Reclaiming VAT in Germany: How Businesses Recover Input VAT

Reclaiming VAT in Germany means obtaining a refund from the tax office for input VAT paid on incoming invoices via the VAT advance return or the input VAT refund procedure. The requirements are proper invoices, business use, and taxable supplies.

Key takeaways

• Input VAT is the VAT paid on incoming supplies that is offset against the business’s own VAT liability.
• A refund arises when the input VAT is higher than the VAT owed.
• German companies apply for the refund through the VAT advance return.
• EU and non-EU companies use the input VAT refund procedure at the Federal Central Tax Office (BZSt).
• Small businesses under Section 19 of the German VAT Act (UStG) are excluded from input VAT deduction.

What does reclaiming VAT mean?

Reclaiming VAT is the tax procedure by which businesses obtain a refund from the tax office for VAT paid on incoming invoices as input VAT. The requirement is that the supplies are used for taxable business transactions.

What is input VAT?

Input VAT is the VAT that a business pays when purchasing goods or services. It is offset against the business’s own VAT liability. If the input VAT exceeds the VAT owed, the business has a refund claim against the tax office.

How does VAT reimbursement work in practice?

VAT reimbursement is based on the following mechanism:

• Output transaction: Businesses charge VAT to their customers.
• Incoming supply: When making purchases, they themselves pay VAT to suppliers.
• Offsetting: The difference is reported in the VAT advance return.
• Refund: If the input VAT exceeds the VAT liability, the tax office refunds the surplus.

Example:

A business invoices EUR 10,000 plus EUR 1,900 VAT.  It has itself purchased goods or services worth EUR 3,000 plus EUR 570 VAT.

VAT liability: EUR 1,900 – EUR 570 = EUR 1,330

In the reverse situation, a refund arises.

Who can reclaim VAT?

The following businesses are entitled to deduct input VAT:

• Businesses registered for VAT in Germany
• EU businesses with no registered office in Germany that have paid German VAT
• Non-EU businesses with reciprocity agreements
• Businesses with taxable transactions

There is no entitlement for:

• Small businesses under Section 19 UStG
• Businesses with exclusively VAT-exempt transactions and no input VAT deduction
• Private individuals

Reclaiming VAT – Step-by-Step Guide

The VAT refund process differs depending on whether the applicant is a German, EU, or non-EU business.

How German companies apply for the VAT refund:

Step 1: Check the proper invoice (Section 14 UStG)

Step 2: Record input VAT in the accounting records

Step 3: Submit the VAT advance return via ELSTER

Step 4: Receive the refund amount from the tax office

Deadline: advance return monthly or quarterly.

For EU businesses (reclaiming EU VAT)

EU businesses use the electronic refund procedure in accordance with EU Directive 2008/9/EC.

Procedure:

1. Submit the application in the home country via the national portal
2. Forwarding to the German Federal Central Tax Office (BZSt)
3. Review by German authorities
4. Payment upon approval

Deadline: application by 30 September of the following year.

For non-EU businesses

Non-EU businesses submit the application directly to the:

• Federal Central Tax Office

Requirements:

• No taxable transactions in Germany
• Reciprocity with the state of residence
• Enclose original invoices

Deadline: likewise 30 September of the following year.

Typical reasons for rejection in VAT reimbursement

Typical reasons for rejection are:

• Incorrect invoices: Mandatory information under Section 14 UStG is missing.
• No business connection: The supply is not related to taxable transactions.
• Missed deadline: The application was submitted after the statutory deadline.
• Missing registration: VAT requirements are not met.

Conclusion

Input VAT deduction is not automatic, but requires formal and substantive conditions to be met. Incorrect invoices, missed deadlines, or missing registration regularly lead to rejections. Businesses should therefore establish internal review processes and strategically plan international refund procedures in order to fully exploit liquidity advantages.