The tax a registered dealer pays on purchases made in the course of doing business is known as input tax. The products purchased may be for resale, use in the performance of a work contract, use in processing or manufacturing, where such products directly contribute to the composition of the finished goods, are used as packaging materials for the packaging of goods for sale, or are consumables used directly in the manufacturing process.
Value added tax (VAT), which is levied as a percentage of the purchase price when a dealer who is registered for VAT purchases goods or services from another vendor. Input tax is the name for this. Similar to this, the dealer charges the same rate of VAT to clients when it offers its own products or services. The output tax is this. The dealer is required to submit a VAT return every quarter, detailing its input tax and output tax. The appropriate authorities must be paid the difference between the input tax and output tax. When input tax is higher than output tax, the business may claim the difference in tax.
The business owner first computes his whole sales tax on the deliveries and services he has provided to his clients within a specific time frame (as a rule, one calendar month). Then, this sum is reduced by the input tax that was accumulated during this time. If there is an input tax surplus, the outcome is either the credit balance or the sales tax that must be paid.
- The deliveries or services that formed the basis of the invoice had to be completed on behalf of the business. If at least 10% of the utilization is for entrepreneurial purposes, then this is the case. Taxable private consumption accrues to the same extent as potential private use.
- There must have been an earlier completion of the delivery or other service.
- In order to deduct input tax, the invoice must have been sent (with regard to REAL taxation, payment of the invoice is a must!).
- The invoice has to abide by all legal requirements. The right to deduct input tax will be lost if any legally needed component is missing or has mistakes.
- The service provider's VAT ID number must be legitimate; a level 2 check must be carried out via FinanzOnline for validity.
- Deliveries and services acquired must be used to complete taxable or sales tax-exempt transactions with credit (e.g. for exports or intra-community deliveries, cross-border forwarding of goods).
- The right to deduct input tax is not triggered by incorrectly displayed sales tax (e.g. VAT declared although the tax liability would have been transferred)
Entrepreneurs that do not exceed the accounting threshold generally pay taxes based on the money they have been paid. As a result, the invoice's sales tax burden becomes due at the end of the month in which it was received.
The benefit of this so-called "ACTUAL taxation" is that sales tax on receivables is not required to be paid.
Entrepreneurs who must keep records are required to pay taxes in accordance with the agreed-upon amounts. The date of payment receipt is not significant in this situation; rather, the sales tax liability arises when the calendar month in which the delivery or other service was performed expires (exception: prepayments).
Note: The tax obligation arises when the month after the delivery or service expires if the invoice is not paid in the same month but rather at a later date. Sales tax on receivables must be paid in relation to the so-called TARGET taxation.