The values are based on wage growth of 4.38 percent in 2025. Health insurance also sees a special increase: both the compulsory insurance threshold and the contribution assessment ceiling rise by an additional €300 per month. This increase stems from the act of 24 July 2026 stabilising statutory health insurance contribution rates (GKV-Beitragssatzstabilisierungsgesetz).

The 2027 values at a glance

In arithmetical terms, the values are already fixed: according to the explanatory memorandum, the statutory basis leaves the Federal Government no discretion. Cabinet approval and the consent of the Bundesrat are still outstanding, and the regulation is due to enter into force on 1 January 2027. The values can therefore already be used for payroll and for planning staff costs for 2027.

Higher contribution assessment ceilings

Pay is subject to contributions up to the contribution assessment ceiling; any amount above it is contribution-free. When the ceiling rises, contributions increase for employees whose pay exceeds the previous ceiling, on both the employee’s and the employer’s side. Because of the special increase, the step in health insurance is considerably larger, at €562.50 per month, than in pension and unemployment insurance, at €400.

The subsidy that employers pay to employees with private health insurance under § 257 SGB V is also based on contributory earnings up to the ceiling, and therefore rises as well. Its exact amount further depends on the average additional contribution rate, which will be announced separately for 2027.

Compulsory insurance threshold: who can switch at the turn of the year

Employees whose regular pay exceeds the compulsory insurance threshold are exempt from compulsory health insurance and may take out private cover. Under § 6 Abs. 4 SGB V (Book V of the German Social Code), compulsory insurance ends at the end of the calendar year in which the threshold was exceeded, but only if pay also exceeds the threshold for the following year. For a switch on 1 January 2027, the relevant figure is therefore €84,150. Because of the special increase, this threshold is €6,750 higher than in 2026.

Employees in statutory health insurance whose regular annual pay in 2027 lies between €77,400 and €84,150 therefore remain subject to compulsory insurance, even if they exceeded the 2026 threshold.

Employees already privately insured: a separate threshold

The special increase does not apply to employees who, on 31 December 2026, are exempt from compulsory insurance because their pay exceeds the threshold and who are privately insured. For them, the draft sets a separate threshold of €80,550 under § 6 Abs. 8 SGB V in the version applicable from 2027. If their regular annual pay in 2027 does not exceed this amount, they become subject to compulsory insurance.

They can then apply for an exemption from compulsory insurance (§ 8 Abs. 1 Satz 1 Nr. 1 SGB V). The application must be made to the health insurance fund within three months of the start of compulsory insurance, requires proof of other health cover and cannot be withdrawn (§ 8 Abs. 2 SGB V).

Long-term care insurance: not yet finally settled

In long-term care insurance, the contribution assessment ceiling has so far been linked to the compulsory insurance threshold under § 6 Abs. 7 SGB V (§ 55 Abs. 2 SGB XI). Under the current wording, the special increase therefore does not apply to it, and the ceiling for 2027 would be €72,900 per year, or €6,075 per month. The draft long-term care reform act (Pflegeneuordnungsgesetz) approved by the Federal Cabinet on 30 September 2026 is intended to align long-term care insurance with health insurance. The same draft provides for raising the contribution surcharge for childless members by 0.3 percentage points to 0.9 percent from 1 January 2027. Both will only be certain once the legislative process has been completed.

The marginal employment threshold is not part of the regulation. It follows the statutory minimum wage and rises to €633 in 2027; details are set out in our article on the minimum wage, mini-jobs and midi-jobs.

What employers can prepare now

• Plan staff costs for 2027: For employees above the previous ceilings, budget for higher employer contributions, with the larger step in health insurance.
• Identify borderline cases: For all employees with pay close to the compulsory insurance threshold, determine regular annual pay for 2027, including pay rises already agreed.
• Inform privately insured employees: Anyone privately insured on 31 December 2026 who earns no more than €80,550 in 2027 should be aware of the three-month deadline for the exemption application.
• Distinguish posted employees: Employees posted to Germany with an A1 certificate remain subject to the legislation of the sending state; the German thresholds do not apply to them.

FRADECO supports you at the turn of the year

Would you like to know which of your employees are affected by the new thresholds? We review borderline cases with you before the turn of the year and apply the new values in payroll from January 2027. How we take on ongoing payroll is described under German Payroll & HR.

Information current as of 5 October 2026, based on the draft regulation of the Federal Ministry of Labour and Social Affairs of 21 September 2026.

For employers, this involves more than scanning documents: supporting records must be complete, clearly identifiable and available for an audit. We explain what the deadline means and how to prepare your business.

What changes on 1 January 2027?

Electronic record-keeping has generally been mandatory since 1 January 2022 for the supporting payroll records listed in § 8 Abs. 2 BVV, the German regulation on the social security contribution procedure. Employers with an exemption approved under § 8 Abs. 3 BVV may depart from this requirement until the end of 2026. That option expires at the turn of the year.

Existing records: Where an approved exemption covers the period up to the end of 2026, the deadline does not in itself require records relating to earlier circumstances to be digitised retrospectively. The requirement applies to new circumstances and events from 1 January 2027. Without an applicable exemption, it has already applied since 2022. This distinction is set out in the joint principles issued under § 9a BVV.

Which businesses and records are affected?

