Nineteen or seven percent: the rule, the exception and the list

Lena Brandt runs a bookshop in Freiburg with a small shelf of stationery. In March she sells books for 8,000 € net and pens, cards and calendars for 2,000 € net. The new assistant booked everything at seven percent, reasoning that the book trade is reduced-rated anyway. On the stationery 240 € of VAT is now missing: 380 € is owed, 140 € was declared. The mistake is not in the arithmetic but in the classification. The rate attaches to each individual supply, not to the trade.

One rate as the rule, one as the exception

For the everyday life of a business, the German VAT Act has two rates. § 12(1) UStG provides that the tax on every taxable supply amounts to 19 percent of the taxable amount. That wording makes the standard rate the starting point of every check: whoever cannot establish anything else charges 19 percent.

Paragraph 2 of the same section lowers the tax to seven percent, but only for the supplies it then lists one by one. The list is exhaustive. A supply that appears in no number of paragraph 2 stays at the standard rate, even if it economically resembles a supply that is favoured.

This sets the method for every doubtful case. You do not look for a reason why the standard rate might apply; you check whether a specific number of paragraph 2 covers the supply. If none does, the question is answered. In practice the burden lies with the reduction, not with the standard rate.

Both rates apply to the taxable amount, that is, to a net figure. § 10(1) UStG describes the consideration as everything the supplier receives or is to receive for the supply, but without the VAT legally owed for that supply. The percentage is therefore never laid on the gross amount.

If you only know the gross amount, divide it by 1.19 or by 1.07 to obtain the net amount. The difference is the tax contained in the price. If you instead deduct 19 or 7 percent from the gross amount, you get a tax figure that is too high, because you are charging tax on the tax.

§ 12 has a third rate as well. Paragraph 3 lowers the tax on the supply and installation of certain photovoltaic systems and storage units to zero percent. That special case is covered in the course on photovoltaic systems. Small business owners have a regime of their own, with no tax shown at all, covered in a separate course.

How Annex 2 is built

Most reduced-rate supplies of goods are not in the body of the Act but in an annex. Number 1 of § 12(2) refers, for supplies, imports and intra-Community acquisitions, to the goods described in Annex 2. The annex is titled as the list of goods subject to the reduced rate of tax.

The list has three columns. The first is the serial number, the second the description of the goods, the third the reference to the customs tariff, meaning chapter, heading or subheading. The numbers run up to 55; some have been repealed and remain in the table only as placeholders.

The third column is not decoration. It ties the description to the tariff classification. Where only a chapter is given, the whole chapter is covered. Where the column says „aus Position“, meaning part of a heading, only that part of the heading is favoured which the description in the second column sets out.

In practice, the everyday name of a product is not enough to determine the rate. What matters is whether the product, by its nature, falls under the heading cited. For new or mixed products it pays to settle the classification before choosing the key in the till.

The annex works through three numbers of § 12(2). Number 1 covers supply, import and intra-Community acquisition. Number 2 covers the hiring out of the goods, but excludes stamps as collectors' items under number 49 letter f and the works of art and collectors' pieces of numbers 53 and 54. Number 14 concerns electronic publications.

Food: what the list names and what it excludes

The largest block of the annex concerns foodstuffs. Among others it names meat in number 2, milk, dairy products, eggs and honey in number 4, vegetables in number 10, edible fruit and nuts in number 11, and coffee, tea, maté and spices in number 12.

Then come cereals in number 13, sugar and sugar confectionery in number 29, preparations of cereals, flour, starch or milk as well as bakers' wares in number 31, and miscellaneous food preparations in number 33. Anyone selling bread, rolls or cake is therefore usually working within number 31.

Yet the list is no blanket licence for everything edible. Number 3 expressly excludes ornamental fish, spiny lobsters, lobsters, oysters and snails from fish and crustaceans. Number 28 covers preparations of meat and fish, but not caviar and not prepared or preserved spiny lobsters, lobsters, oysters and snails.

For drinks the list is particularly narrow. Number 34 covers water, but excludes drinking water, spring water and table water put on the market in pre-packages for the consumer, and also medicinal water. A bottle of mineral water sold to a consumer therefore does not benefit from the reduction.

Number 32 covers preparations of vegetables and fruit, excluding fruit and vegetable juices. Number 35 names milk-based mixed drinks, but only where milk or milk products make up at least seventy-five percent of the finished product. A drink with a lower milk content is not covered by that number.

