1 Introduction
In contrast to personal taxes (e.g. income tax), German Value
Added Tax ("VAT") is a tax on
transactions. VAT is a sales tax which is levied at all levels of
taxable supplies of goods and services made by a taxable person in
the course of any business activity carried on in Germany and on
the importation of goods from other states.
The German VAT Act ("VATA") is
harmonised under the EU-wide VAT system. Therefore, decisions of
the European Court of Justice have an important impact on the
interpretation of the VATA.
Due to the possibility for entrepreneurs to deduct VAT (input
tax) paid for received services or goods if these are related to
taxable output transaction or certain VAT-exempt transactions, the
tax payment is generally neutral for the business of the
entrepreneur. This means that VAT is not an expense item but it is
only a pass-through item. Only for private individuals or certain
tax-exempt entrepreneurs, VAT paid to customers is a
