Entrepreneurship could be so easy, but especially taxes and tax regulations often give many entrepreneurs headaches. Income tax, trade tax, church tax – or VAT. The following article is based on VAT rates in Germany and will tell you how VAT is calculated properly.
Last Updated on 17 September 2020
DUE TO THE ECONOMIC IMPACT OF THE COVID-19 PANDEMIC, THE STANDARD VAT RATE IN GERMANY WAS REDUCED TO 16% ON 01.07.2020 AND THIS WILL STAY LIKE THAT UNTIL 31.12.2020.
VAT calculator from gross to net
While an employee can hardly take advantage of VAT, it is certainly interesting for the entrepreneur, as he can have the tax refunded on business purchases. Therefore, he is often confronted with the question of how high the net price of a product or service actually is – because in the end, this is the only price that he has to pay.
In order to calculate which net amount results from which gross price and vice versa, there are various online VAT calculators to make use of. By entering one of the two values and the VAT rate of 7 or 19%, they easily convert the prices. They use different formulas to calculate the desired results as follows.
Formulas: How to calculate VAT?
|Calculate included VAT of 19%: Gross price / 1.19 * 0,19 = Included VAT|
|Calculate included VAT of 7%: Gross price / 1.07 * 0,07 = Included tax|
|Price without 19% VAT: Gross price / 1.19 = Net price (without VAT)|
|Price without 7% VAT: Gross price / 1.07 = Net price (without VAT)|
|Calculate price with 19% VAT: Net price * 1.19 = Gross price (with VAT)|
|Calculate price with 7% VAT: Net price * 1.07 = Gross price (with VAT)|
VAT – easy understandable with an example
Actually the value added tax (VAT) is easily explained: On each product you buy as a consumer, a tax of 19% is added. If the selling price of a product is 100,- EUR from the entrepreneur himself, the state adds just that 19% – so that the product costs you 119,- EUR in the end. This price is the so-called gross price, the 100,- EUR is the net price. The VAT rates vary from country to country in the EU, >here< you find an article with all you need to know about VAT in Europe and all VAT rates.
If the purchase of the goods is a business expense of an entrepreneur, he can have the VAT refunded as VAT, so that in the end he only pays the net price. Instead, the seller pays the 19% to the state. In this case he is, so to speak, only an intermediate host who collects the VAT from the buyer and finally passes it on to the state.
VAT rate of 19% or 7%
As already discussed, the usual VAT rate in Germany is 19%. For some products, such as our basic foodstuffs, a reduced VAT rate of only 7% applies. In these cases, an increase of only 7% is added to the net price. In addition to the essential foods, books are also taxed at 7%.
The calculation of the VAT ultimately works via simple three-set calculations. Who would like to make it still simpler, can fall back to on-line value added tax computers and experiences so lightning-fast, how much gross how much net makes and how much net gross. Above all entrepreneurs find out so shortly the true price of their operational purchases.