The requirement generally applies to employers obliged to keep payroll records under German social security law, regardless of business size. This can include French and other foreign businesses with corresponding employer obligations in Germany. An employer without a registered office in Germany must appoint an authorised representative based in Germany to keep and retain the payroll records, under § 28f Abs. 1b SGB IV, Book IV of the German Social Code. Employees in private households are subject to a statutory exception to the record-keeping requirement under § 28f Abs. 1 SGB IV.

The records concerned include evidence needed for payroll processing and the assessment of an employee’s social security status. Depending on the employment situation, examples include:

• for employees from countries outside the EEA, evidence of nationality and residence permit;
• documents relating to exemption from compulsory insurance, such as the university enrolment certificate of a working student;
• applications for exemption from compulsory pension insurance in a “Minijob” (marginal employment with a monthly earnings cap), and applications to cancel that exemption;
• declarations by employees in marginal employment about other jobs;
• health insurance fund notifications affecting contributions and decisions on compulsory insurance;
• documents relating to employee postings, particularly A1 certificates;
• evidence of parenthood and the number of eligible children for German long-term care insurance contributions;
• copies of the written statement of essential employment conditions required under the German “Nachweisgesetz”, and working time records under § 17 Abs. 1 MiLoG and § 19 Abs. 1 AEntG (the German minimum wage and posted workers legislation).

The statutory list in § 8 Abs. 2 BVV determines the scope. It does not impose a blanket obligation to digitise the entire personnel file.

What does an audit-ready digital filing system need to do?

Records must remain available throughout the retention period and be readable without delay. They must also be complete and organised so they can be audited. These requirements follow from § 9 Abs. 5 BVV and § 10 BVV.

The joint principles specify how requested documents must be provided:

• One file per document: A multi-page document may remain in a single file; several separate documents must not be combined in one file when submitted.
• Clear identification: The document type, employee and relevant period must be identifiable, for example through file names or an index.
• Suitable formats: PDF, JPEG, PNG, BMP and TIFF are accepted. The contents must be viewable independently of the system used.

Optical character recognition (OCR) can make searches easier. However, these rules do not impose a general requirement to use OCR or scan at 300 dpi. Nor do they prescribe a particular document management system. What matters is whether the chosen solution meets the requirements.

Keep paper originals after scanning

Where covered documents are supplied on paper, the employer must convert them into an electronic format. Under § 9 Abs. 5 BVV, the originals must be retained until the audit has been concluded with legally binding effect; any other statutory retention requirements must also be observed. Scanning therefore does not give blanket permission to destroy paper records.

Digital records and euBP: two separate obligations

Keeping supporting documents electronically is distinct from the electronically assisted employer audit (euBP). Electronic transmission of payroll data for euBP has generally been mandatory since 2023, and financial accounting data since 2025. Exemptions under § 126 SGB IV are available only for accounting periods up to the end of 2026. Transmission is mandatory for payroll cases from 2027 onwards. Businesses should therefore review both their document filing processes and data transmission from the software they use.

What can happen if supporting records are missing?

If inadequate records prevent the pension insurance authority from establishing insurance coverage, contribution liability or the amount due, it may issue an assessment based on aggregate remuneration or estimate remuneration, subject to § 28f Abs. 2 SGB IV. Additional contribution assessments may also attract late-payment surcharges under § 24 SGB IV.

Deliberate or grossly negligent failure to keep or retain payroll records can result in a fine of up to €50,000 under § 111 Abs. 1 Nr. 3 and Abs. 4 SGB IV. This maximum is not an automatic consequence of an isolated filing or format error.

Four steps to prepare for 2027

1. Review existing records and exemptions: Which documents are held in paper files, email inboxes, HR software or by your tax adviser? Which exemptions have actually been approved?
2. Define filing rules and responsibilities: Specify document types, identification rules, access rights and responsible staff. Agree with your payroll provider who receives and retains each type of supporting document.
3. Test availability in practice: Can you locate, read and provide all documents for a selected employee as separate files? Also check euBP data export with your software supplier or service provider.
4. Complete the transition on time: Have the processes for new documents in place by 1 January 2027 at the latest and train the staff involved.

The record-keeping obligation lies with the employer even when payroll is outsourced. The work itself can be shared, and the arrangement agreed in step 2 ensures that no document slips through the gap between responsibilities.

FRADECO can help you prepare

Would you like to establish which records are affected and how to integrate the requirements into your existing payroll and HR processes? We can help you review your current arrangements and agree the next steps, including in a Franco-German business context. Please get in touch.

How we take on ongoing payroll is described under German Payroll & HR.

Information current as of 2 October 2026. This article concerns German social security law.

The Federal Ministry of Finance carried the relevant case law into its administrative guidance by circular of 3 March 2026 (III C 3-S 7117-e/00003/005/058). For company car arrangements within Germany this changes little: the authorities state expressly that existing practice may in principle be retained and that the amendments are made by way of addition and clarification. The position is different as soon as the employee’s residence and the employer’s seat lie in different countries.

Everything turns on one question: for consideration or not?

There are two possible treatments. If the employee provides consideration in return for the vehicle, the arrangement is a letting for consideration. Without consideration, it may instead be a deemed supply under § 3 Abs. 9a Nr. 1 UStG, the German VAT Act, provided the vehicle gave rise to a full or partial input VAT deduction.

