It all has to do with the VAT (Value Added Tax) system within the European Union.  Put quite simply, if you buy something in a shop or pay for a service, then you pay VAT.  For consumers, that’s the end of the story.  The shop owner or service provider pays the VAT on to the tax office.

But if the customer is a business as well, they usually have a way to claim that tax back again from their local tax office (although there are some exceptions).

In Germany, at least, the VAT system means that a business only actually pays the difference between the VAT they have to pass on from selling goods to the consumer, and the VAT that they can claim back from their own purchases.  A new business making a loss may even get VAT repaid from their tax office.

Except that the system normally only allows EU businesses to do this within their own tax system.

Now apparently there are ways and means to claim back VAT from another country, but it’s not something that I’ve ever done because on the rare occasion it has applied to me (eg. a hotel bill or filling up with petrol), the amount has been fairly small and not warranted the effort.

It’s a different matter if the figures are higher or the payments are more frequent.  And so, under certain circumstances, companies are allowed to use something called the “reverse charge” arrangement.

Under the agreement, business who writes an invoice for another business can leave the VAT off the invoice by citing the agreement and both company’s tax numbers (in Germany that’s called the USt-IdNr.)  The company doing the selling then declares this on their own VAT return.

Sounds complicated?  Believe me, it is.  And to keep tabs on it all there is, in Germany at least, a national tax office that also needs to be told of any income you receive under this system.  That office is in a town called Saarlouis near the French border.  And the form to fill in to let them know how much you earned, is called the Zusammenfassende Meldung.

All of this would probably not bother many small businesses if they are only selling within their own markets.  Except for the fact, that at least two major players on the internet advertising front use it.  They are also the reason that I have to fill one out on a regular basis.

They are Amazon (with their associates programme) and Google (with AdSense).

Both pay out to website owners on a commission or per click basis.  And both pay out to business website owners using the reverse charge system.

So if you have a website in Germany with Amazon advertising on it, you can probably expect (or should that be hope?) to come into contact with the Zusammenfassende Meldung at some time.

But if you’re not self-employed and don’t own a business (and don’t work in the finance department of one), then you may never see one!

This article is intended to be an overview of what the ZM is and should not be considered as binding tax advice.  For more information, please contact a German tax adviser (Steuerberater).

Some other posts on this topic that you might like to read:

• Leasing a car in Germany (and why you might want to)
• E10 in Germany – is your car compatible?
• Blogging in Germany: Personal, Business or Journalist?

But during the course of the year the starting date for the new system has been pushed back a number of times, and now it may even not come into force until the beginning of 2013!

Apparently there have been technical problems in implementing the system, but also quite a bit of the data that had been imported into it appears to have been wrong, leaving me wondering how this can happen if it is using the same data as was last used to print the tax cards.

This is pretty embarrassing for the German Government, considering that one of their other major IT projects – ELENA – was scrapped only a few weeks ago.

So for the time being, the 2010 cards (issued in September 2009) remain valid for anyone working in Germany and should be handed in when starting a new job, and returned when leaving a job (except for some mini-jobs”).  Under the new system, employees would just have to name their tax ID, the new Steuer-Identifikationsnummer.

For now, anyone entering the job market for the first time, eg. by moving to Germany, will still have to go to their local Finanzamt to apply for written confirmation of their tax status.

And anyone changing their tax class, eg. by getting married, will also have to go there to have their cards amended.

So watch this space (eg. sign up to our newsletter or RSS feed) to see if I’ll be announcing the new system on this site at the end of 2012, or whether my article will be called “The Same Procedure as Last Year?”

Some other posts on this topic that you might like to read:

• New in 2011: the end of the Lohnsteuerkarte
• Das Einwohnermeldeamt
• Our new transcript store is online!

The Lohnsteuerkarte was valid for one year, and the new card for the coming year used to be sent out around the end of September.

