance with Section 25b paragraph 2 of the German VAT Act (Umsatzsteuergesetz, abbreviated to UStG) (intracommunity triangular transactions).
- A business sends or transports something in accordance with Section 6b paragraph 1(4) of the UStG (consignment stock agreement).
In the case of intracommunity trade with businesses from other EU member countries, the reverse-charge process applies. This can only be implemented correctly if all parties have a valid value-added tax identification number.
What is the reverse-charge process?
According to the German VAT Act (UStG), businesses providing goods or services collect the value-added tax from their customers via invoices and remit this to the tax office. But when goods or services are provided abroad, the tax liability is reversed through the reverse-charge process.
So in this case, the recipient of the goods or services – rather than the provider – remits the value-added tax to their own tax office in their home country. If your business supplies goods abroad, these are exempt from value-added tax, so you do not need to show any value-added tax on the invoice. The recipient pays purchase tax (a form of value-added tax) on the goods or services received instead.
The following services are covered by the reverse-charge process:
- Works deliveries and supplies
- Construction services
- Cleaning of buildings
- Supply of gas and electricity
- Telecommunication services
- Supply of computers, mobile devices, tablets and other electronic devices
- Supply of gold
Other cases are listed in Section 13b paragraph 2 of the UStG.
The reverse-charge process only applies to transactions that are business-to-business (B2B) and not to goods or services supplied to private individuals. Small business owners are also exempt from the reverse-charge process. In the case of goods or services supplied from abroad, small business owners would be obliged to remit the value-added tax to the tax office under the reverse-charge process. But as they cannot treat this as input tax, they would need to pay the value-added tax themselves.
Who needs a VAT ID and who doesn't?
A value-added tax identification number is mandatory for all businesses that sell goods or services to business customers in other EU countries or acquire these from them. In addition, online stores selling goods to business customers also often ask for a VAT ID at the checkout stage to process an order.
No value-added tax identification number is needed for the following groups:
- Freelancers, self-employed people and business owners who provide and obtain services within Germany only
- Freelancers, self-employed people and business owners who trade cross-border with private individuals only
- Small business owners who use the exemption for small businesses
Where must the VAT ID be disclosed?
The value-added tax identification number must be disclosed on invoices and in the legal information on companies' websites. It appears on invoices instead of the tax number. The VAT ID of both businesses must be stated on invoices for intracommunity supplies.
If a business trades in Germany alone, the invoice only needs to show the tax number. However, for data protection purposes, it is recommended to disclose the value-added tax identification number instead of the tax number. Section 5 of Germany's Telemedia Act (Telemediengesetz, abbreviated to TMG) also stipulates that the VAT ID must feature in the legal information on websites, providing that one has been assigned. A warning may be issued in the event of an omission.
How can you request a VAT ID?
In Germany, you can request a VAT ID either when a business is founded or at a later point in time. Upon founding your business, you have the option to ask for a VAT ID to be issued by ticking a box in the form used to register for tax purposes. In this case, you will receive the ID automatically by mail. If you did not request a VAT ID at the time that you founded your business, you can request one from Germany's Federal Central Tax Office at any time. You can make the request online or in writing.
Online request
You can request a VAT ID using the online form from the BZSt. The data disclosed is then compared with the data provided by the tax office. If they match, you will receive your VAT ID number by mail.Written request
To request a VAT ID in writing, send a request to the Federal Central Tax Office at:
Bundeszentralamt für Steuern
Dienstsitz Saarlouis
66738 Saarlouis
The request must include: the name and address of the applicant, tax number and the tax office responsible.
How can you check a VAT ID?
In the case of intracommunity supply of goods and services, it is important to ensure that the recipient of the goods is liable for value-added tax – particularly before any goods or services are provided VAT-free. Otherwise, the business providing them has to remit the value-added tax itself later.
Since January 2022, incorrect VAT ID numbers may also lead to fines of up to 50,000 euros. This means it is key to check the VAT ID of new business partners and do regular qualified searches on saved VAT ID numbers. A qualified search also includes checking the names and address of foreign businesses. To help you do this in Germany, you can use the European Commission's VAT Information Exchange System (VIES) or contact the German Federal Central Tax Office.
The VAT Information Exchange System (VIES) is a search engine for data relating to businesses within the EU. If the VAT ID number entered is valid, the registration data for the business will appear. If the VAT ID does not exist or isn't cleared for international transactions, it will show as invalid.
Alternatively, you can search for VAT ID numbers of foreign businesses via the German Federal Central Tax Office. The online search is suitable for single searches. If you need to check several VAT ID numbers on a regular basis, you can automate the process and integrate a multiple search facility into your own software system.