As a matter of principle, almost all companies based in Europe must submit advance VAT returns to the responsible tax office. Unless the companies make use of the small business regulation under VAT law. What this means exactly and what you have to take into account is explained in this article.
Maximilian GamplLast Updated on 29 October 2020
Advance/Preliminary VAT Return – An Introduction
Companies based in Europe are usually obliged for tax law reasons to submit an advance return for turnover tax to the responsible tax office. Unless the companies make use of the turnover tax law regulation for small businesses.
Hereby, the respective enterprise is exempted from the delivery of an advance VAT return if the conditions of the small business regulation are met. Although this relieves the burden from an organizational and administrative point of view, the companies in business life, unlike the entrepreneurs subject to VAT, can offset the VAT paid in the VAT advance return.
It quickly becomes clear that rights and obligations arise for companies subject to value added tax, which are not least associated with deadlines. The advance VAT return is easy to master, as long as the necessary tricks and deadlines are clear. In the following we would like to work through these and thus record all the important cornerstones of a flawless advance VAT return using the example of Germany.
More about the Advance VAT Return in Europe
What is an advance VAT return?
An advance VAT return (also called preliminary VAT return) describes the registration of the generated VAT by sales of a company subject to VAT to the tax office. For further explanation, it is essential to briefly discuss the two terms VAT and input tax.
Value-added tax (VAT) arises as soon as a company sells goods to its customers, for example. When these goods are sold, a corresponding amount of money flows into the company. This amount is to be understood gross and thus consists of the components sales price and VAT (shown as VAT on invoices). The VAT must be paid to the tax office, as the tax authorities are involved in almost all monetary transactions.
VAT Registrations & Returns
The VAT-liable company, on the other hand, may purchase goods from suppliers, for example. In this constellation, the company does not act as a seller, but as a buyer. This means that in this case the company (buyer) pays the VAT and the seller collects the VAT and is therefore responsible for paying it. In this case, the purchasing company benefits from the so-called input tax, as this percentage can be claimed with the tax return.
Company A, which is based in Germany and subject to VAT, sells costumes for various occasions via Amazon. The company purchases these costumes from supplier B who is also based in Germany.
Company A buys a clown costume from their supplier B for 5€ plus VAT of 0.95€. The supplier issues an invoice of 5.95€ to company A, who in turn sells the costume to customer C for 25€ plus 4.75€ VAT.
Company A registers a VAT of 3.80€ with the tax office in the context of the advance return for VAT. Thus the VAT burden has been reduced from initially 4.75€ to 3.80€. The background for this is the input tax from the business transaction with the supplier.
Explanation: The company includes this purchase invoice and thus pays €0.95 tax to the supplier. This VAT paid to the supplier is the input tax for the company – the company can get this monetary amount from the tax office again. This is possible by the company offsetting the VAT paid by its own customers against the input tax (VAT paid on incoming invoices).
Who must submit an advance VAT return?
In principle, almost all companies, regardless of their corporate form, are obliged to submit an advance return for VAT. However, there are some special cases which exempt companies from filing it.
It is not uncommon for the turnover of newly founded companies to fluctuate sharply in the first few years, which means that certain business years may be weak in turnover. Here the legislation acts to the advantage of the founders of a new business and exempts them from the obligation to submit an advance VAT return, provided that they meet the requirements of the small business regulation.
Companies are classified as small businesses if they do not exceed a certain turnover limit in their first busness year, in Germany this turnover limit is 22.000€. If in the following business year a turnover of not more than 50,000€ is generated, the company retains the status of a small business and is still exempt from submitting an advance return for VAT.
Preliminary VAT return as small business owner
Since 2020, a change in the law on value added tax, § 19 Taxation of Small Entrepreneurs, has come into force in Germany. Thereby the turnover limit of the first business year was raised from 17.500€ to 22.000€. However, small entrepreneurs who already carried out their business activities in the past fiscal year 2019 will benefit from the raised turnover limit, as it relates to the previous year.
If you want to make sure whether you can take advantage of the small business regulation or not, please check the turnover limit in the respective country that you are selling from.
Company A described above was founded in July 2019 and has been actively selling merchandise through Amazon since that time. Due to a strong demand the company generated 21.500€ in the past fiscal year. Due to the new regulation in § 19, the company will also fall under the cover of the small business regulation in fiscal year 2020.
Entrepreneurs who generate VAT-free sales are also exempt from the advance return for VAT. This includes doctors or property owners.
However, small entrepreneurs have the right to waive the exemption of an advance VAT return despite low turnover in order to benefit from its advantages in everyday business.
By when do I have to make the advance return for VAT? Monthly or quarterly?