The distinction governs more than whether VAT arises at all. In a cross-border employment relationship it also decides which country collects it. A deemed supply is taxed where the business is established. A supply for consideration, by contrast, follows the rules on the hiring of means of transport, and those point to an entirely different address.

What the Court of Justice held, and what the BFH made of it

In Finanzamt Saarbrücken (judgment of 20 January 2021, C-288/19) the Court of Justice of the European Union held that making a vehicle available to an employee is not a supply of services for consideration where the employee makes no payment, uses no part of their cash remuneration for it, and does not forgo another benefit under an agreement between the parties. Merely permitting private use is therefore not enough.

The Bundesfinanzhof, Germany’s Federal Fiscal Court, then took a narrower view (judgment of 30 June 2022, V R 25/21). Where private use is individually agreed in the employment contract and is actually taken up, the direct link required between the vehicle and the work performed is present. The arrangement is then treated as a barter-like transaction under § 3 Abs. 12 Satz 2 UStG: the consideration consists of part of the work performed.

The circular of 3 March 2026 carried that line into the German VAT application decree, the „Umsatzsteuer-Anwendungserlass“: the question of consideration is now dealt with in section 15.23 para. 9, the place of supply in section 3a.5 para. 4. A written clause is not essential. Under the sentence newly inserted there, the necessary connection will as a rule also exist where the provision rests on oral arrangements or on other circumstances of the employment relationship, such as established company practice.

The Bundesfinanzhof sees no conflict with the Court of Justice in this. The Luxembourg judgment answered only the question referred by the tax court, and that question had left the barter-like transaction unmentioned.

The consequence: the place of supply moves to the residence

A supply for consideration is, for VAT purposes, the hiring of a means of transport. Once it runs for more than 30 days without interruption, it ceases to be short-term under § 3a Abs. 3 Nr. 2 Satz 2 Buchstabe b UStG. For long-term hiring to a customer who is not a taxable person, sentence 3 of the same provision fixes the place of supply: it is made where the customer has their residence or seat.

A company car is almost always made available for longer than 30 days. The employee’s place of residence is therefore the decisive connecting factor. Neither the employer’s seat nor the place where the work is actually done changes that.

Employee resident in Germany, employer established abroad

This is the situation the case law revolves around. Before the Bundesfinanzhof, the employer was a Luxembourg public limited company with no fixed establishment in Germany; both of its employees lived here. The outcome: the arrangement was taxable in Germany.

For a company without a German seat, this creates an obligation that its own law gives no reason to expect. It owes German VAT without holding an establishment here, and it has to declare it. If you employ staff in Germany and provide them with vehicles, examine this question independently of how the matter is treated in your country of establishment.

Employee resident abroad, employer established in Germany

In the other direction, the supply moves out of Germany. Where a German company provides a cross-border commuter resident in a neighbouring country with a company car on a lasting basis, the supply is not taxable in Germany on the German view, but in the country of residence.

That is not relief, it is a shift. The filing obligation then arises there, and whether that country also classifies the arrangement as a letting for consideration is a matter for its own law. This check belongs at the outset, not in the middle of an audit.

Where two countries classify differently

Whether a vehicle arrangement is made for consideration is not answered uniformly across Europe. Several tax authorities require an expressly agreed consideration more strictly than German practice has done since the March 2026 circular. Two classifications can then sit side by side: in Germany a letting for consideration at the employee’s residence, in the country of establishment a deemed supply at the company’s seat.

A double charge becomes possible, though it is not automatic. The decided case shows how little the German charge depends on the treatment elsewhere: in Luxembourg the arrangement was neither taxed nor accompanied by an input VAT deduction. German liability arose all the same. What matters is the contractual terms, the practice actually followed in the business, and the input VAT position.

Measuring: value of the consideration or costs incurred

Once it is settled that German VAT is due, the taxable amount follows the route by which the arrangement was classified. Where the provision is treated as a supply for consideration in the form of a barter-like transaction, § 10 Abs. 2 Satz 2 UStG treats the value of each supply as the consideration for the other. What is measured is therefore the value of the proportionate work the employee performs in return for the use. The VAT itself does not form part of the consideration.

Where there is no consideration and the provision is a deemed supply free of charge, § 10 Abs. 4 Satz 1 Nr. 2 UStG applies instead: the taxable amount is the costs incurred in making the supply, to the extent that they gave rise to full or partial input VAT deduction. That includes the acquisition cost of the vehicle, provided it is allocated to the business. From 500 euros upwards, that cost is spread evenly over the adjustment period under § 15a UStG, which is five years for a vehicle.

Where the place of supply lies in the employee’s country of residence, the taxable amount is governed by the law of that country as well. The two German provisions apply only to the extent that the transaction is taxable in Germany.

Declaring: registration or One-Stop Shop

Where VAT is due in another Member State, you can either declare it there or use the One-Stop Shop. § 18j Abs. 1 Nr. 2 UStG covers, for taxable persons established in the Union, services supplied to customers within the meaning of § 3a Abs. 5 Satz 1 UStG in another Member State. The reference is to the category of customer and not to the narrower list in sentence 2, so the long-term hiring of a vehicle to an employee falls within it.

Participation is optional, but once chosen it applies to all covered supplies. Input VAT cannot be recovered through this route; the refund procedure remains available for that. For a company with only a handful of vehicles abroad, the One-Stop Shop is usually the leaner option, because it avoids a separate registration in the country of residence.

