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.
Here you can find out about common VAT mistakes.
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