Businesses liable for value-added tax (VAT) in Germany must file preliminary VAT returns and make advance payments to the tax office regularly. A specific type of prepayment is the so-called VAT special advance payment.

This article explains what that payment is, how to calculate it, and when you are required to pay it. We will also explain the positive and negative impacts a special advance payment can have on your business’s liquidity, and how to post and offset these remittances.

What is in this article?

• What is a special advance payment?
  
• How is a special advance payment on VAT calculated?
  
• When are companies required to make a special advance payment?
  
• How does the special advance payment impact liquidity?
  
• How are special advance payments posted to accounts?
  
• How are special advance payments offset?
  

What is a special advance payment?

A special advance payment is an additional remittance on the VAT account that businesses in Germany pay to the tax authority. It is due once a year and is subject to two conditions: first, taxable entities are required to file their preliminary VAT returns monthly, and second, they must apply for a permanent extension.

Operations without a permanent extension have to submit their monthly periodic VAT returns by the 10th of the following month. To illustrate, a business reports by February 10 how much VAT it collected from its customers in January. With a permanent extension, the deadline for filing preliminary VAT returns is extended by one month—in this example, to March 10.

Nevertheless, the tax office grants this filing extension exclusively to taxable entities that remit a prepayment at the start of the year. The upfront amount serves as a security deposit and is credited against the final tax bill at the end of the year. The benefit for businesses is that it reduces the amount they owe at year-end.

How is a special advance payment on VAT calculated?

The tax authority calculates the special advance payment on VAT based on the VAT prepayments paid the year prior, and it is equal to one-eleventh of the total upfront sum made in the preceding calendar period.

Example calculation 1:
Let’s say €12,000 in VAT prepayments was remitted in 2025. That would mean a one-off special advance payment of €1,090.91 is due for 2026.

€12,000 / 11 = €1,090.91

If operations only ran for part of the preceding year, then, according to Section 47, paragraph 2 of the German VAT Implementation Ordinance (UStDV), the total advance payments for the corresponding period are extrapolated to give an annual figure. Once a calendar month begins, it counts as a whole month.

Exception: New ventures

Newly incorporated companies are subject to certain rules when calculating their VAT special advance payment. In the formation period, the absence of prior-year VAT prepayments means the special advance payment is estimated based on expected VAT remittances, under Section 47, paragraph 3 of the UStDV.

For newly established ventures, you only need to make a special advance payment if you file monthly preliminary VAT returns and apply for a permanent extension by checking the relevant box on the tax registration form.

Example calculation 2:
Let’s say a monthly VAT prepayment of €500 is expected. That would give you total upfront amounts for the calendar year of €6,000. Your special advance payment would be one-eleventh of that figure.

€6,000 / 11 = €545.45

Accurate revenue figures as a basis

Estimating and documenting company revenue and incoming VAT with accuracy is fundamental to any correct special advance payment. Stripe Tax calculates and collects the proper tax rate on every invoice—based on the supply or performance, your customer’s location, and applicable national invoicing rules and fiscal regulations.

Tax also generates detailed fiscal reports, which can be filtered by time periods, rates, or jurisdiction. Exporting all the relevant data to help with preparing tax returns is a breeze. Filings can also be automated via trusted Stripe partners who submit on your behalf.

When are companies required to make a special advance payment?

In Germany, businesses that submit monthly periodic VAT filings and hold a permanent extension must make one special advance payment each year, payable to the tax office by February 10.

While failing to pay on time won’t affect the permanent extension, the tax authority could issue a late surcharge of 10% of the one-off prepayment, up to a maximum of €25,000.

When does it make sense to get a permanent extension?

When it comes to permanent extensions, it’s less about the formal requirements and more about internal processes and liquidity situation. Having an extra month to file the preliminary VAT return takes the pressure off, especially if your accounting processes are complex or if delaying revenue recognition.

Equally, however, a special advance payment is a form of prefinancing which ties up cash reserves. It might be helpful for taxable entities with stable earnings, but it requires careful consideration if working capital is tight or subject to significant fluctuations. You can modify your decision each year based on your financial situation.

How does the special advance payment impact liquidity?

For businesses in Germany, the special advance payment on VAT can impact available funds both positively and negatively.

Advantages of the special advance payment

With a special advance payment, arrears at the end of the year are avoided, or at least reduced. Offsetting it against the actual levy you owe means you don’t have to pay your entire tax bill all at once, which reduces the risk of liquidity shortages.

It also helps calculate tax liability more accurately, remittances to be spread evenly throughout the year. This gives greater certainty when planning and allows potential cash flow problems to be identified and addressed early.

Disadvantages of the special advance payment

The special advance payment could represent a financial challenge for organizations in and of itself. At the start of the year, when liabilities are becoming due or investments are looming on the horizon, this remittance can put added pressure on finances. Sufficient cash needs to be available to make this settlement on time without neglecting your other liabilities.

The special advance payment also ties up capital. That means money is paid upfront for levies that won’t become due until the end of the year. Those funds remain unavailable until they are offset, whether to cover ongoing operating costs or for other investments. While you could receive a refund at year-end, this capital commitment limits your liquidity in the meantime.

For newly incorporated companies, it’s often difficult to realistically assess anticipated earnings—and, therefore, to estimate your special advance payment. The same applies to businesses whose revenue is subject to major fluctuations. Overestimating this payment puts unnecessary temporary strain on cash reserves, while underestimating it results in a higher period-end outstanding balance.

How are special advance payments posted to accounts?

Companies must correctly record the special advance payment in their accounting records. As a payable to the tax office, it has a direct impact on the balance sheet. The most important thing is that the sum is recorded at the correct time to ensure compliance with fiscal regulations.

Record it in your books as a payable amount. When making the remittance, the liability to the tax office is reduced and the sum is debited from your business account.

At the end of the year, the special advance payment you have made is offset against the total VAT due. The prepayment already paid is reconciled on the balance sheet accordingly. If additional tax is owed, you will have to post this amount separately. If your upfront amounts were higher than the total due, the tax authority will refund the difference and post the reimbursement to your business account as a credit note.

How are special advance payments offset?

At the end of the year, the VAT settlements you have made ahead of time, including the special advance payment, are cross-referenced with the actual VAT received as part of your annual VAT return.

If this shows that you have paid more in upfront amounts than the total tax due, the tax office will reimburse the sum of that overpayment. If your advance payments fall short, you must settle the difference. In either case, no interest applies: refunds do not earn interest, and arrears incur none.