The concession ended on 30 June 2026

The principles set out in the circular apply to all open cases. A time-limited concession existed only for supplies carried out up to 30 June 2026: where a vehicle was exceptionally provided without consideration, the earlier administrative position on the place of supply could still be applied. For all later supplies, the new position governs.

A further case is pending

A further case is pending before the Bundesfinanzhof under file number V R 42/25, on appeal from the Finanzgericht Rheinland-Pfalz (judgment of 27 June 2024, 6 K 1073/22). The question is whether, and on what conditions, the provision of company vehicles to employees resident in Germany by a company established in another EU country is to be treated as a taxable supply for consideration in Germany.

Until a decision is handed down, the administrative position remains authoritative. By documenting the affected cases carefully and keeping the assessments open procedurally, you retain the option of benefiting from a later ruling.

What to check now

• Record the residences. Where do the employees live who are allowed to use a vehicle privately?
• Review the arrangements. Is private use set out in the employment contract, agreed orally, or established through company practice?
• Identify the consideration. Does the employee pay anything, give up salary, or forgo another identifiable benefit?
• Clarify the input VAT. Was VAT deducted on purchase or on the lease payments? Without consideration, that is what determines whether a taxable supply arises at all.
• Measure the duration. Does the arrangement run for more than 30 days without interruption?
• Determine the taxable amount. Is it the value of the proportionate work, or, where the vehicle is provided free of charge, the total of the costs that gave rise to input VAT deduction?
• Check the obligations in the other country. Is there a registration or filing requirement, and is the One-Stop Shop an option?
• Look back at earlier periods. Supplies carried out from 1 July 2026 onwards no longer fall under the concession.

The ongoing recording of such transactions forms part of German Accounting & Reporting; the filings and correspondence with the tax office belong to German Tax & Compliance. How cross-border employment is handled in payroll is set out under German Payroll & HR.

Sources: §§ 3 Abs. 9a and Abs. 12, 3a Abs. 3 Nr. 2 and Abs. 5, 10 Abs. 2 and Abs. 4, 15a, 18j UStG; CJEU, judgment of 20 January 2021, C-288/19 (Finanzamt Saarbrücken); BFH, judgment of 30 June 2022, V R 25/21; BFH, pending case V R 42/25; circular of the German Federal Ministry of Finance of 3 March 2026, III C 3-S 7117-e/00003/005/058, on the provision of vehicles to employees; sections 3a.5 para. 4 and 15.23 para. 9 UStAE.

Many companies have set up an email inbox for incoming invoices and treated the matter as closed. That is rarely enough: incoming e-invoices must also be readable, verifiable, approvable, postable and storable in their original structured form.

The three stages

What counts is the turnover of the preceding year. Cross the threshold in 2026 and the obligation starts on 1 January 2027, not in 2028.

What qualifies as an e-invoice

Under § 14 (1) sentence 3 UStG (the German VAT Act), an e-invoice is issued, transmitted and received in a structured electronic format that allows electronic processing. In Germany, two formats meet that definition: „XRechnung”, pure XML, and „ZUGFeRD” from version 2.0.1, excluding the MINIMUM and BASIC-WL profiles. A PDF sent by email remains an other invoice within the meaning of sentence 4 of the same provision.

With hybrid formats such as „ZUGFeRD”, the structured XML part prevails over the readable image. Where the two diverge, the visual part may count as a separate other invoice and trigger an incorrect VAT statement under § 14c UStG. This is the most expensive of the silent errors in this area, because the invoice on screen looks entirely correct.

An „XRechnung” is a plain XML file and therefore unreadable to the human eye. The receiving side needs a viewer or a visualisation in the ERP system. Without it, an incoming invoice cannot realistically be checked.

When an e-invoice is mandatory

For case-by-case assessment, one fixed sequence works well:

• Is this a taxable supply of goods or services?
• Is the recipient a taxable person acting for their business?
• Are both parties established in Germany?
• Does no exemption apply?
• Is no transitional rule still available?

Only if all five answers are yes is the e-invoice mandatory.

Who owes the tax is irrelevant here. Reverse-charge cases under § 13b UStG, for instance construction services or sales of scrap and precious metals, fall within the obligation. So do the margin scheme for travel services under § 25 UStG and the differential taxation scheme under § 25a UStG, once the other conditions are met.

Exemptions from the obligation to issue

• invoices to private individuals
• small-value invoices up to 250 euros under § 33 UStDV
• transport tickets under § 34 UStDV
• businesses under the small-business scheme („Kleinunternehmer”), § 19 UStG

These exemptions cover issuing only. Every business established in Germany must be able to receive e-invoices, including those under the small-business scheme. Issuing one voluntarily remains possible in all of these cases.

The cases that hold things up in practice

Cash purchases above 250 euros. The small-value threshold is crossed more often than the invoice run suggests: hotel stays, fuel for construction machinery, larger purchases from builders’ merchants or wholesalers. A small dedicated process with three clear roles pays off here: who requests the e-invoice, who checks it, who archives it?

Continuing obligations such as rent, leasing or maintenance. A single e-invoice for the first part-performance period is often sufficient, provided the underlying contract is attached or the content makes clear that this is a recurring invoice. If mandatory details change, the amount for example, a new invoice may be required.

Advance payment and final invoices are technically harder to produce than standard invoices in many software packages. Test them early and separately.

