The submission deadline for Value Added Tax (VAT) can be a source of stress for businesses, self-employed individuals, and freelancers, who are required to report their sales tax to the tax office either monthly or quarterly, and then again in the following year's tax return.
The tax office typically allows until May 31 of the following year for the VAT return, and a mere ten-day window for the VAT pre-declarations. This can especially place strain on startup founders who are required to submit monthly VAT pre-declarations. The January pre-declaration, for instance, is expected by February 10.
To alleviate this pressure, a long-term extension can be requested, which gives an additional month to submit the VAT returns. Therefore, the January pre-declaration would be due by March 10.
Benefits of this extension include:
An extended two-month payment term provided by the tax office
An additional month to gather and submit receipts
The prevention of late payment penalties due to the extended filing period for advance sales tax return
Increased flexibility in cash flow planning, considering sales tax from two months prior
Moreover, entrepreneurs filing monthly VAT pre-declarations are required to make a special advance payment. This involves calculating an eleventh of the total sales tax advance payments made in the preceding year.
For instance, an entrepreneur who paid EUR 22,000 in sales tax the previous year would need to make a special advance payment of EUR 2,000. If the business was only established in the previous year and did not pay a full year's sales tax, the entrepreneur would need to extrapolate the paid amount to a full year and pay an eleventh of that as the special advance payment.
Similarly, if the business was established in the current year, the entrepreneur would need to pay an eleventh of the projected advance payments for the current year as the special advance payment. This calculation should be submitted with the long-term extension application and paid by the due date.
This special advance payment serves as a deposit and can be deducted in the VAT return for the last period for which they applied. However, please note that this special advance payment must be recalculated, registered, and paid annually by February 10.
Entrepreneurs paying their VAT quarterly in advance are exempt from making a special advance payment.
As for the deadlines, there is flexibility in applying for a long-term extension. It doesn't necessarily have to be done at the beginning of the year but can be requested anytime corresponding to the cut-off date for the VAT return for which it should first apply. If an entrepreneur files VAT monthly and wishes to extend their long-term term by April 10, then it would apply to the pre-declaration for March.
Those filing their VAT returns quarterly need to apply for their long-term extension by April 10 if they wish to cover the first quarter's pre-declaration. They can similarly request a long-term extension for every other quarter of the year.
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Our law office assists your company with its tax, financial accounting and payroll accounting obligations in Germany. Please contact us if we can be of assistance to you.