But all that has now changed – or at least it should have done if a new system had come in at the beginning of this year.  Instead, there are special rules that apply only in 2011!

It all started a few years ago, when we all received a so-called Steuer-Identifikationsnummer – a unique 11-digit number that never changes, unlike the current system of Steuernummern which change when you move to a different area.  Unlike the old system, even children are issued with one automatically, and the number is valid for up to 20 years after you die!

Using the new number, employers are supposed to access the central tax database (ELStAM) and look up the details that were previously on the Lohnsteuerkarte.

Except that the new system is not ready yet and as no new cards were printed in September, the old cards that were issued in September 2009 remain valid for 2011.

Which just leaves the problem of anyone entering the job market for the first time this year.

They will have to go to their local Finanzamt (tax office) to apply for written confirmation of their tax status.

Anyone changing their tax class, eg. by getting married, will also have to go there to have their cards amended.

The old system had been in place since 1925, with the Lohnsteuerkarte pretty much unchanged since 1953.  Perhaps it should have stayed that way?

Some other posts on this topic that you might like to read:

• New in 2012: the end of the Lohnsteuerkarte (maybe)
• Das Einwohnermeldeamt
• Our new transcript store is online!

Just to make sure that people did not start booking their flights for next year early, the tax came into force on 1st September this year, so that it would be levied on any tickets purchased from that date onwards for flights in 2011.

One of the results has been that Ryanair have announced that they will be reducing the number of their flights from German airports, including Frankfurt-Hahn, which will be a blow to the economy on the rural parts of the country where such airports are located.  Some estimates put the number of jobs that will be lost at around 3000.

But with less flights taking off, surely the revenue from other taxes will go down as well?  Will the new tax have any effect, other than to reduce the choice of German travellers and push up prices?

Some other posts on this topic that you might like to read:

• ZM – The Zusammenfassende Meldung
• Leasing a car in Germany (and why you might want to)
• Where not to park at the Hessentag

After all, there is a tax on being a member of a Church, a tax to support German re-unification, even a tax on coffee!

But in the end, it is the income tax, or Einkommensteuer, that is most feared.  After all, it is not easy to calculate.  Here we do not have a simple tax band system with a tax-free base income – we have pages worth of tables instead.

What really does not help, is the “cat and mouse” game of trying not have to pay so much tax.  Whereas other country collect less tax in the first place, Germany collects more and then gives you ways to deduct particular expenses occurred from it – at least in part.  There are whole books full of details of what can be deducted to help the taxpayer claim as much back as possible.

These are things like claiming back the cost of getting to work, the cost of learning a foreign language to further your career, or even – if you have the right type of job – how you can recover the cost of playing tennis!

But of course, these books only contain the legal tips on how to save paying so much tax.  These obviously do not go far enough for some high-earners, which is why they opt to take their money abroad.

Which leads me to the current debate about whether Germany should purchase data about the Swiss bank accounts of alleged tax-evaders, evoking memories of a similar case two years ago with data from Lichtenstein.

How much Germany stands to gain from obtaining the data depends on which source you read, most agree that it will be at least €100 million.  But the real debate is about how this data made it out of the banks concerned and which law should therefore prevail.

Obviously if someone has transferred their money out of the country and not declared this on their income tax form, then the state has a valid interest in claiming the unpaid tax.

But on the other hand, Germany has also seen its fair share of Data Protection issues involving major companies, and would itself be none too pleased if data from German banks ended up with a foreign power.

So people are starting to ask whether by buying the data, Germany is supporting data theft in Switzerland, whilst some politicians claim that it would an “obstruction of justice” not to pursue the information that has been offered.

Either way, there are reports of people correcting their tax returns and suddenly paying up to avoid prosecution, so just by announcing the fact that the data is out there may have helped increase Germany’s tax revenue this year!

Some other posts on this topic that you might like to read:

• Zündwarensteuer
• Zuckersteuer
• Salzsteuer