Do I have to pay sales tax as a self-employed person and how does that work?
May 1, 2022 | 40,00 EUR | answered by Fanni Siebert
Dear tax advisor,
My name is Petra Michels and I am planning to become self-employed in the near future. I have already developed a concrete business concept and am ready to take the step into self-employment. However, I am unsure whether I have to pay sales tax as a self-employed individual and how this process works exactly.
So far, I have worked as an employee and therefore had little to no contact with the topic of sales tax. I have heard that self-employed individuals are required to pay sales tax once they exceed a certain revenue threshold. However, I am not sure whether my planned business will exceed this threshold and therefore whether I will have to pay sales tax as a self-employed individual.
My concerns mainly revolve around not fully understanding the legal requirements regarding sales tax and fearing making mistakes in invoicing. I would like to do everything right from the beginning and avoid unnecessary problems with the tax office. Therefore, it would be important for me to know from the start whether I have to pay sales tax as a self-employed individual and how to correctly handle this.
Could you please explain to me whether I have to pay sales tax as a self-employed individual and at what revenue threshold this becomes applicable? How does the invoicing of sales tax work in practice and what steps do I need to take as a self-employed individual to handle everything correctly?
Thank you in advance for your help.
Sincerely,
Petra Michels
Dear Mrs. Michels,
Thank you for your inquiry regarding the value-added tax liability as a self-employed individual. I am happy to explain to you in detail how the regulations work and how you can behave correctly as a self-employed individual.
In general, self-employed individuals who engage in commercial or professional activities are obliged to pay value-added tax once they reach a certain turnover threshold. This turnover threshold is also known as the small business threshold and is currently set at an annual turnover of 22,000 euros. Therefore, if you generate less than 22,000 euros in turnover in a calendar year, you are exempt from value-added tax and do not have to submit value-added tax returns or include value-added tax on your invoices.
However, once you exceed the small business threshold and become liable for value-added tax, you must submit value-added tax returns to the tax office. In these returns, you declare how much turnover you have generated and how much value-added tax you must remit to the tax office. Value-added tax is usually remitted quarterly unless you request a monthly settlement.
It is important that you carefully document all your income and expenses to ensure a correct accounting of value-added tax. Furthermore, you must ensure that you separately state the value-added tax on your invoices and use the correct tax rates (the standard tax rate is currently 19%).
If you are unsure or have questions about value-added tax accounting, I recommend that you consult a tax advisor. A tax advisor can provide you with individual advice and ensure that you do everything correctly and avoid any issues with the tax office.
I hope this information helps you and answers your question regarding the value-added tax liability as a self-employed individual. If you have any further questions, please do not hesitate to contact me.
Best regards,
Fanni Siebert
