Sales tax in Germany takes the form of a Value Added Tax (Mehrwertsteuer, or MwSt) charged at a standard rate of 19% and a reduced rate of 7% on essentials like groceries and books. Unlike U.S. sales tax, VAT is already baked into the price you see on the shelf, so there’s no surprise added at the register. It’s Germany’s largest single revenue source, generating roughly a third of total tax revenue.
The Two Main VAT Rates
Germany uses two headline rates plus a narrow zero rate.
The 19% standard rate covers the vast majority of goods and services: electronics, clothing, furniture, professional services, and most consumer products. A €500 smartphone includes roughly €80 of VAT at this rate.
The 7% reduced rate applies to basic groceries, books and periodicals (including e-books and audiobooks), local public transportation, certain medical equipment, admission to cultural and sporting events, some agricultural supplies, and short-term hotel accommodation.
A 0% rate applies to one specific category: since 2023, the purchase and installation of photovoltaic (solar) systems up to 30 kilowatts peak carries no VAT, provided the system owner is registered in the market master data register.
Restaurant Meals Drop to 7% in 2026
From January 1, 2026, food served in restaurants, cafes, and fast-food outlets is permanently taxed at 7% instead of 19%, whether you eat in or take away. Beverages stay at 19%, so a restaurant receipt will typically show two separate VAT lines.
Hotel Bills Split Between Rates
The 7% rate covers the room itself. Ancillary services like parking, Wi-Fi, minibar items, and wellness or fitness facilities are charged at 19%. Hotels break these out on the invoice, and you’ll usually see both rates on a single bill.
Exemptions Versus Reduced Rates
Some goods and services are fully exempt, which is not the same as the 7% reduced rate. Exempt means no VAT is charged at all, and the provider also cannot deduct input VAT on its own purchases. Germany follows the EU VAT Directive framework here.1European Commission. VAT Exemptions
The main exempt categories:
- Most banking and insurance transactions.
- Medical care from licensed doctors, dentists, and other healthcare professionals.
- Schools, universities, and certified vocational training providers. Since January 2025, private-sector educational institutions can also qualify if the relevant state authority certifies that they provide recognized general or vocational training.
- The sale and long-term rental of residential property, though commercial property transactions can be subject to VAT in certain conditions.
For consumers, this means no VAT on a doctor’s visit or bank account fees. For providers, the trade-off is that the VAT they pay on their own business expenses becomes a hidden cost they can’t recover.
VAT Refunds for Non-EU Visitors
If you live outside the EU and buy goods in Germany to take home, you can reclaim the VAT. The minimum purchase is €50.01 per receipt, including VAT.2Hessian Portal for Administrative Services. Purchasing VAT-Free in Germany as a Traveller From a Non-EU State
The process runs in three steps:
- At the store: Ask the retailer for an export certificate form (sometimes labeled Tax Free Shopping). Not every shop participates, so ask before you buy if the refund matters.
- At the border: Before leaving EU territory, present the completed form, your original receipts, the goods themselves (unused, in original packaging), and your passport to customs officials. They inspect the items and stamp the form.
- Getting paid: Submit the stamped form to a tax-free refund operator at the airport, or mail it back to the retailer. Some operators offer immediate cash at the airport; others refund to a credit card.
You must export the goods before the end of the third calendar month after the month of purchase. Buy in March, leave the EU by June 30.3German Missions in the United States. German VAT Refund
One thing that catches travelers off guard: private refund services like Global Blue or Planet Tax Free deduct a fee. On a 19% VAT item, you might see only 12–14% back after their cut. The fee is typically shown on the form, so check it before you sign. Mailing the stamped form directly to the retailer can produce a larger refund, though it takes longer and not every retailer handles it.
Route matters too. For departures directly from Germany, you must leave on a nonstop flight to a non-EU country to have German customs stamp your form.3German Missions in the United States. German VAT Refund If you’re transiting through another EU country, plan to have the form stamped by German customs before you continue, or by the customs office at your final EU departure point.
How the System Works for Businesses
VAT is collected at every stage of the supply chain. A business charges VAT on what it sells (output tax), pays VAT on what it buys (input tax), and remits the difference to the tax office. Buy €1,000 of inventory plus €190 VAT, sell it for €2,000 plus €380 VAT, and you owe the government €190. The final consumer ultimately carries the whole tax; businesses along the way are collection agents.
