The concept of actual taxation comes from the Value Added Tax Act (UStG). In § 20 tax is regulated who can direct his taxes pursuant received considerations. Companies have to pass on the sales tax that they invoice and thus get paid by their customers to the tax office. The sales tax must be registered regularly with the tax office. This happens either monthly, quarterly or annually. When paying sales tax to the tax office, a distinction is made between actual and target taxation.
Definition of actual taxation
What is the actual taxation? In the current legislation, “taxation based on facts” according to the Value Added Tax Act is the exception. This type of taxation is based on the actual payments, the payments received and the times of payment. Actual taxation can only be applied for if the annual turnover is up to 600,000 euros (from 01/01/2020) or if there is an exemption from bookkeeping.
With the actual taxation, the taxable entrepreneur is favored, because the reimbursement of input tax follows the target taxation, the output tax is only due with the payment. This means that the input tax paid to the supplier can be reimbursed immediately, but sales tax collected only after the customer has received the payment. This can bring a liquidity advantage if things are “tight” accordingly.
Difference to target taxation
In the case of actual taxation, the entrepreneur only has to pay the sales tax invoiced to the customer to the tax office when the customer has also paid the invoice. In the case of debit taxation, the entrepreneur would have to pay the sales tax immediately, regardless of the payment already made by the customer.
Requirements for actual taxation
In order for actual taxation to be carried out, the annual turnover of a company must not exceed 600,000 euros. Alternatively, the company can be exempt from debit taxation. In order to benefit from the actual taxation, the entrepreneur must submit an application to the responsible tax office. This application is usually made when registering a business. The entrepreneur has to fill out a tax registration sheet as part of the business registration anyway. Taxation based on actual values ultimately leads to better liquidity in a company. The actual taxation may be used by all non-accounting freelancers.
According to Howsmb, you can apply for taxation based on the income actually received:
- Whose total turnover in the previous financial year was less than 600,000 euros
- Who is exempt from the accounting obligation
However, the liquidity effect must not be overestimated either. After all, sales tax is usually paid quarterly. Only invoices that were issued shortly before the end of the quarter but not yet paid increase liquidity in case of doubt. In addition, the sales tax is only 19 percent and does not include the full invoice amount.
The actual taxation process
In the case of debit taxation, which is the normal case in taxation, the tax is calculated according to the fees and amounts invoiced . The tax arises because it is calculated according to the agreed fees at the end of the pre-registration period in which the services were performed. In the case of debit taxation, the tax is calculated on amounts that the company has not yet received. The entrepreneur has to pay the tax in advance.
In extreme cases, this can jeopardize a company’s liquidity. In order not to impair the liquidity of smaller companies, the regulation of actual taxation was introduced. First, the entrepreneur must submit the application for taxation to the tax office according to the received payments, the changed taxation must be approved in writing by the tax office. If an entrepreneur has already paid the tax according to the agreed fees, the tax office can, upon application, allow actual taxation to take place. In the case of actual taxation, taxation takes place on the sales tax already paid, i.e. received, by the customer.
Approval for actual taxation required
The actual taxation must always be approved by the tax office, even if only income is generated from freelance work. The application for actual taxation is not tied to a specific form or deadline. The application can also be made through coherent behavior, in that the sales according to the received payments are clearly shown in the tax return. The actual taxation is considered approved if the tax office does not object to the tax return. However, a written application is recommended because the likelihood that it will be approved by the tax office is greater. The application should be submitted as early as possible. This can be done when registering the business, because the tax office receives a copy of the business registration when a business is established.
The tax office sends the start-up a questionnaire asking whether the entrepreneur is a small business and how the sales should be taxed. Here the entrepreneur can choose the actual taxation. Freelancers can submit an application for approval of taxation based on received payments with the first advance VAT registration. If this has been approved, a tax auditor cannot improve any additional result by switching from actual to debit taxation at the end of the audit period due to a lack of approval.
Good to know: The application may not be rejected by the tax office if the entrepreneur meets the requirements for taxation based on the payments received. The actual taxation is associated with an interest rate advantage for the entrepreneur, but it is not a reason for rejection by the tax office. Because the legislature has basically permitted this type of taxation. With the financially attractive regulation, which small and medium-sized companies in particular often and happily use for themselves, medium-sized companies in Germany are to be strengthened.