Corrected invoices. Where the original invoice had to be an e-invoice, so does the correction. A mere change to the taxable amount under § 17 UStG, a cash discount for instance, requires no correction.

Archiving and interfaces

The structured part must be retained unchanged in its original format. For hybrid formats, it must be documented which components are stored, how, and how they will be made readable again. The „GoBD” requirements (the German principles for keeping and retaining records) continue to apply in full: traceability, immutability and machine evaluability.

In practice, problems arise less often when creating the invoice than at the handovers between inbox, document management, ERP, payment approval and archive. One question clarifies more than any inventory of systems: which system is ultimately the authoritative data source for the VAT return?

What to complete by the end of 2026

• Assign responsibility. One person or department coordinates the changeover technically and in substance.
• Identify the outgoing invoices affected, in particular continuing obligations, advance payments, credit notes and cash purchases above 250 euros.
• Check prior-year turnover. Above or below 800,000 euros?
• Define a receiving channel and assign responsibility for checking and approval.
• Test the software on „XRechnung” and „ZUGFeRD”, including validation, visualisation and archiving, not just sending.
• Update master data: taxable-person status, VAT ID, billing address and preferred format for each customer and supplier.
• Run tests with key business partners, including corrections and cancellations.
• Train staff and update the process documentation.

The later the changeover starts, the more a pragmatic approach makes sense: receipt, checking, posting and archiving have to work reliably first. Automation and interface optimisation can follow.

How e-invoicing fits with day-to-day bookkeeping is set out under German Accounting & Reporting, and the tax filing obligations under German Tax & Compliance. The most frequent individual questions are answered in our e-invoicing question catalogue.

Sources: §§ 14, 14a, 14c, 17, 19, 25, 25a and 27 (38) UStG as amended by the „Wachstumschancengesetz” of 27.03.2024; §§ 33 and 34 UStDV; BMF circular of 15.10.2024, III C 2 – S 7287-a/23/10001 :007.

When registration becomes mandatory

A VAT registration in Germany is not triggered by turnover but by an event. The two cases that matter most in practice:

Stock held in Germany. As soon as a company holds goods in a German warehouse and sells from there, an obligation to register arises — regardless of turnover and regardless of whether the warehouse is operated by the company itself or provided by a service provider. A marketplace operator’s fulfilment centre counts just as much as your own.

Distance sales to German private customers. Where a company supplies private individuals in Germany from another EU state, the place of supply shifts to Germany once the EU-wide distance selling threshold of EUR 10,000 is exceeded. A German registration or participation in the One Stop Shop is then required.

The most common misconception: the EUR 10,000 threshold does not apply to everyone

In practice the distance selling threshold is regularly applied to companies it does not cover at all.

§ 3c Abs. 4 UStG requires the supplier to have its seat, its management or a permanent establishment in only one member state. A company established in a third country has none of these in any member state and therefore does not meet that condition.

The consequence: for a company from the United Kingdom, Switzerland, the United States or China there is no de minimis threshold. The turnover is taxable in the country of destination from the first euro. A third-country business relying on the EUR 10,000 registers too late.

How often returns are due: the thresholds since 2025

How often an advance VAT return has to be filed depends on the previous year’s tax. Those thresholds were raised on 1 January 2025.

The earlier figures of EUR 7,500 and EUR 1,000 still appear in numerous publications online. They have been out of date since the beginning of 2025.

What changes on 1 January 2027

Here lies the real news for companies planning a registration.

Under § 18 Abs. 2 Satz 4 UStG a company starting a new activity has to file monthly in the current and the following calendar year. That rule is suspended by § 18 Abs. 2 Satz 6 UStG for the assessment periods from 2021 to 2026.

During the suspension, the filing frequency for a new company follows the expected tax for the current year, that is the figure given in the tax registration questionnaire. A company expecting low turnover can therefore file quarterly from the outset.

As things stand the suspension ends with the close of 2026. Unless the legislator extends it, the basic rule applies again from 2027: two years of monthly returns for every new registration, whatever the level of turnover.

The difference between four and twelve returns a year is considerable over two years — in effort and in the scope for error. Anyone planning a registration in any event should check the state of the legislation again in the autumn of 2026; an extension of the suspension is possible.

Late filing penalty: the 10 per cent cap no longer exists

Another point where out-of-date information persists. Numerous sources refer to a cap on the late filing penalty of 10 per cent of the tax assessed. That wording comes from § 152 AO as it stood before the 2019 reform and is no longer the law.

For the advance VAT return the position today is:

• § 152 Abs. 1 AO: for a tax return of the self-assessment type — and an advance return is one — imposing the penalty is at the tax office’s discretion. The mandatory imposition under paragraph 2 concerns only returns relating to a calendar year or to a date laid down by law.
• § 152 Abs. 5 Satz 1 AO: 0.25 per cent of the tax assessed for each month begun, but at least EUR 10 for each month begun.
• § 152 Abs. 10 AO: the penalty may not exceed EUR 25,000.

The monthly minimum is the point that surprises in practice: where the tax due is small, it is not the percentage that governs but the number of months begun.

For the annual VAT return the minimum is higher — § 152 Abs. 5 Satz 2 AO sets EUR 25 for each month begun. The two amounts are frequently confused.

