VAT ID: Working across the EU as a self-employed professional

If you are planning on starting your own business or want to expand your business to other countries, you need to be well-informed about tax regulations. Businesses registered in Germany that trade in goods and services in other European countries typically need to have a VAT number (internationale Steuernummer).

But why do you need this tax number? And what is the difference between an international tax number and a tax identification number? In this article, you will find out what an international tax number is, when it is relevant for self-employed professionals, and how to apply for one.

What is an internationale Steuernummer (VAT ID)?

When people talk about the international tax number, they are referring to the value-added tax identification number (Umsatzsteueridentifikationsnummer/USt-ID). This is one of three tax numbers (Steuernummer, Steuer-ID, Umsatzsteuer-ID) that are extremely important for individuals who want to become self-employed. Each one of these three numbers serves a different purpose:

• Steuernummer (Tax number): You receive this tax number when you file your first tax return or when you register yourself as being self-employed. The tax office uses this number for organisational purposes. You need to include this tax number in all your correspondence with the Finanzamt. There are certain instances when this tax number can change, for example, when you move or get married. In this case, you will be assigned a new number from your local tax office.

• Steueridentifikationsnummer (Tax identification number): If you are born in Germany, you are assigned this unique number at birth. It remains the same throughout your life and is used to store relevant personal data. You need it to, among other things, open a bank account or apply for child benefit (Kindergeld).

• Umsatzsteuer-Identifikationsnummer (VAT identification number): The international tax number is for companies and self-employed persons who conduct business in other European countries. It simplifies the process of doing international business transactions and provides a way to precisely identify companies in the EU.

While a tax identification number is issued to every private person, the tax number and VAT ID are of particular interest for companies and self-employed individuals. As a self-employed professional, you may have up to three tax numbers that are relevant for carrying out your work. But just because you have a business doesn’t necessarily mean you need an international tax number.

➡️Find out which tax numbers you need!

Who needs an international tax number (VAT ID)?

The international tax number is designed for international trade. If you only conduct business within Germany, you do not need a USt-ID (VAT ID). In this case, a simple Steuernummer (tax number) will do. However, if you do business throughout the EU and need to write invoices, a USt-ID (VAT ID) is legally required in order to exempt deliveries from VAT (Umsatzsteuer). In general, the VAT ID is there to ensure that turnover taxation is handled properly.

The exception: If you sell goods or services to private individuals abroad, you do not necessarily need a VAT ID. The number is only required for business-to-business (B2B) transactions within the EU. These types of business relationships, which are between companies in different EU countries, are called intra-Community or cross-border supply.

Operators of small businesses are also exempt. If you run a small business, you can apply for a USt-ID (VAT ID), but you are not required to. This is one of the exceptions within the framework of the Kleinunternehmerregelung (small business regulation). Since small businesses are exempt from VAT, small business owners are not required to include it on invoices when conducting business internationally.

However, it’s important to note the following special condition: Since July 2021, German law requires merchants who sell products and services on online platforms to provide an international tax number. This also applies to small businesses. However, if you are selling products and services via your own online shop, this does not affect you.

Maybe you’re setting up a business and not yet sure whether you will be doing business in different countries. Even if you are unsure of what will happen in the future, you can still apply for a VAT ID while you set up your company. That way, you can quickly get it done now and potentially save yourself work later on.

What are the benefits of having an international tax number (VAT ID)?

Having a VAT ID establishes you as an EU-VAT registered business, which makes your business come across as professional and credible. The international tax number, however, does more than just provide a clear way of identifying your company. The USt-ID (VAT ID), which was introduced in 2007, eliminates double taxation, simplifying intra-European trade and providing accounting benefits as well.

Most notably, it has an impact on the way that value-added tax is applied to transactions within the EU. For such transactions, the destination principle, or the reverse charge procedure (Umkehrung der Steuerschuldnerschaft), is applied. This means that it is not the service provider but the recipient of the service who pays the VAT.

In accordance with this principle, you’ll issue a net invoice instead of a gross invoice to customers in other countries. At the same time, you are required to refer to this reverse charge in the invoice that you send. The taxation takes place in the country of destination, with the buyer paying the taxes according to local tax regulations. One of the advantages of eliminating double taxation is that newer companies in particular are able to establish themselves abroad more easily.

How to check an international tax number

The (international) tax number is one piece of information that is mandatory for an invoice. It ensures that purchases are correctly taxed by the Finanzamt. In order for you to be taxed properly, you need to therefore include your VAT number on your invoices. The other party involved in the transaction needs to include their VAT number as well, otherwise, the purchase won’t be exempt from VAT. That’s why it’s essential that the person or people you’re doing business with also have a valid VAT ID.

Alternatively, you can request a VAT ID online via the EU Commission’s VAT Information Exchange System (VIES). You should always ask for a person or company’s international tax number before doing business. As the supplying company, you are obligated to verify this information. If a number turns out to be invalid, you may have to make additional tax payments.

💡Tip from Accountable: Unlike a simple tax number (Steuernummer), the VAT ID needs to be included in the imprint (Impressum) of your company website. If you don’t display it, you could receive a warning notice.

How to get an international tax number (VAT ID)?

Generally speaking, any self-employed person can apply for an international tax number. If you are working as a self-employed professional internationally and need a VAT ID, you can apply for one in various ways. You can do this at the Finanzamt or the Bundeszentralamt für Steuern (Federal Central Tax Office) when you are setting up your business or at a later point in time.

Request it online

The easiest way to get an international tax number is to apply for a VAT ID when you register with the tax office. To request your own number, simply tick the corresponding box when you are filling out the tax registration questionnaire. This costs nothing and can save you time later on. The tax office will then forward your application for an international tax number to the Bundeszentralamt für Steuern (Federal Central Tax Office).

Alternatively, you can apply for your international tax number online by email or via the BZSt (FCTO) website. You can also do this after you have set up your business. Regardless of which method you decide to use, your number will be sent to you by post after you have submitted your application.

Send a request via the post

In addition to applying online, you can also apply for your USt-ID in writing at the BZSt. Make sure that the application contains all the required information such as the name and address of the company, the current tax number (Steuernummer) for the business and the Finanzamt where the business is registered.

International tax number for small businesses

As a small business owner, you are not allowed to claim input VAT. If you make purchases in other European countries without an international tax number, it’s as if you are making the purchases as a consumer, which, in turn, means you are responsible for paying the foreign VAT. This is because, according to the Kleinunternehmerregelung (small business regulation), you are not entitled to receiving tax-free invoices.

Although the Kleinunternehmerregelung (small business regulation) exempts you from VAT obligations, you can still apply for an international tax number if you would like to. If you decide to do this, your status as a small business will not change. Nevertheless, it is important to carefully consider whether having a VAT ID is beneficial for your business. Once you start using one, you’ll need to comply with the tax responsibilities that come with it. From a financial perspective, it is better not to use a VAT ID in most cases.

➡️ Read more about the reverse charge procedure and how it affects small business here.

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