Value Added Tax – A Complex Matter! Avoid expensive mistakes.

There is hardly any other type of tax for which regulations have changed as frequently as in the case of VAT. The rules in the individual EU countries are quite harmonized; however, they differ from each other in the details. It is very difficult for any tax-payer to do everything correctly. Even more so as tax-payers are often not even aware of existing rules and how the rules should be applied. Mistakes can often lead to grave consequences as it may not be possible to rectify errors, such as correcting invoices, or corrections may be time-consuming or cause trouble in customer relations. Or, mistakes can simply cost you a lot of money.

Taken from real life: 11 most common VAT related mistakes

Below you can find a list of VAT-related mistakes made by our clients. In most of cases, we were able to help, but sometimes the damage was already done:

  • Lack of knowledge whether there is VAT on sales invoices
  • No distinction made between between private individuals (B2C) and companies (B2B) when invoicing clients in foreign countries
  • Formal errors, parts of the vital invoice details missing
  • The VAT ID number of the customer has not been checked
  • The actual delivery route taken of the goods was not considered when discussing the VAT implications of sales (triangular transactions). Entrepreneurs are required to register themselves in other EU countries and they are not at all aware of it
  • Incorrect VAT handling in case of commission business
  • Import VAT has been declared incorrectly and cannot be reclaimed afterwards– the money is lost for good
  • Import VAT is accrued even for temporary storage whennot making use of a duty-free storage
  • Determing whether there is a supply of goods or of services is especially difficult in case of IT services
  • Online distance selling through the internet – VAT registration in the wrong country
  • Sales via auctions in foreign countries – Liability to pay VAT has not even been considered

VAT Mistakes – what can happen?

VAT law has become an extremely complex matter. Although there is harmonization at the EU level, the rules of individual countries sometimes differ significantly from each other. Mistakes are inevitable; however, ignorance is no excuse. Even in the case of VAT, small mistakes can prove to be very costly. Here are a couple of important tips:

Even if by mistake, VAT has not been declared on outgoing invoices, it still needs to be paid to the tax authorities. As soon as the mistake is identified, VAT must be paid. If this is neglected and if you intentionally submit incorrect advance VAT returns, this is considered as tax evasion by the Managing Director.

On the other hand, if  VAT has been shown incorrectly on the invoice, the VAT amount still has to be paid to the tax authorities. There are specific formal requirements depending on the invoice recepient (private or corporate customers) and the geographical origin of the client that need to be adhered. If these rules are ignored, a delivery that was actually exempt from VAT can suddenly be subject to VAT. This is also applicable to documentation obligations for deliveries outside of Germany. The transport to the customers must be documented, e.g. by means of a consignment note or a certificate of entry. If this documentation is not available, the delivery is subject to VAT in spite of a correct invoice.

Additionally, on top of the VAT payable, the tax authorities may asses penalties. There may be fines for late payment and late filing of VAT reports and annual tax returns. The penalty for late filing can be up to 10% of the VAT due and tax offices actually assess such drastic fines according to our experience.
Invoice corrections, if still possible, are extremely time-consuming and lead to resentment from customers

In case of mistakes, the tax office may change the tax asessments of the last four years, and for the last 10 years in case of  tax evasion.

Therefore, as explained above, VAT issues should be left to the specialists. We would be glad to help you.

Typical mistakes people make in VAT – and how we can help as certified tax advisors

If you would like to know some instances related to VAT that our clients have had to face before we took over their assignment or because the clients had not consulted with a tax advisor in advance, you can find a couple of interesting cases in the References section.

Hence, please ask us, before you act!

Lohnbuchhaltung vom Steuerberater

Value Added Tax – Avoid expensive mistakes

This is how we assist you with VAT

We can provide assistance in the following cases:

  • If there are VAT related problems, we try to save what can be saved: We deal with the tax authorities
  • If required, we go to trial on your behalf
  • In order to avoid mistakes in the future: we clarify how your outgoing invoices should look like before you issue any invoices, so that you do not face any problems with the fiscal authorities
  • Upon request, we prepare an Expert opinion on VAT for your employees who prepare outgoing invoices. Part of the expertise is a decision matrix and, it is clear to your employees, how the invoices should look like
  • We check your incoming invoices and inform you, in case of irregularities. If you have not yet paid, it is easy to request a corrected invoice.
  • Our accountants can identify the possibility of VAT related problems while making entries of documents.
  • We discuss at the beginning where to register yourself to pay the VAT and upon request, we look after the coordination with the VAT experts in the respective countries
  • We answer all the questions of the tax authorities and are the first point of contact in case of tax field audits.
  • We undertake the VAT registrations of companies from foreign countries in Germany–there is no standard procedure here, as all tax offices have their own procedures.

VAT – We are here to advise you.
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