VAT

Introduction to VAT

This page provides information about various matters concerning VAT.

An assessment will help you determine if you are liable for VAT. When VAT is charged and what information is required on invoices will be answered, the small business entrepreneur provision, reverse charge procedure, and VAT liability for exchanges of services are explained and information about VAT exemption for theatres and relief for theatre performance is offered below.

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VAT liability:
Section 13 of the German VAT Act

Information required on invoices:
Section 14 of the German VAT Act

Place of performance of artistic services for VAT purposes:
Section 3a(3)(a) of the German VAT Act

VAT exemption for theatres:
Section 4 (20)(a) of the German VAT Act

Tax relief for theatre performances:
Section 12(2)(7)(a) of the German VAT Act

 

Assessment: liable for VAT or not?

Is VAT charged and, if so, how much?

  • First, you have to determine whether ‘goods or services’ were exchanged, e.g., by selling theatre tickets or paying a theatre group to perform at a festival, and if this exchange is taxed: are such transactions subject to VAT?
  • Then you have to determine if VAT exemption may apply, e.g., to the revenue of a theatre with an exemption certificate under Section 4(20)(a) of the German VAT Act.
  • If no VAT exemption applies, you must determine whether you are a ‘small business entrepreneur’ [Kleinunternehmer] within the meaning of Section 19 of the German VAT Act and therefore exempt from VAT.

Finally, if VAT is required, you must determine whether it must be paid at the normal (19%) or reduced rate (7%).

Note: For VAT purposes, an ‘entrepreneur’ is someone who ‘performs trade or professional work through self-employment’. This may be a self-employed person, limited liability company, civil law partnership or the dedicated or economic activities of an association.

Input tax deduction only if liable for VAT: If you are exempt from VAT, VAT paid for invoices you receive will not be refunded by the tax office.

Secondary services subject to VAT: If VAT has to be paid for the main service, it must also be paid for any secondary services. Examples include:

  • If a freelance performer bills his/her travel expenses in addition to his/her fee, he/she must apply the same VAT rate to both (0%, 7% or 19%).
  • If a music surcharge is charged in addition to admission to a theatre, the same VAT rate must be charged as for admission (0%, 7% or 19%).

 

Questions and answers:

  • Because this is a solo artist and donations are voluntary contributions to the performance, this represents operating revenue. If the solo artist is liable for VAT, VAT must be paid for the donations. Donations to associations (as voluntary donations to the association!) are not subject to VAT.

    Because this is a solo artist and donations are voluntary contributions to the performance, this represents operating revenue. If the solo artist is liable for VAT, VAT must be paid for the donations. Donations to associations (as voluntary donations to the association!) are not subject to VAT.

Checking scheme for VAT liability
© Graphic: Panatom

When is VAT charged?

This is determined by the timing: Whether VAT must be paid does not depend on the invoice date, but on the date on which goods are supplied or services are performed (Section 13 of the German VAT Act). For services, this is the date on which the service is completed, or, in case of a regular service, the contract expires. Be sure to check this for invoices for the second half of 2020 when VAT rates were temporarily lowered from 19% and 7% to 16% and 5%!

Questions and answers:

  • The date of admission is still in the old year.

    The date of admission is still in the old year.

  • The service is completed and therefore taxed in the new year.

    The service is completed and therefore taxed in the new year.

Most artists and theatre groups are subject to ‘actual taxation’ [Ist-Versteuerung]: they only have to pay VAT when they are paid for their goods or services. Actual taxation must be requested (checked) on the tax office application form. Target taxation [Soll-Versteuerung] is only required for traders whose annual revenue exceeds EUR 600,000 or who prepare tax accounts voluntarily.

Small business entrepreneur provision

Small business regulation: Advantages and disadvantages as well as requirements
© Graphic: Panatom

Individual entrepreneurs, partnerships, corporations, and non-profit organisations with low revenue may be exempted from VAT if requested (Section 19 of the German VAT Act). Requirement: revenue of the previous year may not exceed EUR 22,000 (until 2018: EUR 17,000) and revenue of the current year may not be projected to exceed EUR 50,000. In practice, the revenue limit for the previous year is especially important.

Small businesses do not charge VAT on invoices sent. However, this means that they may not deduct input taxes for invoices received.

