First: What is “Umsatzsteuer”?
“Umsatzsteuer” is the value-added tax (VAT) that your business adds to the price of the goods or services it sells to customers.
Example:
You sell a product for a net price of 100 €.
You add 19% VAT (Umsatzsteuer) = 19 €.
→ The customer pays 119 € in total (gross price).
→ You later transfer these 19 € of VAT to the Finanzamt (the tax office).
Second: What is “Vorsteuer”?
“Vorsteuer” is the VAT that your business pays when it purchases goods or services from other businesses. It is the input tax that you can deduct.
Example:
You buy a computer for your business for 1,000 € + 190 € VAT (Umsatzsteuer).
→ You pay 1,190 € in total.
→ The 190 € VAT you paid are recorded as Vorsteuer (input VAT) in your accounts. You can later deduct this amount from the VAT you collected from your customers or claim it back from the tax office.
The practical difference between Umsatzsteuer and Vorsteuer
Comparison:
When is it incurred?
Umsatzsteuer: when you sell a product or service.
Vorsteuer: when you purchase a product or service.
Who pays it initially?
Umsatzsteuer: the customer.
Vorsteuer: you, as the business owner.
Where does it end up?
Umsatzsteuer: you pay it over to the Finanzamt (tax office).
Vorsteuer: you get it back from the Finanzamt or it is offset against the VAT you owe.
Where does it appear on the invoice?
Umsatzsteuer: added on top of the net amount and shown on the sales invoice you issue to your customers.
Vorsteuer: shown on the supplier’s invoice that you receive for your business purchases.
How are they handled in the tax return?
When you submit your Umsatzsteuer-Voranmeldung (advance VAT return, usually monthly or quarterly), you calculate the difference between:
the Umsatzsteuer you collected from your customers, and
the Vorsteuer you paid to your suppliers.
The result is the amount that you either have to pay to the tax office or that you can reclaim from it.
Practical example:
| Item | Amount (€) |
|---|---|
| Umsatzsteuer (collected from customers) | 2,500 |
| Vorsteuer (paid to suppliers) | 1,400 |
| → Amount payable to the tax office | 1,100 |
Important notes:
Only businesses that are not subject to the Kleinunternehmerregelung (small business regulation) are allowed to deduct Vorsteuer (input VAT).
You must keep all original invoices carefully, because claiming input VAT (Vorsteuer deduction) requires a proper VAT invoice that meets the legal requirements.
Key terms:
| German term | Meaning in English |
|---|---|
| Umsatzsteuer | Sales tax / value-added tax (VAT) on your sales |
| Vorsteuer | Input VAT that can be deducted |
| Umsatzsteuer-Voranmeldung | Advance VAT return submitted to the tax office |
| Finanzamt | Local tax office / tax authority |
Editorial note:
The editorial team of this website strives to provide accurate and reliable information by conducting thorough research and consulting multiple sources. However, mistakes may still occur, and some details may change over time or may not always be fully confirmed. The information presented in these articles should therefore be regarded as an initial, non-binding point of reference. For binding, up-to-date and case-specific information, please always contact the competent authorities or qualified professional tax advisers.
