What does Sales Tax Mean? Part 1

While VAT is in most cases claimed from a private individual, it is service providers, sellers or producers who charge VAT . But actually these are one and the same thing. The VAT is usually 19 percent, with some exceptions 7 percent is required.
In the case of sales tax, there is a basis of assessment that enables the tax to be calculated at all. It depends on how much a product costs or how much a service costs. However, there are not only big differences in this tax, but also head-shaking among the population. Because while eating in a restaurant, 19 percent has to be paid, if it is a take-away, only 7 percent tax is due.

What is sales tax actually?

The tax advisor will speak of a transfer tax based on this question. It is due when a service provider collects it, but it also has to be paid from the movement of goods. The longer a product takes to reach the end user, the more expensive it naturally becomes. Contrary to what many people think, the tax does not even reach the retailer.

Sales tax must be paid in all countries that are part of the European Community. However, the amount is different. It is known that in 2014, for example, 27 percent of the tax had to be paid in Hungary. The country with the lowest sales tax at the time was Luxembourg, with a tax rate of just 15 percent.
For some, cross-border business transactions are a pleasant means of saving taxes, because here deliveries and services are not subject to tax. However, a sales tax ID is required for this .

How is sales tax calculated?

According to POLYHOBBIES.COM, sales tax can be calculated using a very simple formula: At a tax rate of 19 percent, the net price is determined by dividing the gross price by 1.19. With a tax rate of seven percent, the gross price is divided by 1.07. However, the gross and sales tax amount can be determined much more easily online with the help of a calculator: the site visitor only needs to enter the net amount and the sales tax rate in another field. The amount of VAT and the gross amount will then be calculated automatically .

A sales tax calculator can help you calculate sales tax .

What is sales tax actually?

Entrepreneurs who are not affected by the small business regulation must “submit” their advance VAT return once a month or once a quarter and report it accordingly to the tax office. Depending on the relationship between the expenses and the corresponding income, sales tax must be paid in advance or a surplus of input tax will be reimbursed.

Whether the advance VAT return has to be made quarterly or monthly depends on the VAT payable load of the previous year. And: if the sales tax burden of the previous year is 1,000 euros (or less), the entrepreneur can also be exempted from the obligation to make advance payments.

However, if the previous year’s sales tax payable is EUR 7,500 (or more), the corresponding reports must be made monthly. The same also applies to the first two years after starting a company. The corresponding regulations for this can be found in Section 18, Paragraph 2 of the UStG. This also regulates that the entrepreneur is entitled to submit his pre-notifications once a month if the input tax surplus is at least EUR 7,500.

The respective deadline for the pre-registration (regardless of whether this takes place monthly or quarterly) is always the 10th day after the end of the relevant period. Here, the data must be submitted to the responsible tax office.

If you need more time, you can optionally – and without stating a specific reason – apply for a permanent extension. If this is granted, you as a taxpayer can take exactly one month longer. In addition, you should note that you then have to make a so-called special advance payment with regard to a monthly registration. This in turn is based on the amount you paid in advance in the previous year. However, if you register every quarter, it is not necessary to make this advance payment.

Importance of sales tax for businesses

Even if many companies associate a lot of effort with preparing advance VAT payments, which in retrospect often turns out to be much less complicated than expected, the advance notification of VAT can also act as a protection in a certain way. Because: the corresponding sales tax prepayments are of course taken into account in connection with the sales tax return. This means that the company protects itself against any payment bottlenecks, among other things, while the state prevents the risk of default.

And: even if the sales tax is a so-called “transitory item”, the corresponding sums may also offer you a helpful indication of how your current business is developing. Even if no entrepreneur is happy about a high advance payment, it still shows (depending on the scope of the expenses and the input tax reimbursement) that you can book sales.

However, it is particularly important here not to be too economical with the corresponding amounts of sales tax. After all, this money belongs to the tax office. Many entrepreneurs even set up a sub-account to which they transfer the appropriate amounts to ensure they are solvent at the end of the quarter or month.

Who is liable for sales tax?

To find out which services are subject to VAT, it is worth taking a look at the UStG. Here it is stipulated in Section 1, Paragraph 1, No. 1 that “the deliveries and other services that an entrepreneur carries out in Germany against payment within the framework of his company” are subject to sales tax.

The exception: the so-called “small business regulation”, which is derived from § 19 UStG. Small business owners are not subject to sales tax. This group includes entrepreneurs whose turnover in the previous year was less than 22,000 euros. The developments to be expected must also be taken into account. The rule here must be that the turnover limit of 50,000 euros will not be broken in the next year either.

The difference between sales tax and sales tax

The terms “sales tax” and “value added tax” are often mixed up in both business and private life. Basically, “value added tax” is meanwhile definitely to be assigned to the slang jargon and is often used here for both said value added tax and input tax.

Sales tax is the type of tax that an entrepreneur (aside from the small business owner) uses to tax his income.

Example: This is how sales tax is calculated

Most companies have the amount of their sales tax conveniently calculated automatically – for example using an invoice program. However, it is also not difficult to calculate the relevant sums yourself. The respective tax rate (either 19% or 7%) simply has to be added to the net amount. A classic example: the net price of goods is 100 euros and is taxed at 19% sales tax. This results in a final invoice amount of 119 euros for the customer.

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