Medical treatment and care: when the exemption applies

A physiotherapist in Kassel bills €62,000 a year for remedial exercise on a doctor's prescription and another €30,000 for wellness massages that guests book to relax. The same hands, the same couch, the same room. The first amount carries no VAT at all, the second the full standard rate. The difference lies not in her profession but in the purpose of each individual service.

Within the scope of VAT, yet exempt

The German VAT Act works in two steps. First, § 1 asks whether a transaction falls within the scope of the tax, that is, a supply a business makes in Germany for consideration. Only then does § 4 ask whether that transaction is relieved of the tax. Treatment by a self-employed doctor is both at once: in scope and exempt.

The opening sentence of § 4 makes this order explicit. Only transactions covered by § 1(1) No. 1 are exempted. A self-employed naturopath is a business in the sense of the Act. Her services do not leave the VAT system; they are merely relieved within it, and that relief has consequences of its own.

A transaction outside the scope of VAT plays no role for the tax whatsoever. An exempt transaction, by contrast, remains visible. It is recorded, it affects the deduction of input tax, and it counts towards some thresholds but not towards others. The second module follows these consequences in detail; the question here is first when the exemption arises at all.

If neither an exemption nor a reduction applies, the general rate of § 12(1) is due. Which services are charged at the reduced rate instead is the subject of the course on VAT rates. This course deals with the prior question: whether VAT arises on a service at all, or whether the statute itself relieves the service of it.

Medical treatment under § 4 No. 14(a)

The most important exemption for the self-employed in healthcare is found in § 4 No. 14(a) UStG. It covers medical treatment in the field of human medicine carried out in the exercise of certain professions. The provision therefore contains two conditions that must both be met: a certain kind of service and a certain professional setting.

• Work as a doctor
• Work as a dentist
• Work as a naturopath (Heilpraktiker)
• Work as a physiotherapist
• Work as a midwife
• a healthcare activity similar to those listed

The last item is worded openly. The Act does not list every healthcare profession by name but accepts activities similar to those named. Which professions fall under it is not settled conclusively by the wording. Anyone relying on this opening should clarify how their profession is classified with the tax office or an adviser before starting work.

The first condition is the narrower one. The Act does not exempt all of a doctor's turnover, only the medical treatment he carries out in his profession. The exemption therefore attaches to the service. A doctor who sells a textbook, receives a fee for a television appearance or sublets a practice room is not providing medical treatment when doing so.

The words "in the field of human medicine" also draw a line. Treatment of animals does not fall under letter (a), however demanding it may be medically. For a veterinarian this number is therefore not the place to look for an exemption; her services have to be assessed under the general rules instead.

Sentence 2 contains an express exception. It concerns dental prostheses and orthodontic appliances that the business has made or repaired in its own undertaking. Their supply or repair is not exempt, even when it is embedded in dental treatment. The customs tariff headings quoted in the statute determine which products are meant.

Purpose decides, not the job title

Because the exemption attaches to the service, the most practically important rule of this module follows. A physiotherapist offering a wellness massage purely for relaxation is indeed practising her profession. Whether she is providing medical treatment is a separate question. Where there is no link to an illness or health disorder, there is no medical treatment, and no exemption.

The statutory text contains no specific rule for cosmetic treatments. There is neither a list of exempt procedures nor a list of excluded ones. The only yardstick remains the concept of medical treatment. An aesthetic procedure that serves no therapeutic aim does not become medical treatment because the person performing it holds a medical qualification.

Where the line runs in a given case is for the authorities and courts to interpret. This course relies only on the wording of the Act and lists no individual treatments. In practice one test question suffices: does this specific service serve to diagnose, cure or alleviate an illness? Anyone who cannot document that had better plan with VAT.

The table reveals a pattern: the same person can carry out exempt and taxable transactions on a single day. VAT looks at each service on its own. A practice is therefore not exempt as a whole but service by service. This is exactly where the mixed activities come from whose consequences for input tax are covered in the second module.

A doctor's prescription is useful evidence of the therapeutic purpose, but it is not a condition laid down in the statute. Conversely, a prescription does not turn a service without therapeutic content into medical treatment. Anyone documenting their services should therefore record the reason for each treatment, not just the name of the package booked.