Annual revenue in 2017: EUR 17,230

Small business in 2018

Annual revenue in 2018: EUR 21,320

No small business in 2019 (old threshold!)

Annual revenue in 2019: EUR 21,200

Small business in 2020 (new threshold!)

Annual revenue in 2020: EUR 12,365

Small business in 2021

The small business entrepreneur provision is not an obligation. For artists or theatres who receive many or high invoices (without VAT exemption), it may be better not to apply it. Although they then have to pay VAT, they may have their input taxes refunded. If you decide to pay VAT despite qualifying as a small business entrepreneur, you will be bound to this decision for 5 years.

If small business entrepreneurs mistakenly include VAT on invoices, they have to pay this VAT to the tax office despite their small business entrepreneur status.

Questions and answers:

  • Only income subject to VAT, such as from F&B services, not the theatre income.

    Only income subject to VAT, such as from F&B services, not the theatre income.

  • Unlike for income tax, the tax subject for VAT is the partnership. The EUR 22,000 limit therefore applies to the partnership.

    Unlike for income tax, the tax subject for VAT is the partnership. The EUR 22,000 limit therefore applies to the partnership.

  • Yes, because these are different tax subjects. Both may apply the provision.

    Yes, because these are different tax subjects. Both may apply the provision.

  • No, you will remain a small business entrepreneur until the end of the year. The EUR 50,000 threshold applies to ‘projected’ revenue. VAT will only have to paid next year.

    No, you will remain a small business entrepreneur until the end of the year. The EUR 50,000 threshold applies to ‘projected’ revenue. VAT will only have to paid next year.

  • No. Just submit your—initially monthly—advance VAT returns via Elster starting next year. A permanent 4-week filing extension may be requested with the first advance VAT return for January which must be submitted by 10 February.

    No. Just submit your—initially monthly—advance VAT returns via Elster starting next year. A permanent 4-week filing extension may be requested with the first advance VAT return for January which must be submitted by 10 February.

  • Tickets sold by the theatre are subject to VAT, unless the theatre is exempt from VAT or a small business. However, input tax from invoices of other self-employed people, such as sound engineers, involved in the performance may be deducted. This also applies if VAT is not charged by performers as small business entrepreneurs.

    Tickets sold by the theatre are subject to VAT, unless the theatre is exempt from VAT or a small business. However, input tax from invoices of other self-employed people, such as sound engineers, involved in the performance may be deducted. This also applies if VAT is not charged by performers as small business entrepreneurs.

Information required on invoices

German VAT law requires invoices to include (Section 14 of the German VAT Act):

  1. Name and address of the service provider

  2. Name and address of the service recipient

  3. Tax number or VAT ID number of the service provider

  4. Invoice number

  5. Invoice date

  6. Service date or period

  7. Type and quantity of other services

  8. Net amount

  9. VAT rate, VAT amount and gross amount

  10. Reasons for VAT exemption (e.g., small business entrepreneur status under Section 19 of the German VAT Act or theatre exemption under Section 4(20)(a) of the German VAT Act).

Posting separately—an example

Let’s assume a theatre association has a hall that it provides to an organiser. The association sells tickets. 50% of ticket income is agreed as rent for the hall.

  • If liable to VAT, the organiser must pay VAT for all ticket sales.

  • If the association’s rental income is subject to VAT, the association must pay VAT for the rent (= half of ticket income).

Invoice documents must be kept and posted separately: a credit note for all ticket income and an invoice for the hall rent (half of sales). This even applies if these amounts are not transferred back and forth.

Mandatory information that a proper invoice must contain.
© Graphic: Panatom

Place of performance for VAT purposes and reverse charges

  • When providing services to consumers: the place of performance is the registered office of the service-providing establishment (Section 3(1) of the German VAT Act).
  • When entrepreneurs provide services to entrepreneurs: the place of performance is the registered office of the service recipient (Section 3(3) of the German VAT Act).
  • Exception: For cultural and artistic services, the place of performance is where the services are actually performed (Section 3a(3)(a) of the German VAT Act). For eligibility for admission (tickets), the place of performance is the place of the performance.

Is the place of performance therefore in Germany? Only then can VAT be charged there. If the place of performance is in another country, VAT must either be paid there by the service provider (especially for services for consumers) or for the service provider by the service recipient (reverse charge). This especially applies to services for entrepreneurs (with a VAT ID number).

