What is sales tax, input tax and value added tax?

Mini series: All about the VAT ID – Part 1

In this multi-part series of articles, we would like to introduce you to what a Value Added 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!

Sales tax vs. VAT

In Germany, the two terms sales tax and value added tax are used synonymously. Strictly speaking, from a German perspective, the term Umsatzsteuer is correct. Why? In Germany, the UStG (Turnover Tax Act) regulates the subject of turnover tax. Even though the term value added tax (VAT) is often used, there is no VAT law in Germany.

Value Added Tax Directive

What VAT is in Germany, VAT is in the EU. This is because, on closer inspection, German VAT, which is regulated in the Value Added Tax Act, is based on the EU’s Value Added Tax System Directive (VATSystRL)

In contrast to Germany, most other European countries also use the term value added tax, such as the term VAT in English, which stands for “Value Added Tax.”

Input tax

Input tax is the sales tax charged to an entrepreneur when purchasing supplies or other services. Entrepreneurs can offset this invoiced VAT against the VAT they have to charge on their own supplies or other services.

This offsetting is called input tax deduction. This is done within the framework of the advance VAT return, which we will discuss in one of the other parts of our series.