Provided that neither the small business regulation is used, nor a VAT-exempt enterprise is operated, companies are subject to transmission deadlines. These deadlines must be observed.
Founders of a new business are legally obliged to submit an advance VAT return every month for the first three fiscal years. However, after the first two fiscal years, they can be exempted from the time-consuming administrative work: The company submits an application to the responsible tax office for approval of a quarterly advance return.
However, this application will only be approved by the tax office if the company has not exceeded the VAT payable amount of €7,500 in the current financial year.
The following table gives an overview of the submission deadlines for the advance VAT return:
|VAT Burden in the previous year||Time period for advance VAT return|
|more than 7.500€||monthyl|
|1.000 – 7.500€||quartlery|
|less than 1.000€||An annual VAT return is enough|
(Company would like to be entitled to deduct input tax despite compliance with the small business regulation)
Dates: Deadline for submission of the advance VAT return 2020 with or without a permanent extension of the deadline
Irrespective of a monthly, quarterly or annual VAT registration, the deadline for submitting the advance VAT return is fixed: the advance VAT return must be submitted to the tax office by the 10th of the month following the end of the pre-registration period at the latest.
However, there is one exception: If a permanent extension of the deadline is applied for and approved by the tax office, the deadline for submitting the pre-registration is extended by an additional month.
If the submission deadline falls on a weekend or public holiday, the submission deadline will be postponed to the next possible working day.
There are no requirements for applying for a one-time or permanent permanent extension, which means that every company has the right to apply for a permanent extension to the tax office without any justification. The application must be received by the tax office by 10 February at the latest in the case of a monthly advance notification or by 10 April at the latest in the case of a quarterly advance notification. For newly founded companies in a current fiscal year, the 10th day of each month is considered the deadline in which a VAT advance return was submitted for the first time.
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The application for a permanent extension is usually accepted by the tax office. In addition to submitting the application, the entrepreneur undertakes at the same time to make a special advance payment to the tax office amounting to one eleventh of the VAT burden from the previous year.
This payment should reach the tax office within the application period. This special advance payment will be offset against the last VAT advance return of the year. For the company, the advance payment initially creates an additional financial burden. However, the tax office uses it to protect itself against possible payment defaults due to possible business difficulties of the company.
In the following, the time made available for submission depending on the period for the advance filing of VAT is explained:
|Period for advance return||Deadline for submission||Deadline with permanent extension|
|Company is obliged to declare VAT on a monthly basis|
|*Calculation scheme can be applied to the following months: Deadline + 1 month|
|Company is obliged to declare VAT on a quarterly basis|
|1. Quarter 2020||10.04.2020||10.05.2020|
|2. Quarter 2020||10.07.2020||10.08.2020|
|3. Quarter 2020||10.10.2020||10.11.2020|
|4. Quarter 2020||10.01.2021||10.02.2021|
Lateness surcharge – missed the deadline
As soon as the tax deadline is exceeded, the respective company must expect sanctions from the tax office. If only the submission deadline was exceeded, but the VAT debt was paid on time, the company must expect a delay surcharge of 10% – the basis for this is the VAT payable for the respective month.
If the payment is not received by the tax office in time, the tax office has the possibility to offset a further 1% tax liability for each month or part thereof. The good thing about it: If the tax debt is paid by bank transfer, a three-day grace period is granted.
The company is not threatened with any further consequences unless the deadlines for submission (submission of the preliminary declaration or late payment) are regularly exceeded. In the worst case, the tax office will initiate a tax audit.
A non flourishing business and the related missing turnover (no turnover relevant for VAT) does not exempt companies from the obligation to submit an advance VAT return. Companies are obliged to submit an advance return even in months without relevant turnover.
VAT Registrations & Returns
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One thing is clear: As soon as companies violate applicable tax law, i.e. the obligations and deadlines contained therein, they can at least expect monetary penalties. On the one hand, these are damaging to business and, on the other hand, can mean the end for companies in highly competitive and low-margin industries.
For example, missed deadlines for the transmission of the advance return for turnover tax are punished with a delay surcharge of 10%. This can be the knock-out criterion for business start-ups that finance themselves via bootstrapping.
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According to this, it is important for all companies to create structured control processes and thus conscientiously organize the internal workflow. However, tax matters and in particular the advance return for VAT can take up almost all internal resources. This means that the company has fewer resources to invest in services to be invoiced, such as the purchase of shipping goods.
This is where the hellotax software can help, for example. hellotax automates the processes for the advance VAT return on the one hand and on the other hand minimizes potential sources of error through the built-in, largely automated quality control.
This ensures that the preliminary return is always received punctually and in conformity with tax regulations by the responsible tax office. Last but not least, the corresponding VAT burden can also be transferred to the tax office via hellotax and therefore always be paid on time.