Reverse charges (Section 13b of the German VAT Act) may also be applied if the service provider is in another country, but the place of performance is in Germany. In this case, the service provider’s VAT liability for the service subject to VAT in Germany will be transferred to the service recipient in Germany.

Example: Online performance

An artist in the US produces a podcast that is shown in Germany. The client is a company based in Germany. The place of performance is therefore in Germany, but there is a reverse charge.

The US-based artist writes a net invoice stating, ‘Tax paid by recipient’. The client must include this revenue in an advance VAT return. If the client is liable for VAT, the client may deduct the input tax on the revenue from the VAT. If the client is exempt from VAT, VAT must be paid by the client—not the artist.

Artist outside of Germany ►►► place of performance in Germany

VAT liability of the artist ►►► VAT must be paid by the client in Germany

Important: Even as small business entrepreneurs or if exempt from VAT, contractors, and performers outside of Germany may be liable for VAT for every reverse charge.

Exchanges of services, VAT and false grants

Exchanges of services may also be subject to VAT.

Recharges may be subject to VAT: A theatre association pays invoices on behalf of a company:

  • If the association does so in another’s name and submits the original receipts, no services are exchanged and there is no VAT liability.
  • If the invoices or receipts are addressed to the theatre association and only a copy of the recharge is submitted, services are exchanged between the parties and establish VAT liability.

An exchange of services may also be subject to VAT in case of grants. Real grants, such as interim aid, are not subject to VAT. ‘False’ grants only provide money for a specific service. This may represent an exchange of services requiring VAT: A city government provides a grant to a theatre association for the organisation of the local summer festival. This payment will be taxed because it is made for specific consideration.

VAT exemption for theatres (Section 4(20)(a) of the German VAT Act [Umsatzsteuergesetz (UStG)])

  • From civil law partnerships to theatre associations and ensembles, theatres of solo performers may request VAT exemptions for their income from the competent state authority. The state authority must certify that the theatre performs the same cultural functions as a public theatre (Section 4(20)(a) of the German VAT Act).
  • Performances of theatres with such certification are tax-free, even if the organiser is not exempt from VAT (Section 4(20)(a) of the German VAT Act).
  • Income of self-employed theatre directors and choreographers at a VAT-exempt theatre and who have such certification from the state authority is also not subject to VAT.
  • VAT exemptions are also granted to conductors, orchestras, and choirs.

VAT exemptions for theatres may also be requested by the tax office—even against the theatre’s will. Exemptions may then be applied retroactively. This is usually done in case of high input tax refunds. These must then be repaid to the tax office and VAT must be added to corresponding invoices!

Organisers should ask their performers these two questions:

  • Are you a small business entrepreneur?
  • Are you a certified VAT-exempt theatre?

If all performers have such certification, their fees and admission will not be subject to VAT. The organiser should request and keep copies of the documents. However, VAT exemption will prevent input tax refunds, e.g., for third-party services related to the performance.

Otherwise, VAT of 7% must be charged for cultural and 19% for social events—for both fees and admission.

Important: Exemption certification is not always advantageous

Certification will prohibit input tax deductions. Please consider if this is better for you than VAT exemption. Once issued, certificates are difficult to withdraw.

For a theatre with, e.g., construction costs and corresponding input tax, certification may not be beneficial. However, for solo artists without current expenses, exemption is often useful.

 

Questions and answers:

  • Exemption only applies to theatre services, not to the guest performer. However, exemption of performances of the guest performer will also apply to the theatre.

    Exemption only applies to theatre services, not to the guest performer. However, exemption of performances of the guest performer will also apply to the theatre.

  • Exemption only applies to theatre services. F&B services will be subject to VAT, but input taxes, e.g., for purchased goods, may be deducted. Input taxes of cleaning costs, rent, incidental expenses, etc., of both the theatre and its food service operation may be deducted proportionately apportioned, for example, by square meter or revenue.

    Exemption only applies to theatre services. F&B services will be subject to VAT, but input taxes, e.g., for purchased goods, may be deducted. Input taxes of cleaning costs, rent, incidental expenses, etc., of both the theatre and its food service operation may be deducted proportionately apportioned, for example, by square meter or revenue.

  • Applications don’t have formal requirements. Who you must request exemption from depends on your state—just ask your cultural office. The hurdles shouldn’t be too high. Normally, you only have to describe your artistic services.

