Value-added tax in Germany is a consumption tax known in German law as Umsatzsteuer and commonly referred to as Mehrwertsteuer. Businesses charge VAT on taxable sales and deduct eligible VAT incurred on their purchases, as the tax is intended to fall on final consumption. Germany introduced its modern VAT system in 1968.
As of September 2026, the standard rate is 19%, with a reduced rate of 7% for specified goods and services. Certain transactions involving photovoltaic systems qualify for a zero rate, while other transactions are exempt. German VAT forms part of the European Union's common VAT system.
History Germany introduced a general turnover tax in 1918. Sales were taxed at each stage of production and distribution, with no deduction for tax already paid. As a result, tax accumulated along the supply chain.
On 1 January 1968, West Germany replaced the cumulative turnover tax with VAT. The new system allowed businesses to deduct tax paid on eligible purchases. The reform formed part of the harmonisation of turnover taxes within the European Economic Community.
The standard rate was initially 10%, and the reduced rate was 5%. Both increased later in 1968, followed by further increases over subsequent decades. The reduced rate reached 7% in July 1983. In January 2007, the standard rate increased from 16% to 19%.
In response to the COVID-19 pandemic, the federal government temporarily reduced the standard and reduced rates to 16% and 5%, respectively, to support consumption. The reductions applied from July to December 2020, with the previous rates restored in January 2021.
Legal framework and operation The principal domestic legislation is the Umsatzsteuergesetz (VAT Act). It operates within the framework of the EU VAT Directive, which establishes common rules for taxable transactions, exemptions and input-tax deductions.
VAT applies to supplies of goods and services made for payment by businesses within Germany's VAT territory. Imports and certain acquisitions of goods from other EU member states are also taxable.
Businesses normally deduct eligible VAT paid on their purchases, known as input tax (Vorsteuer), from the VAT due on their sales. The right to deduct input tax depends on conditions including the business use of the purchase and the required documentation.
Rates and exemptions Rate in 2026 19% Most goods and services 7% Specified goods and services, such as food, books and periodicals, passenger rail transport, qualifying accommodation and cultural activities 0% Qualifying supplies and installation of photovoltaic systems
Zero rating for qualifying photovoltaic systems took effect in January 2023. Since January 2026, the reduced rate has also applied to restaurant and catering services, excluding the supply of beverages.
VAT exemptions apply to certain goods and services, including:
medical treatment provided by qualifying healthcare professionals certain financial services, such as the granting of loans the letting and leasing of real estate, with exceptions such as short-term accommodation and parking spaces services provided by qualifying cultural institutions, including theatres, museums and zoos qualifying educational and vocational training services certain activities performed in an honorary capacity (ehrenamtliche Tätigkeit)
Unlike the zero rate for qualifying photovoltaic systems, VAT exemptions generally do not allow suppliers to deduct related input tax. Exceptions include qualifying exports and intra-Community supplies, which are exempt but retain the right to deduct input tax.
Tax-free shopping Travellers who live outside the EU may claim a VAT refund on eligible goods bought in Germany and taken out of the EU in their personal luggage. Each receipt must total more than €50 including VAT. The goods must leave the EU by the end of the third month after the month of purchase; for example, goods bought in January must be exported by 30 April. Travellers obtain customs confirmation of export and claim their refund through the retailer or a refund service, which may charge a fee.
Reporting and small businesses Businesses subject to the general VAT rules normally submit periodic provisional tax returns and an annual tax return. Provisional reporting is monthly or quarterly, depending on the applicable rules.
The small-business scheme, known as the Kleinunternehmerregelung, exempts eligible transactions of qualifying businesses. Since January 2025, the domestic scheme has applied where turnover did not exceed €25,000 in the preceding calendar year and does not exceed €100,000 in the current calendar year.
Revenue VAT is a major source of German public revenue. Official cash-revenue statistics combine domestic VAT and import VAT under the category Steuern vom Umsatz. Receipts in this category amounted to approximately €310.2 billion in 2025.
Revenue is shared between the federal government, the Länder and municipalities. Its distribution also forms part of Germany's system of fiscal equalisation, which seeks to reduce differences in the financial capacity of the Länder.
See also Taxation in Germany European Union value added tax
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