Registration
Anyone starting a business or freelance activity in Germany must submit a tax registration questionnaire electronically through the ELSTER portal within one month of starting operations.4ELSTER. Founded a Company or Become Self-Employed? Foreign businesses selling into Germany register with a specific German tax office designated for their country of origin, and the Federal Central Tax Office assigns their VAT identification number.5Bundeszentralamt für Steuern. Assignment / Issue of the VAT Number
The Small Business Exemption
Freelancers and small businesses under the Kleinunternehmerregelung can opt out of VAT entirely. To qualify in 2026, prior-year revenue must not have exceeded €25,000, and projected current-year revenue must stay below €100,000. A hard cap of €25,000 applies in the founding year.
Cross either threshold and things change fast. Exceed €100,000 during the year and you become subject to VAT immediately, starting from the invoice that puts you over. Go above €25,000 but stay under €100,000 and you keep exempt status for the rest of the year, then lose it on January 1 of the next year. A lot of freelancers get caught here because they don’t track cumulative revenue closely.
If you qualify and use the exemption, you don’t charge VAT, don’t file periodic returns, and don’t remit anything. You also can’t deduct input VAT on your own purchases. Service-based freelancers with few expenses usually come out ahead; product-based businesses with heavy supply costs often don’t.
Invoicing Rules
A valid VAT invoice must show:
- Full name and address of both supplier and recipient.
- The supplier’s tax number or VAT identification number.
- Invoice date and a unique sequential invoice number.
- Date the goods were delivered or the service was performed.
- A clear description of what was sold.
- Net amount, VAT rate, and VAT amount broken out for each applicable rate.
- Gross total including VAT.
Missing elements can block the recipient from claiming an input tax deduction. For purchases under €250, simplified invoices are allowed: supplier name and address, date, description, gross amount, and the applicable VAT rate.
Germany is phasing in mandatory electronic invoicing for B2B transactions. Since January 1, 2025, all businesses must be able to receive e-invoices in the European EN 16931 format; an email address is enough to meet that receipt requirement. The obligation to issue e-invoices is staggered: businesses with annual turnover above €800,000 must comply by January 1, 2027, and everyone else by January 1, 2028.6European Commission. eInvoicing in Germany
Filing and Deadlines
VAT-registered businesses submit advance VAT returns (Umsatzsteuervoranmeldung) monthly or quarterly, depending on the prior year’s liability. The deadline is the 10th of the month following the reporting period; if it falls on a weekend or holiday, it shifts to the next business day. Electronic payments get a three-day grace period, so transfers received by the 13th generally avoid penalties. An annual return (Umsatzsteuererklärung) reconciles the advance filings at year-end.
Late Payment Penalties
Miss a payment deadline and a late payment surcharge (Säumniszuschlag) of 1% of the outstanding tax kicks in for each started month of delay. The calculation rounds your liability down to the nearest €50 before applying the percentage. Electronic payments get the three-day grace period; payments by check get none.
Persistent problems draw scrutiny. Common triggers for VAT audits include documentation gaps, missing transport proof for intra-EU supplies at the 0% rate, wrong use of the reverse charge mechanism, and failing to verify trading partners’ VAT identification numbers. A misclassified exempt transaction can lead to blocked refunds and back-assessments that build up quickly.
Cross-Border Sales
For B2B services across EU borders, the reverse charge mechanism generally applies: the seller invoices without VAT and the buyer self-assesses VAT in its own country at the local rate. A German marketing agency invoicing a French company doesn’t add VAT; the French company handles it on its own return.7Your Europe. Cross-Border VAT Rates in Europe
Non-EU businesses selling digital services (software, streaming, e-books) to German consumers can use the EU’s One-Stop Shop. Instead of registering in each country where you have customers, you register in one member state, file a single return covering all EU sales, and the OSS distributes the VAT to the right countries.8European Commission. Register to OSS
Physical goods shipped within the EU work differently. Once your annual cross-border sales to consumers in other EU countries exceed €10,000, you must charge the destination country’s rate. The OSS can handle that reporting as well, so you don’t have to register in multiple countries.