One Xmas Tree – four Tax Rates: The Crazy German Tax Logic
Isn’t a Christmas tree just a piece of wood with needles? “Yes” and “no” – so German tax law. It all depends how it was raised, sold and who sells the tree. Munch your Stollen, and enjoy while I unravel the taxes for you.
Normally, objects are only subject to one rate. Seen from the perspective of tax regulations, selling a Christmas tree can be subject to either 0%, 7%, or 19% VAT. How? It depends on who sells to whom and to where. As you surely know, VAT is the tax office’s favorite tax: a lot of revenue, and a lot of traps for the tax payer, eh pardon, regulations. The graph below shows an overview.
Let us start with the easiest scenario you buy a plastic tree in a store. For such lack of romance, the tax office “punishes” you with the full tax rate of 19%.
A lower rate will be applicable for naturally raised trees. If a business sells you a tree it will do so for the reduced VAT rate of 7% as is generally applicable for all plants. However, if you buy it directly from the forester, then this might differ again. Lumberjacks have the possibility to pay a flat rate on VAT for their businesses – for the sake of simplicity. This is how it works: If the forester cuts the tree inside a forest, then he can apply a flat VAT rate of 5.5. However, if the tree was raised in a nursery, the tax rate will be 10.7%.
Special Rules a.k.a. Exceptions
The forester has the chance to waive the flat rate. In this case he has to invoice the normal reduced 7% .
And in the event, he sells less than 140 trees in the year or has a turnover less than 17.5 k€, the he can bill without VAT at all (§19 VAT Act – aka “small entrepreneurs rule”).
Is your mind already spinning? No? Then try to grasp this: The special rules for used Christmas trees which are sold abroad or to SOFA soldiers determine no VAT is owed.
Another option is to purchase a tree from the next best vendor, pay in cash and let the seller have his brain sweat with his tax return. However, if you wish to decorate your business premises with a Christmas tree, you will have to pay attention which VAT rate is applied and accordingly declare this in your VAT return.
But if you feel confused now, best would be to go downtown and visit the next Christmas market, and drink a glass of Glühwein…
Here is the overview: