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What is value added tax (VAT) for LLC & Ltd.

What is sales tax, value added tax (VAT)

Sales tax and value added tax: General definition

Sales tax and VAT are essentially the same thing and are often used interchangeably. These taxes are levied on the sale of goods and services.

Some synonyms for "sales tax" are:

  1. Sales tax
  2. Value added tax (VAT)
  3. Consumption tax
  4. Trade tax
  5. Transaction tax

The challenges of VAT compliance

VAT is usually paid in the country in which the profits are generated. It should be paid according to the place of performance, but the implementation of this rule is particularly difficult in the case of cross-border services and digital products is often challenging.

US-American Limited

VAT payment for international transactions

US limited liability companies (LLCs) may, under certain circumstances, be obliged to pay VAT in the countries in which they do business. But is it really that easy for the authorities to enforce this? This article addresses the issue not only for LLCs, but also for Irish Ltds.

Anonymity of US LLCs

Overall, it is difficult to control and enforce VAT on the international market, which is why countries are often less strict about it. Added to this is the complexity caused by the Anonymitythat some US Limited Liability Companies (LLCs) offer. Although companies are legally obliged to comply with the tax laws of the countries in which they operate, their anonymity and the complex reality of international control has an overall mitigating effect.

Legal enforcement

US limited liability companies (LLCs) are not required to pay sales tax, as the international sales tax regulations for US LLCs do not apply. USA does not apply and the USA is not part of the automatic exchange of information (AIA) is. It is therefore not necessary, Double taxation agreement which simplifies administration for US LLCs.


Irish Limited

VAT for Irish Ltd. in Germany

There are two main scenarios for Irish limited companies (Ltd.), which in Germany want to do business:

1. with a branch in Germany

An Irish Ltd. can set up a branch office or subsidiary in Germany. In this case, the branch office is responsible for VAT obligations.

Advantages:

  • Direct contact and better understanding of the German market
  • Easier communication with German customers
  • Direct fulfillment of tax obligations in Germany

Disadvantages:

  • Possible trade tax liability leads to higher costs
  • More complex administration of German tax regulations

Value added tax obligations:

  • Correct calculation and application of German VAT
  • Collection and payment of sales tax to tax offices
  • Possibility of input tax deduction for purchases in Germany
  • Proper bookkeeping and records
  • Regular advance VAT returns
  • Application for a German tax number and VAT ID no.

2. without a branch in Germany

Alternatively, an Irish Ltd. can also do business in Germany without a branch.

Advantages:

  • Cost savings due to no establishment/personnel costs
  • Corporate income tax from 13% in Ireland remains intact
  • Possibility of VAT processing via fiscal representative
  • Tax-free EU trade possible with VAT ID no.
  • Input tax deduction for VAT paid in Germany

Disadvantage:

  • Administrative expenses for VAT calculation/payment/reporting

Options without a branch:

  • Fiscal representative in Germany (but additional costs)
  • Direct application for a VAT ID number at tax offices
  • Electronic advance VAT returns via the Elster portal
  • Possibility of input tax refund for purchases of goods

Tax-free business types

Regardless of the scenario, some types of business in Germany are generally exempt from VAT:

  • Consulting services (corporate, legal, tax and IT consulting)
  • Educational services such as language courses
  • Digital products (software, e-books, online courses, streaming)
  • Medical services
  • Financial services (money and capital transfer services, lending, insurance services, securities transactions)

Other important aspects

  • Observe different VAT rates for goods and services
  • Examination of special regulations for certain types of services
  • Examine possible double taxation agreements between Germany and Ireland
  • Tax advice can also be beneficial and in most cases can be provided by your Founding agency be taken over.

Branch office - establishing a presence abroad

If companies decide to pay VAT via a branch office abroad, the procedure is practically similar to that of a LLC or Ltd and any other foreign company. In addition to VAT, trade tax must also be taken into account for a branch office.

In some countries, the existence of a permanent establishment or fixed place of business abroad can result in a foreign company being registered and liable for VAT.

Limit values and threshold values

Many countries set limits and thresholds above which foreign companies are liable for VAT. These may, for example, relate to annual turnover or the number of transactions.

Reverse charge procedure

In some cases, foreign companies may be exempt from the obligation to pay VAT if their customers are subject to the Reverse charge procedure pay the sales tax.

To avoid legal risks, it is crucial for companies doing business across borders to carefully check and comply with the VAT regulations in the countries concerned.

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Disclaimer: Please note that the above dates, tax rates and regulations may change over time. Do not make any independent decisions without first consulting an expert for your individual situation. It is in your interest to always receive individual information from an experienced expert who knows your situation.

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