What comes with it in practice

Registration is only the beginning. What follows is the ongoing obligation: advance returns at the frequency set, the annual return, where applicable the EC Sales List, and all the correspondence with the competent tax office. For foreign companies the obstacle is rarely the tax itself but the language and the procedure: communication with the tax office is in German and, in large part, still by post.

That is exactly where our tax work for foreign companies comes in — registration, advance returns, deadlines and the correspondence with the authorities, conducted in German and reported in French or English.

For companies that need German VAT alone and want the handling in English, we run a separate offering with Vaytax — with the tax expertise in house. A detailed account of the registration procedure, including the documents required depending on the country of establishment, can be found under VAT registration for foreign companies (in German).

Three points to take away

• The obligation to register arises from the warehouse or the distance sale, not from a turnover limit.
• The EUR 10,000 distance selling threshold is not open to third-country businesses. For them, taxation in the country of destination applies from the first supply.
• The suspension of the two-year monthly filing rule for new registrations expires at the end of 2026 as things stand. Anyone registering in 2027 should plan for monthly returns.

Law as at August 2026.

What changes

The Ninth Act amending provisions of tax advisory law and tax law of 29 June 2026 (BGBl. 2026 I Nr. 197) introduces a nationwide minimum multiplier of 280% for trade tax in § 16 Abs. 4 GewStG.

The new rule applies for the first time to the 2027 assessment period.

How the minimum multiplier works out

Trade tax is calculated as follows:

Trade tax = trade income × 3.5% base rate × multiplier

An example shows the effect:

In municipalities that have so far applied a multiplier below 280%, the minimum burden rises by up to 40% on the calculation.

Who is particularly affected?

The new rule affects above all:

• companies in municipalities with low multipliers so far — often structurally weaker or rural areas that have used low rates to attract businesses.
• companies whose choice of location has been motivated in part by tax, particularly in classic trade tax structures using municipalities with low multipliers.

What companies should do now

Where clients have permanent establishments in municipalities with low multipliers, we recommend examining the effect on their tax burden from 2027 early. That applies in particular in liquidity and tax planning and where decisions on location are pending.

Existing structures built around the municipal multiplier should also be reviewed, since the tax advantage will be considerably smaller from 2027 or will disappear entirely in some cases.

We are glad to discuss with you individually how the new rule affects your company and what action follows from it.

Source: Ninth Act amending provisions of tax advisory law and tax law of 29 June 2026, BGBl. 2026 I Nr. 197 (§ 16 Abs. 4 GewStG).

Why this matters in practice

In investment projects, advance payments are no exception. With more complex procurement, technical plant or projects planned over the long term, the question regularly arises of when the input VAT on an invoice can be claimed.

The BFH has now made clear that input VAT can in principle be deducted from an advance payment invoice — even where the supply itself has not been performed at the time of payment.

The case decided

In the case decided, the claimant took part in an investment model in photovoltaics. The installation was first to be acquired and then leased to a third party.

The installation had not been delivered at the time of payment. The claimant nevertheless deducted the input VAT on the advance payments made.

The tax office refused the deduction, on the ground that the supply had not yet been performed and that the claimant had not yet obtained the power of disposal over the photovoltaic installation.

The BFH’s decision

The BFH confirmed that input VAT on an advance payment invoice can in principle be deducted before the supply is performed.

Particularly relevant in practice: an invoice does not have to be described expressly as an “advance payment”, “prepayment” or “interim invoice”. What matters is not the particular wording but the recognisable content of the invoice.

It has to be apparent from the invoice that it relates to a supply still to be performed.

What the invoice has to contain

The requirements for a proper invoice apply in principle to advance payment invoices as well. The invoice therefore has to contain the relevant mandatory details.

An expected date of supply does not have to be stated, however.

All that has to be stated is the date on which the consideration is received, where that is already fixed and differs from the invoice date.

Where the supply does not materialise

The input VAT deduction is in principle preserved where, at the time of payment, the recipient was entitled to assume in good faith that the supply would be performed.

What counts is therefore the position at the time of the advance payment — not developments afterwards alone.

What companies should keep in mind

Companies should continue to check and document advance payment invoices carefully. It is particularly important that:

• all the mandatory details of a proper invoice are present,
• the invoice can be related unambiguously to a supply still to be performed,
• the payment is documented in a way that can be followed,
• the underlying supply relationship can be evidenced soundly.

Where this leaves us

The decision strengthens legal certainty on the input VAT deduction from advance payment invoices. It makes clear that formal wording alone is not decisive.

In practice that means the absence of an express reference such as “advance payment” or “prepayment” does not automatically cost the input VAT deduction, where the character of the invoice follows from its content.

Companies should nevertheless see to clean invoice verification, complete documentation and contractual foundations that can be followed — particularly on larger investment projects and more complex supply relationships.

Underestimated HR risks in building a foreign branch — from start-up to liquidation

Anyone setting up a branch in Germany, Austria or Switzerland from abroad has usually been through a great deal before the subject of staff even reaches the table: market analysis, legal form, tax structure, sometimes the first lease as well. At the latest when the first local employees are to be hired, the question arises: “So how do we actually do this — from an HR point of view?”

Out of that experience I would like to pick four subjects that are repeatedly underestimated in practice when foreign organisations establish themselves in the DACH region. The examples are drawn largely from German law; in Austria and Switzerland the logic is often similar with different details, which I point to where it matters.

