Applying for Cash Basis VAT (Ist-Versteuerung): Application Process, Requirements, and Deadlines

Applying for Cash Basis VAT (Ist-Versteuerung) in Germany

Ist-Versteuerung (cash basis VAT) is one of the most valuable tax optimization tools available to small and medium-sized businesses in Germany. Unlike accrual-based VAT (Soll-Versteuerung), which requires you to pay VAT on invoiced amounts regardless of whether you've been paid, Ist-Versteuerung only triggers VAT obligations when payment is actually received. This can unlock significant liquidity advantages.

However, applying for Ist-Versteuerung requires meeting specific legal requirements and following the correct administrative process. This guide walks you through every step: when to apply, what qualifications are necessary, how to draft your application, and what to expect from the tax office.

When Can You Apply for Ist-Versteuerung?

There are two critical moments when you can apply for Ist-Versteuerung:

• For existing businesses: If your business is already registered under accrual VAT, you can request a change to cash basis VAT at any time using a formless letter (formloser Antrag) to your local tax office.

For new businesses, it's strongly recommended to elect Ist-Versteuerung during the initial registration if you meet the eligibility requirements. This avoids the administrative burden of switching later.

Legal Requirements Under §20 UStG

Not all businesses are eligible for Ist-Versteuerung. Section 20 of the German VAT Act (Umsatzsteuergesetz) establishes strict eligibility criteria:

• Special case — Freiberufler exemption: Independent professionals and freelancers are exempt from the revenue limit entirely. They can use Ist-Versteuerung regardless of how much they earn.

Most small service-based businesses, consulting firms, freelancers, tradespeople, and agricultural businesses meet these criteria. Limited liability companies (GmbH) and corporations typically do not qualify unless they operate as freelance professionals.

How to Apply: The Formless Letter

For businesses not applying at startup, you'll need to submit a formless letter (formloser Antrag) to your responsible tax office. This doesn't require any special form — a simple professional letter is sufficient. Here's what your application letter should include:

• Your signature and date

The letter can be sent by post or email (if your tax office accepts email submissions). Here's a template (Musterbrief):

[Your Name]\n[Your Address]\n[Tax Number]\n\n[City and Date]\n\nTax Office [City]\n\nSubject: Application for Cash Basis VAT (Ist-Versteuerung)\n\nDear Sir/Madam,\n\nI hereby request the election of cash basis VAT (Ist-Versteuerung) for my business effective [date or 'immediately']. My business currently operates under accrual VAT (Soll-Versteuerung).\n\nI confirm that I meet the eligibility requirements under §20 UStG:\n- My total business revenue in [previous year] was €[amount], which does not exceed €800,000\n- My business [describe: trading, freelance services, agricultural, etc.]\n- I am not subject to mandatory bookkeeping requirements\n\nPlease process this election and confirm receipt.\n\nYours faithfully,\n[Your Signature]

Finding the Correct Tax Office Address

Send your application to the tax office (Finanzamt) responsible for your business address. You can find the correct office via the official BZSt (Bundeszentralamt fuer Steuern) finder tool or your tax number documentation.

Processing Time and Confirmation

After submitting your application, the tax office typically processes it within 2-4 weeks. You should receive written confirmation (Bestaetigung) that your election has been approved. This confirmation is important — keep it with your business records.

The effective date of your Ist-Versteuerung election is crucial. If you don't specify a date, it usually takes effect from the month following approval. For new businesses, it typically takes effect from the business registration date.

What Happens If Your Application Is Rejected

Your application may be rejected if:

• The application is incomplete or illegible.

If rejected, the tax office must provide written explanation of the reason. You can then address the issue (if possible) and reapply.

Can You Backdate Your Application?

German tax law generally does not permit retroactive election of Ist-Versteuerung for periods already closed. However, there's an important exception: for newly registered businesses, you can elect Ist-Versteuerung effective from your business registration date, even if you didn't request it during initial registration. This retroactive election must typically be made within a reasonable timeframe (usually within the first year of operation).

For existing businesses that were already operating under accrual VAT, changes to cash basis VAT generally take effect from the month following approval, not retroactively.

Timeline for New vs. Existing Businesses

Common Mistakes in Applications

To ensure your application is accepted quickly, avoid these common mistakes:

• Assuming the tax office received the application — follow up if you don't hear back within 4-5 weeks.

Revocation: Can the Tax Office Withdraw Your Ist-Versteuerung Status?

Yes. The tax office can revoke your Ist-Versteuerung election if your circumstances change significantly. The most common scenario is exceeding the €800,000 revenue threshold. If your revenue in year N exceeds €800,000, your Ist-Versteuerung status ends, and you're required to switch back to accrual VAT starting the following year.

The tax office may issue a notice (Aufhebungsbescheid) formally ending your election. You don't need to do anything — the switch is automatic. However, it's important to be aware of this transition to avoid compliance issues.

Next Steps After Approval

Once your Ist-Versteuerung application is approved, you should:

• Monitor your revenue — if approaching €800,000, prepare for potential revocation.

Related Resources

To deepen your understanding of Ist-Versteuerung and how it affects your business, explore these related articles:

• Switching from Soll to Ist-Versteuerung: A Step-by-Step Guide — Practical instructions for businesses already operating under accrual VAT.

Applying for Ist-Versteuerung is straightforward once you understand the requirements and process. For most small businesses and freelancers in Germany, cash basis VAT can significantly improve cash flow and reduce administrative burden. If you meet the eligibility criteria, it's worth pursuing this election as soon as possible.