Flat-Rate Input Tax (Vorsteuerpauschalierung) as an Alternative to Itemised Accounting

Under certain circumstances, you may calculate input tax on a flat-rate basis. This option is available to various groups within the liberal professions and various trade sectors. Non-profit organisations may also be able to make use of this right in certain cases.

With flat-rate input tax, the actual input tax you have paid to other businesses plays no role! Instead, you calculate the flat-rate input tax using an industry- or profession-specific average rate. Your annual turnover forms the basis for this calculation.

The option of a flat-rate input tax deduction is set out in § 23 of the Value Added Tax Act (UStG),%C2%A7%2023%20Allgemeine%20Durchschnitts%C3%A4tze&text=1.&text=2.,Anwendung%20der%20Durchschnittss%C3%A4tze%20ergeben%20w%C3%BCrde.) and in §§ 69 and 70 of the Value Added Tax Implementation Regulation (UStDV). The legislature lists the individual professions and trade sectors in an annex to the UStDV. There you will also find the specific average rates applicable to the respective groups.

A large number of businesses benefit overall from the flat-rate input tax method.

These include:

• Trades: painting contractors, locksmiths, upholsterers, garden centres, motor vehicle workshops
• Retail: florists, bicycle retailers, chemists/drugstores, fruit and vegetable shops, health food shops
• Other commercial businesses: restaurants, ice cream parlours, taxi operators
• Liberal professions: journalists, writers, self-employed stage workers, university lecturers, lawyers, management and tax consultants

This list is intended to illustrate how broad the group of eligible parties is. It is not exhaustive: consult the annex to the UStDV or contact your tax adviser if your profession or industry is not listed!

You may only use flat-rate input tax if you belong to an eligible professional or trade group and are subject to VAT. As a Kleinunternehmer operating under the Kleinunternehmer scheme, you are not entitled to deduct input tax and therefore cannot use the flat-rate variant either.

In addition, the legislature stipulates the following requirements:

• You fulfil your bookkeeping obligations by submitting a cash-basis income statement (EUER). You are not subject to an obligation to prepare a balance sheet.
• Your relevant annual turnover must not exceed 61,356 euros. The figure from the preceding calendar year applies. If your turnover exceeds this amount, the option to use flat-rate input tax ceases to be available in the following year.

With the flat-rate input tax deduction, you first calculate the relevant turnover. You may need to deduct certain items, so that your annual turnover differs from the turnover relevant for input tax purposes.

The following turnovers must not be taken into account:

• Imports (goods imported from outside the EU)
• Intra-Community acquisitions (purchases from another EU member state)
• VAT-exempt supplies

You then calculate your input tax using the average rate applicable to your profession or industry.

These figures differ considerably, as the following examples show:

• Writer: 2.6%
• Journalist: 4.8%
• Confectionery retailer: 6.6%
• Outerwear clothing shop: 12.3%

If you meet the requirements for flat-rate input tax, an informal application suffices to make use of it. The tax office will also accept the flat-rate method if this is apparent from your practice when filing your VAT return.

It is possible to opt out of the flat-rate input tax deduction. Bear in mind that in this case you are bound by the revocation for five years. Only after the expiry of this period may you return to the flat-rate input tax method.

The answer to this question depends on the individual turnover of a business. As a business owner, you should weigh up how much input tax you incur. If, for example, you invest significant sums in your business equipment over several years, there are good reasons to forgo the flat-rate input tax method.

In other cases, the flat-rate input tax deduction yields a financial advantage — with the added benefit of reduced bookkeeping effort.

For many freelancers and traders, the decision for or against the flat-rate input tax deduction is complex. It requires a well-founded tax law and commercial assessment. The experts at Guhr Steuerberatung will provide you with competent guidance in reaching your decision!

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