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

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:

Sales tax
Value added tax (VAT)
Consumption tax
Trade tax
Transaction tax

The challenges of VAT compliance

The Value added tax is usually paid in the country in which the profits are generated. It should be paid according to the place where the service is provided, but the implementation of this regulation is often challenging, especially for cross-border services and digital products.

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. Adding to the complexity is the anonymity offered by some US Limited Liability Companies (LLCs). Although companies are legally required 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 international sales tax regulations do not apply to the USA and the USA is not part of the EU. automatic exchange of information (AEOI) is. As a result, it is not necessary to enter into double taxation agreements, which simplifies administration for US LLCs.

Irish Limited

VAT for Irish Ltd. in Germany

There are two main scenarios for Irish Limited Companies (Ltd.) wishing to do business in Germany:

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.

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Advantages:

Cost savings due to no establishment/personnel costs
Corporation tax of 13% in Ireland remains unchanged
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
Possible Double taxation agreement between Germany and Ireland check
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 through a branch abroad, the procedure is practically similar to that of an LLC or Ltd and any other foreign company. In addition to VAT, trade tax must also be taken into account for a branch office.

The presence of a Operating site or permanent establishment abroad may result in a foreign company being registered and liable for VAT in some countries.

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.