The history of VAT and the VAT ID
Mini series: all about the sales tax identification number – part 15
In this multi-part article series, we would like to introduce you to what a sales tax ID (VAT ID) is. In addition, we would like to cover interesting topics worth knowing about the topic of USt-ID and shed some light on the subject.
We hope you enjoy reading!
The history of sales tax and the VAT ID
The sales tax already has a long history. On August 1, 2018, the sales tax in Germany celebrated its 100th anniversary.
From stamp duty to sales tax
The precursor to the sales tax was a stamp tax on deliveries of goods in the German Empire, introduced on June 26, 1916. The stamp tax was just 0.1 percent.
In the course of the introduction of the value-added tax on July 26, 1918, by the Value-Added Tax Act (UStG), the tax rate was increased to 0.5 percent. Likewise, the term all-phase gross sales tax was born. In addition to the normal tax rate, there was also an increased tax rate of 10 percent on the supply of luxury items.
Increases in the sales tax rate
Even though the initial tax rate, of the fledgling sales tax, was 0.5 percent, this changed in subsequent years. Thus, the original tax rate of 0.5 percent increased in subsequent years through multiple changes in 1935 to 2 percent, in 1946 to 3 percent, and finally in 1951 to 4 percent.
Transition from the sales tax system to the value-added tax system
In 1967, Germany finally made the transition to the value-added tax system. Since that time, sales tax has been calculated according to the value-added principle and the expressions sales tax and value-added tax are used synonymously. The difference between the two systems lies in the calculation of the tax.
While the pre-1967 sales tax only includes business income, the value-added principle involves an offset between income and expenses. This is done by claiming the sales tax paid on the purchase as input tax from the tax office. The company thus recovers the sales tax paid on the purchase as input tax.
Introduction of the sales tax identification number
With the abolition of the internal borders of the then European Community (EC) on January 1, 1993, border controls also ceased to exist. It was no longer possible to collect import turnover tax as in the past due to the lack of border controls. For this reason, the turnover tax control procedure was developed as a compensation to secure the tax revenue.
This is based on the exchange of information between member states. In order to uniquely identify companies, the VAT identification number (VAT ID) was introduced.
Call for the VAT ID
VAT ID verification is possible by electronic means. Due to the increased importance of VAT ID verification, Optimus Software’s VAT ID Verifier provides a simple and secure way to quickly and conveniently verify individual or large numbers of VAT IDs.
Download your free trial of the Optimus USt-ID checker today and see for yourself.