VAT for the self-employed in Germany: tax rates, input VAT, cash and accrual basis

Umsatzsteuer or Mehrwertsteuer – what is the difference?

Legally, none. “Mehrwertsteuer” (value added tax) is the colloquial name, because economically only the added value at each stage is taxed. In the VAT Act (Umsatzsteuergesetz, UStG), on your invoices and in ELSTER it is called Umsatzsteuer. For you as a self-employed person it is a pass-through item: you collect it from your clients for the tax office and get back the tax on your purchases.

You charge VAT as soon as you are a business (Unternehmer) and do not use the small business scheme (Kleinunternehmerregelung). This applies equally to freelancers (Freiberufler) and trade businesses. Taxable are supplies of goods and other services that you carry out in Germany for consideration; services to businesses abroad are usually not taxable in Germany, and the reverse charge procedure applies there.

VAT rates 2026: when do 19 % and 7 % apply?

The standard rate is 19 % (§ 12 Abs. 1 UStG). The reduced rate of 7 % only applies to the supplies exhaustively listed in § 12 Abs. 2 UStG and Annex 2 of the Act. If in doubt, 19 % applies. The most important cases for the self-employed:

Net and gross: how to calculate VAT correctly

Every invoice shows the net amount, tax rate, tax amount and gross amount. Always calculate from the net amount and round the tax amount commercially to the cent. To work back from gross, divide by 1.19 or 1.07 – do not subtract 19 %, that gives the wrong figure.

A common mistake with private clients: if you quote a final price of €500 and only then realise that VAT applies, you do not get €500 but only €420.17 net. So agree gross prices deliberately with private clients, and prices “plus VAT” (zuzüglich Umsatzsteuer) with business clients.

Input VAT deduction: when do you get VAT back?

You deduct the VAT that other businesses charge you as input VAT (Vorsteuer, § 15 UStG). So it is not a cost for you: you book your business expenses net and reclaim the tax via the VAT return. Conditions:

• The supply is intended for your business – not for private purposes.
• You have a proper invoice with all mandatory details, in particular the supplier’s tax number or VAT ID, invoice number, date of supply, net amount, tax rate and tax amount. For small-amount invoices up to €250 gross, tax rate and gross amount are enough.
• The supply has been performed – or you have made an advance payment for which you have an invoice. Otherwise payment does not matter, not even with cash-basis VAT.
• You do not use the supply for VAT-exempt sales without input VAT deduction (such as medical treatment).
• No deduction ban applies: gifts over €50 per person per year or unreasonable expenses are excluded. Entertainment expenses (Bewirtungskosten), on the other hand, are fully eligible for input VAT deduction, even though only 70 % counts for income tax.
• Invoices from small businesses (Kleinunternehmer) contain no VAT – there is nothing to deduct.

Calculating VAT payable: what you pay to the tax office

The VAT payable (Zahllast) is the VAT on your sales minus the input VAT in the same period. You report it in the VAT return (Umsatzsteuer-Voranmeldung) by the 10th of the following month or after the quarter; with a permanent filing extension (Dauerfristverlängerung) one month later. A negative result is an input VAT surplus, which the tax office refunds.

Example for the second quarter of 2026 of a graphic designer using cash-basis VAT:

Accrual or cash basis: when does VAT arise?

With accrual-basis VAT (Soll-Versteuerung, agreed consideration) the tax arises at the end of the VAT return period in which you performed the service – no matter when the client pays. So you pay in advance. With cash-basis VAT (Ist-Versteuerung, consideration received, § 20 UStG) the tax only arises when the money comes in.

You must apply to the tax office for cash-basis VAT, usually already in the tax registration questionnaire (Fragebogen zur steuerlichen Erfassung). It is possible if your total revenue in the previous year was at most €800,000, if you are exempt from the obligation to keep books, or if you are a freelancer and do not keep books. In both systems you pay tax on advance payments as soon as they are received.

Example: you issue an invoice on 30 November 2026 for €5,000 net plus €950 VAT, and the client pays on 8 January 2027. With accrual-basis VAT the €950 belongs in the VAT return for November (due 10 December 2026), with cash-basis VAT in the VAT return for January 2027 (due 10 February 2027). If the receivable is lost completely, under accrual-basis VAT you correct the VAT under § 17 UStG.

VAT-exempt sales under § 4 UStG – and what “not taxable” means

Some supplies are taxable but VAT-exempt. You then show no VAT, but you may not deduct input VAT on the related purchases either (§ 15 Abs. 2 UStG). Exceptions with input VAT deduction are exports and intra-Community supplies. Important exemptions for the self-employed:

• Medical treatment by doctors, dentists, alternative practitioners (Heilpraktiker), physiotherapists, midwives and similar healthcare professions (§ 4 Nr. 14 UStG) – but not purely cosmetic or wellness services.
• Teaching and educational services (§ 4 Nr. 21 UStG): redrafted since 2025; school and university teaching by private teachers is VAT-exempt, while private educational institutions still need a certificate from the state authority. Check your case carefully, for example for coaching or hobby courses.
• Renting residential property (§ 4 Nr. 12 UStG); when renting to businesses you can waive the exemption under § 9 UStG.
• Sales as an insurance agent or broker (§ 4 Nr. 11 UStG) and many financial services (§ 4 Nr. 8 UStG).
• Certain cultural services, for example by orchestras, theatres or museums with a certificate from the state authority (§ 4 Nr. 20 UStG), and honorary activities (§ 4 Nr. 26 UStG).
• “Not taxable” is something else: consulting for a company in Spain is not taxed in Germany at all. You still report such sales in the VAT return and, for EU clients, in the EC sales list (Zusammenfassende Meldung).

Input VAT on items used for mixed purposes

If you use an item for both business and private purposes – laptop, smartphone, car – you decide whether to assign it to the business. With less than 10 % business use, no assignment is possible and there is no input VAT. From 10 % you can assign the item in full, only with the business share, or not at all. Document the decision promptly, at the latest by the statutory filing deadline for the annual return (31 July of the following year) – most simply by claiming the input VAT in the VAT return.

Example: you buy a laptop for €1,500 net plus €285 VAT and use it 70 % for work. Option A: you assign it in full, deduct €285 input VAT and pay VAT on the private use as a free supply (unentgeltliche Wertabgabe) – spread over five years, that is €1,500 ÷ 5 × 30 % = €90 tax base and €17.10 VAT a year, €85.50 in total. Option B: you assign only 70 % and deduct €199.50 immediately, without any later free supply. The result is the same, but option A gives you liquidity and flexibility if the use changes or you sell the device.

Ongoing costs such as a mobile contract or internet are split according to the business share. Vehicles have their own rules on private use, which are explained in the guide on the company car.

VAT with Kontelio

Kontelio calculates your invoices at 19 %, 7 % or VAT-exempt and records expenses with tax rate, input VAT and private share. You set once whether you use accrual- or cash-basis VAT. This produces the VAT return (Umsatzsteuer-Voranmeldung) with the official Kennzahlen, the annual VAT return and the EC sales list – on the Business and Pro plans checked with the ELSTER software and submitted directly. Every Kennzahl can be traced back to the receipt.

Frequently asked questions