Bundles are particularly delicate. A course made up of therapeutic exercises and a relaxation part does not become exempt because one part of it heals. Anyone putting together such offers should describe and bill them so that each component can be matched to its purpose. Otherwise they carry the risk that the tax office classifies the whole bundle differently.

Hospitals, care and patient transport in brief

Letter (b) of the same number is addressed to institutions, not to individual self-employed people. It exempts hospital treatment and medical treatment including diagnostics, examinations, prevention, rehabilitation, obstetrics and hospice services, as well as closely related transactions. They must be provided by a public-law body or by one of the licensed institutions listed in the Act.

For private hospitals without a licence under § 108 of Social Code Book V, the Act requires socially comparable conditions. One of the two yardsticks reads: on a minimum share of the annual occupancy or billing days, no fee higher than that for general hospital services may be charged. As a rule, the preceding calendar year counts.

§ 4 No. 16 exempts services closely linked to the support or care of people in physical, cognitive or psychological need. Here too, the provider matters: public-law bodies, or institutions with a contract, an agreement or a recognition under social security law, as letters (b) to (n) list one by one.

The catch-all rule in letter (n) is based on a quota. It exempts institutions where the costs of support or care are paid wholly or mostly by social insurance, social assistance or other named bodies in a minimum share of cases. The exemption always reaches only as far as the recognition, contract or payment covers the service in question.

Patient transport is covered by § 4 No. 17(b). It exempts the carriage of sick and injured people in vehicles specially equipped for that purpose. An ordinary taxi driving a patient to the practice does not meet this condition. On the wording, what decides is how the vehicle is equipped, not the occasion for the journey.

These numbers mostly concern public bodies and institutions whose tax questions deserve advice of their own. For the self-employed in healthcare professions they become relevant when working for a hospital or a care service. It then has to be clarified whether their own service falls under letter (a), because the client's exemption does not automatically pass to its contractors.

No waiver possible

Some exemptions can be opted out of. § 9(1) UStG allows this for certain financial transactions, for property transactions and lettings, for services of condominium owners' associations and for the turnover of blind people, in each case only for supplies to another business for its business. Numbers 14, 16, 21 and 22 are not on this list.

A naturopath therefore cannot voluntarily make her treatments taxable to recover input tax on expensive practice equipment. The exemption is mandatory. It applies as soon as the statutory features are present and ceases as soon as one of them is missing. No application is needed or possible, and a statement to the tax office changes nothing.

This distinguishes these exemptions from the waiver of the small business scheme provided for in § 19(3). Anyone confusing the two plans with a choice that does not exist for medical treatment. The waiver under § 19 only concerns tax exemption as a small business, not the exemption of individual services under § 4.

Invoices and records for exempt services

In certain cases § 14(2) obliges a business to issue an invoice within a fixed period after performing the service, for instance for services to other businesses. This obligation expressly does not apply where the transaction is exempt under § 4 Nos. 8 to 29. Medical treatment and exempt teaching therefore do not trigger it.

Anyone issuing an invoice anyway, as is usual for private patients, should know the particulars of § 14(4). For an exemption, No. 8 replaces the rate and the tax amount with a reference to the fact that an exemption applies to the service. No. 7 requires the consideration to be broken down by tax rate and by individual exemption.

This breakdown matters as soon as an invoice contains both. The dentist from the example shows the exempt treatment and the taxable crown separately. Tax falls only on the taxable part, and only that part appears with a rate and a tax amount. The exempt part carries the reference to the exemption instead.

The records must also reflect the exemption. Under § 22(2) it must be apparent how the consideration is split between taxable transactions, separated by rate, and exempt transactions. A practice with a mixed offer therefore needs separate revenue accounts, or at least a clear flag on every single service it bills.

A business that carries out exclusively exempt transactions is relieved of part of the record-keeping duties. § 22(3) removes the obligations relating to input tax amounts where input tax deduction is excluded. That is a relief, but also a pointer to the price of the exemption, to which the second module is devoted.