    Applications don’t have formal requirements. Who you must request exemption from depends on your state—just ask your cultural office. The hurdles shouldn’t be too high. Normally, you only have to describe your artistic services.

  • Yes, such fees are also exempt from VAT.

    Yes, such fees are also exempt from VAT.

  • No, VAT exemption is not available to non-artistic professions.

    No, VAT exemption is not available to non-artistic professions.

  • If the content is artistic, the exemption may be extended to streams. Our recommendation: Try it and see what the tax authorities say. An argument for exemption is offered by the German VAT Application Regulation [Umsatzsteuer-Anwendungserlass (UStAE)], according to which television studio performances also represent theatre services (Section 4.20.1(1)).

    If the content is artistic, the exemption may be extended to streams. Our recommendation: Try it and see what the tax authorities say. An argument for exemption is offered by the German VAT Application Regulation [Umsatzsteuer-Anwendungserlass (UStAE)], according to which television studio performances also represent theatre services (Section 4.20.1(1)).

  • Try it: if the state authority issues a certificate for dramatic advice —even better!

    Try it: if the state authority issues a certificate for dramatic advice —even better!

  • Depends on the type of event. Mere lectures are not exempt, but classes with artistic expression are. Evidence of such content may be provided through flyers or online announcements.

    Depends on the type of event. Mere lectures are not exempt, but classes with artistic expression are. Evidence of such content may be provided through flyers or online announcements.

Tax relief for theatre performances with no VAT exemption certificate

Without certification of VAT exemption under Section 4(20)(a) of the German VAT Act, sales of eligibility for admission (tickets) to theatres, concerts and similar ‘performances of performing artists’ will be subject to reduced VAT of 7% (Section 12(2)(7)(a) of the German VAT Act).

Reduced VAT also applies to solo performances—including performances of magicians, acrobats, disc jockeys, stand-up artists, etc., which are recognised as artistic work. If theatrical, even readings may be subject to reduced VAT.

Theatre services subject to reduced VAT (7%)

  • Admission fees
  • Guest theatre fees
  • Providing an ensemble
  • Secondary services, such as selling programmes, renting opera glasses, income from a cloakroom (if operated by the theatre)

Services subject to full VAT (19%)

  • Restaurant/F&B services (special provision: only 7% for restaurant services, except beverages, until the end of 2022)
  • Selling merchandise (t-shirts, etc.)
  • Leasing the F&B services
  • Leasing cloakrooms

 

Secondary services

Even if merchandise is sold after a performance, tickets will only be charged 7% VAT. Reduced VAT also applies to theatre services with non-cultural secondary services, as long as these are secondary and do not impair the cultural character.

Only 7% VAT is required for artists’ fees—even for performances at large events that are non-cultural overall. However, tickets will be subject to 19% VAT.

19% VAT is also applied to non-cultural performances at social or sports events, restaurants or ‘dance entertainment’—and to the fee.

In certain cases, services must be separated for VAT purposes. For example, at a master class with a subsequent performance, the performance—as a cultural event—is eligible for VAT relief, but the seminar is not.

Transferring and granting copyrights, such as broadcast or streaming rights, is also subject to 7% VAT.

 

Organisational and ticket services of concert or event agencies require 19% VAT. However, credit notes for tickets received by performers are only subject to 7% VAT.

VAT liability for stage work

Services of set designers and costume designers are subject to 7% VAT if copyrights are transferred. This should be confirmed by the contract. Such services must be creative, e.g., by including design and manual work at the theatre workshop. Other indications include supervising setting up and attending rehearsals as part of work. If work is limited to mere manual implementation, 19% VAT will be charged.

Organisational and other non-artistic theatre services are subject to 19% VAT. This applies to theatre managers, directors, sound engineers, lighting technicians, make-up artists, prompters, editors and camera operators (Section 12.5(1) of the German VAT Application Regulation).

Questions and answers:

  • No, only the food trailer has to pay VAT.

    No, only the food trailer has to pay VAT.

Five practical questions on VAT: VAT-exempt because of the small business entrepreneur provision? VAT-exempt through certification under Article 4 No. 20a of the German VAT Act? VAT is charged for? If VAT 7% or 19%? 7% VAT for artistic services?VAT is charged for?
© Graphic: Panatom