How does VAT work in wholesale
Difference between sales tax and sales tax
What is the difference between sales tax and sales tax?
In Germany, the terms sales tax and sales tax are largely used synonymously. From a business and tax law perspective, however, there are important differences. It can roughly be said that "sales tax" is the generic term and "sales tax" is the form in which sales tax is levied.
The sales tax
Whenever a product or service is sold, sales tax is due. This is calculated as a percentage of sales and in Germany is in most cases 19%. Together with the net price, the sales tax forms the (gross) price of goods to be paid. The following formula applies:
Net price + sales tax = gross price
A carpentry shop sells a table for € 100. There is 19% sales tax, so 19 €. The 19 € are added to the price. So the buyer of the table has to pay € 119. The carpentry is of course not allowed to keep the 19 € sales tax, but has to pay it to the tax office.
The sales tax according to the value added principle (value added tax)
Sales tax has been calculated in Germany according to the value added principle since 1967. Since then, the terms sales tax and sales tax have been used interchangeably. While sales tax prior to 1967 only includes company income, the value added principle involves offsetting income and expenditure. A company can use the sales tax paid when buying a product as a so-called Input tax claim at the tax office. The company receives this input tax back from the tax office.
The following calculation example explains the sales tax principle and the difference between sales tax and sales tax.
- A carpenter sells a table to a wholesaler for € 100 + € 19 sales tax = € 119
- The wholesaler can claim the 19 € sales tax from the tax office (input tax).
- The wholesaler sells the table to a retailer for € 150 + € 28.50 sales tax = 178.50.
How much value added tax has the wholesaler paid?
Answer: € 9.50! It is true that value added tax if the table is sold € 28.50, but the company can claim the VAT of € 19 paid to the carpenter as input tax to the tax office. The result is: € 28.50 - € 19 = € 9.50.
Or in general:
Value added tax = sales tax in sales - input tax in purchasing
The name VAT comes from the fact that the company only has to pay tax on the value of goods. In the example above, the added value is € 50 because the wholesaler bought the table for € 100 and sold it for € 150 (150 - 100 = 50).
If you calculate the sales tax of € 50, you get € 9.50.
The consumer bears the entire tax burden
Since the consumer is not entitled to deduct input tax, he must bear the entire sales tax.
There is in fact no difference between value added tax and value added tax in Germany. “Value added tax” describes the way in which the value added tax is levied. A company actually only pays sales tax on the added value of the product. This results from the fact that companies receive the sales tax paid in purchasing as so-called input tax from the tax office.
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