1. The first employees on board: posting, contractor — or local employment straight away?

This question comes up almost always at the very beginning. The parent abroad has decided on market entry in the DACH region, and now someone is needed on the ground. The intuitive reflex: “Let’s just send someone over from here.” Or: “Let’s test it with a freelancer first.” Either can be right — but both have pitfalls that are often not present to mind at head office.

Option 1: posting from head office. For a short, clearly delimited set-up phase — three to six months of project work, exploring the market, building the first structures — posting with an A1 certificate is an established model. For social security purposes the employee stays in the home system. What matters to know: local protective rules apply to a posting as well — in Germany the Posted Workers Act (AEntG), in Austria the LSD-BG, in Switzerland the Posted Workers Act — each with its own notification duties and minimum standards. Anyone working on the ground for longer than one or two years also moves into a grey area: for tax purposes a permanent establishment often arises, and for social security an extension beyond 24 months becomes a matter for the authorities. My advice: posting yes, but with a clear timetable and a defined handover point to local employment.

Option 2: contractor / freelancer. The apparently simplest route — and the most dangerous. Germany examines bogus self-employment under § 7 SGB IV, Austria through the ASVG, Switzerland through the AHV compensation offices. In all three countries the position is the same: anyone who in fact works like an employee (subject to instructions, integrated into the organisation, with no market presence of their own) will be classified as an employee in the status determination procedure — with social security contributions assessed for several years plus late payment surcharges. Contractor models really only work where self-employment is lived out in the day-to-day business as well: several clients, own tools, a clear separation of content and instructions. For the first country manager of a local branch that is almost never the case.

Option 3: local employment from the outset. Where market entry is thought of strategically and for the long term, local employment — through a subsidiary of your own or a branch registered for wage tax — is almost always the cleanest route. It brings effort with it (payroll, social security registrations, local employment contracts) but it creates a clear legal basis. A company with no legal entity of its own in the target country that nevertheless wants to employ there can use an employer of record in the interim — though it is not intended as a permanent solution.

2. The local employment contract is not a form but a strategic decision

Once the decision for local employment has been taken, the next subject arrives: the employment contract itself.

In France the CDI (contrat à durée indéterminée) is a comparatively standardised document. Much is governed by the relevant sectoral collective agreement (convention collective), and the room for manoeuvre in the individual contract is limited — but clear.

In Germany and Austria the picture is different. The individual employment contract is a central steering instrument. Whatever is not in the contract, or is drafted loosely, will in case of doubt be resolved in the employee’s favour. German law on standard terms (§§ 305 ff. BGB) is applied to employment contracts — with the result that apparently harmless clauses (bonus reservations, transfer clauses, overtime provisions, repayment clauses for training) are regularly struck down in a dispute where they have been drafted superficially. Austria has a comparable logic through §§ 879 ABGB and the binding effect of collective agreements. In Switzerland the contractual latitude is traditionally wider; the difficulty there lies rather in the mandatory protective provisions of the Code of Obligations (OR), which many foreign contracts simply ignore.

From my experience in groups I know this: anyone falling back on a “global standard contract for foreign branches” drafted centrally at headquarters risks finding, at the first real conflict — a bonus payment, the end of a probationary period, a dismissal — that the provisions agreed will not hold. My practical advice: invest once, before the first hire, in clean contract templates, differentiated by level of function, fixed term and remuneration model. That investment repays itself tenfold at the first conflict.

3. Co-determination is not a bogeyman — but it works differently

This is a subject where the expectations of international clients and the DACH reality diverge particularly often.

French companies know mechanisms of employee representation — the CSE, the délégués syndicaux. But the German and Austrian systems are built differently: more cooperative in design, and at the same time equipped with hard legal levers once a works council has been elected. In Switzerland employee representation (under the Participation Act) is considerably weaker — so anyone who knows only the Swiss experience regularly underestimates the German and Austrian systems.

The works council in Germany (BetrVG) and in Austria (ArbVG) has a genuine right of co-determination in many personnel and social matters — which means that without its agreement the employer simply cannot implement certain measures. That includes matters such as the scheduling of working time, overtime, the introduction of technical monitoring systems (which covers many cloud-based HR systems, for instance) and practice on hiring and transfers.

A works council is not an opponent — but it is not a sparring partner with whom you “just informally” introduce a new bonus scheme either. Anyone who ignores this in the set-up phase, or involves the council too late, pays twice in case of doubt: once in the gap in trust that opens up, and once in laborious renegotiation.

4. If you are going in, think the exit through as well

This is the point people are least keen to discuss at market entry — but it belongs in an honest picture of HR.

Where a foreign group finds after some years that the DACH market does not work as hoped, or where a global restructuring programme reaches the local subsidiary, the assumption at headquarters is often: “Fine, we announce the closure, pay a few settlements, and in six months the matter is done.”

In the DACH region that expectation is very regularly disappointed. I have been responsible at management level for a complete closure and liquidation of an Austrian logistics subsidiary with several hundred employees — including social plan negotiations and collective redundancy procedures. Three lessons from that experience:

The closure itself takes months, not weeks. Collective redundancy procedures are subject to formal requirements in all three countries — with notification duties to the AMS or the Agentur für Arbeit and consultation procedures with the works council. Anyone who breaches a deadline or a formality risks the dismissals being ineffective — with the consequence that wages continue to run although operations have long since ceased. Social plan negotiations can drag on for six months.