• Bread and rolls: bakers' wares of number 31, reduced rate on the supply
• Fresh vegetables: number 10, reduced rate
• Lobster, fresh or prepared: expressly excluded, standard rate
• Bottled mineral water for the consumer: excluded from number 34, standard rate
• Orange juice: fruit juices are excluded from number 32, standard rate
• Cocoa or milk drink with at least 75 percent milk: number 35, reduced rate

The consequence in retail is that a shop almost always sells at two rates. The baker who also offers bottled water and juices must record those items at 19 percent, while bread and cake stay at 7 percent. The till must therefore know the correct rate per item, not per shop.

These rules concern supplies of goods, meaning sales over the counter or from the shelf. When the same dish is served in a restaurant, there is a service, for which a number of its own applies since 2026. How restaurants are taxed and why drinks stay at the standard rate there is shown in the second module.

Books, newspapers and their electronic form

Number 49 of Annex 2 covers books, newspapers and other products of the printing industry. These include books and brochures, newspapers and periodicals, children's picture books as well as drawing and colouring books for children, sheet music and cartographic products such as maps and globes.

The number has two important exceptions. It excludes products subject to restrictions or labelling duties as media harmful to minors under the Youth Protection Act, and publications that mainly serve advertising purposes, including travel advertising. A catalogue that above all promotes products is therefore not a reduced-rate printed product.

Number 50 adds sound carriers that contain exclusively the recording of a reading of a book, in other words the audiobook on CD or memory card. Stationery, on the other hand, such as pens, blank exercise books or greeting cards, appears in none of these numbers and is taxed at the standard rate.

Digital editions fall under § 12(2) no. 14. It favours making the products of number 49 letters a to e and number 50 available in electronic form, regardless of whether a printed version also exists. The e-book and the digital newspaper are thus taxed exactly like their paper counterparts.

Here too there are limits. Publications consisting wholly or essentially of video content or audible music are not favoured, nor again content harmful to minors or advertising publications. Access to databases containing a large number of electronic books, newspapers or periodicals, on the other hand, is favoured.

Passenger transport: rail without a limit, taxis up to 50 kilometres

§ 12(2) no. 10 favours the carriage of passengers. The wording distinguishes two groups. Letter a covers rail transport, with no condition as to distance or municipality at all. A train ticket is therefore taxed at the reduced rate whatever the length of the journey.

Letter b covers trolleybuses, licensed scheduled services by motor vehicle, taxis, cable cars and other mechanical lifts, licensed scheduled services by ship, and ferries. For this group the reduced rate applies only if the journey stays within one municipality or the distance carried does not exceed 50 kilometres.

For a taxi firm this means: a ride across town is reduced-rated, but a ride to an airport 70 kilometres away in another municipality is not. The limit works as a step, not as an allowance. If the distance exceeds 50 kilometres, the whole ride is subject to the standard rate.

Not mentioned are, for instance, hire cars with driver outside taxi services and coaches not running as licensed scheduled services. The wording contains no reduction for them, so the standard rate applies unless another number steps in. Anyone offering such rides should know which licence they operate under.

Culture, accommodation and the remaining numbers

Number 7 letter a favours admission to theatres, concerts and museums and comparable performances by performing artists. Letter b covers the supply and screening of films bearing a youth protection rating or first shown before 1970, letter c the granting and exercise of copyright, letter d circuses, showmen and zoological gardens.

Number 11 concerns hotels, guest houses and holiday lets. It favours the letting of living and sleeping rooms held ready for the short-term accommodation of guests and the short-term letting of camping pitches. The second sentence of the number draws a line around what does not belong; the second module returns to it with the example of breakfast.

Alongside these are numbers for narrower groups: rearing and keeping livestock in number 3, animal breeding services in number 4, dental technicians in number 6, non-profit bodies outside a commercial business operation in number 8, and the operation of swimming pools and medicinal baths in number 9.

Two rates on the invoice and in the records

Whoever supplies at both rates must show it on the invoice. § 14(4) no. 7 UStG requires the consideration broken down by tax rate, number 8 the applicable rate and the tax amount falling on it. An invoice for books and stationery therefore shows two net amounts with two tax amounts.

The separation continues in the accounts. Under § 22(2) no. 1 UStG, the records must make it visible how the agreed consideration is split across taxable supplies, separated by tax rate. A till that only produces daily totals without separating the rates does not meet that duty.

The advance VAT return also asks for the taxable amounts separated by rate. Whoever separates supplies cleanly during the month only has to carry over two totals at the end. Whoever sorts only at month end laboriously rebuilds what the till should already have known.

The VAT calculator helps with converting between net and gross at both rates. It does not check whether a supply actually qualifies for the reduced rate; that classification remains a question of the wording of § 12(2) and Annex 2, to be settled before the invoice is written.