The legal aftermath is the real risk. Even after the closure has been announced, the social plan concluded and the settlements paid, proceedings can continue: unfair dismissal claims, claims based on an alleged transfer of undertaking (§ 613a BGB / AVRAG / Art. 333 OR — all three with a similar protective effect) — particularly where parts of the business are continued in some form, including by third parties. Such proceedings can run for years.

The tax and accounting consequence is something nobody wants to see in the set-up phase, but it becomes acute in the closure phase: a local subsidiary cannot simply be “closed” while proceedings are still running or residual risks remain. The liquidation drags on — and with it the duty to make provisions for litigation risks, residual claims and liabilities not yet settled. Anyone who has budgeted too tightly here is unpleasantly surprised when the final accounts still have to be drawn up two or three years after operations actually ceased.

What does that mean for entry? From the very first local employment relationship, a legal relationship builds up that is expensive and lengthy to unwind in case of doubt. A group should therefore ask itself strategically whether it has a business case for DACH market entry that can also bear an orderly closure, with appropriate provisions for the social plan, settlements, litigation risks and the liquidation period. That is not pessimism — it is sound risk management.

Three recommendations for building HR in DACH

First: settle the employment model before you look for people. Anyone who finds the person first and then considers how to employ them usually ends up with the worst option.

Second: plan for local HR expertise from the outset. That does not have to be a full-time HR manager. But it takes someone who can draft the first contracts properly and, in case of doubt, say no when the parent proposes a solution that will not hold in DACH. That is exactly what interim models are for — pragmatic, time-limited, with a clear handover plan.

Third: think the exit through from the start. Not out of any lack of commitment — but as sound risk management. Anyone who knows at entry that a possible closure will not be done in six months but in two to three years, with provisions to match, makes better strategic decisions about team size, employment model, choice of location — and about when the right moment is to build local structures.

About the author

Axel Menzel is an interim HR manager and HR consultant based in Vienna. Through his consultancy Inpact HR he supports companies in the DACH region through critical phases — from building the HR function through growth and transformation to restructuring and business closures. His work focuses on employment law and the law on employing foreign nationals (certified), negotiations with social partners, and expatriate management with a regional focus on central and eastern Europe.

Before working independently he held HR leadership and managing director roles in German and international groups in the FMCG, technology and logistics sectors, supporting organisations through critical phases from market entry through restructuring to the liquidation of subsidiaries.

Contact: axel.menzel@inpact-hr.com · LinkedIn

What employers should keep in mind now

Without final legislation there is no sound basis for treating a payment as a tax-free and contribution-free relief bonus in the payroll. Anyone who has already prepared commitments to employees should hold off until the further course of the legislation is clear — running it through the payroll prematurely will otherwise lead to assessments at the next audit.

What was planned

Under the concept as it stood, the bonus was to be voluntary, paid in addition to the wages owed in any event, and available only within a period laid down by law. The measure formed part of a package intended to relieve employees in the face of higher energy and mobility costs. There was to be no obligation to pay it — the decision was to rest entirely with the companies.

Why approval was withheld

The refusal stems above all from the Länder’s criticism of how the costs would be shared. The federal government says it is sticking to the goal of providing relief and intends to decide on the next procedural steps shortly.

Even beforehand, opinion on the measure in German business was divided. Associations pointed out that many companies are themselves facing high costs, which made widespread take-up look unlikely. It was also criticised that under this model relief initiated by the state is shifted in part onto voluntary payments by companies.

Open points for the payroll

• whether part payments and benefits in kind will be expressly permitted
• the specific requirements for the payroll and the documentation
• the period within which a payment could be made on favourable terms

Where this leaves us

In our view the subject is not closed but postponed for now. Companies should follow developments and make payroll-side arrangements only on the basis of final legislation. We are glad to examine whether and how a bonus could be reflected in your payroll once the legal position is settled.

What continues to apply

As before, transfer pricing documentation has to be prepared for business relationships with related parties. It still comprises:

• a description of the transactions (documentation of the facts)
• and the derivation of arm’s length transfer prices (documentation of appropriateness)

New: the transaction matrix

New is the mandatory transaction matrix, in which all transactions have to be presented in a structured form — whether they are ordinary or extraordinary.

The deadline cut to 30 days

The deadline for producing the documentation has been cut uniformly to 30 days. That applies both:

• where the tax authorities ask for it expressly
• and in the course of a tax audit

An extension is possible only in individual cases and on a reasoned application. In practice that means the documentation has to be available considerably sooner and in full.

What has to be produced without being asked

In a tax audit certain records have to be submitted proactively, without any separate request:

• documentation of extraordinary transactions
• where applicable the master file (for larger groups)

Beyond that, the complete transfer pricing documentation can be requested separately at any time.

Wider powers for the tax authorities

The tax authorities can now request the documentation at any stage of the proceedings. They can also require improvements where in their view the records are incomplete. That increases the pressure on companies to keep their records ready for inspection at all times.

Where documentation is missing or inadequate, the transfer prices may be estimated.

Outlook: digital interfaces

The requirements as to the quality and completeness of the documentation are therefore rising noticeably. A further step concerns the planned introduction of uniform digital interfaces for tax-relevant data.

The aim is to make it easier for the tax authorities to analyse company data and to make audits more efficient. The relevant regulation is still awaited; it is expected to come into force at the earliest at the end of 2028.