Cash vs accrual VAT in Germany: what is the difference between Ist and Soll taxation?

The essentials in brief

• Default: tax is calculated on agreed consideration, the Soll basis (section 16 (1) sentence 1 UStG).
• Ist taxation: tax is calculated on consideration received. The tax office may allow this on application (section 20 UStG).
• When the tax arises: Soll, at the end of the return period of the supply. Ist, at the end of the return period in which the money arrives (section 13 (1) no. 1 UStG).
• Previous-year turnover: one of the conditions names at most 800,000 euros (as of October 2026, section 20 sentence 1 no. 1 UStG).
• Liberal professions: if you earn turnover as a freelancer in a liberal profession, you can apply for those turnovers without the turnover limit (section 20 sentence 1 no. 3 UStG).
• Switching: turnover must not be recorded twice or left untaxed (section 20 sentence 3 UStG).

Soll taxation: tax on agreed consideration

Without an application, Soll taxation applies: tax is calculated on agreed consideration unless section 20 UStG applies (section 16 (1) sentence 1 UStG). What counts is when you perform the supply or service. The tax arises at the end of the return period in which it was performed (section 13 (1) no. 1 letter a UStG). Whether the customer has paid yet does not matter. So you may have to pay VAT to the tax office before you have received the money.

Prepayments are an exception: if you receive money before you have performed, the tax arises to that extent at the end of the return period in which the money arrives (section 13 (1) no. 1 letter a UStG).

Ist taxation: tax on consideration received

Under Ist taxation you calculate the tax on the consideration received. It arises at the end of the return period in which you received the payment (section 13 (1) no. 1 letter b UStG). In practice the VAT goes into your return only once the payment has arrived. That helps your cash flow if customers pay late.

Ist taxation changes only when the tax on your sales arises. The conditions for deducting input VAT are in section 15 UStG; among other things you need an invoice issued under sections 14 and 14a UStG. More: input VAT deduction: conditions and exclusions.

Example: same invoice, two points in time

You perform a service in March and invoice 1,000 euros net plus 190 euros VAT (19 percent). The customer pays only in May.

The example is an illustration; in a real case the dates of performance and payment decide. How the return works is in filing a VAT return online.

Who can apply for Ist taxation?

The tax office may allow, on application, that you calculate the tax on consideration received if one of these conditions is met (section 20 sentence 1 UStG):

• Turnover limit: your total turnover (section 19 (2) UStG) in the previous calendar year was not more than 800,000 euros.
• Exemption from bookkeeping duty: you are exempt under section 148 of the Fiscal Code (AO) from keeping books and making annual closings based on inventories.
• Liberal profession: you earn turnover from an activity as a member of a liberal profession within the meaning of section 18 (1) no. 1 EStG.
• Legal entity under public law: under the conditions of section 20 sentence 1 no. 4 UStG.

The 800,000 euros is the amount in the current text of the law (as of October 2026). Earlier versions named a different amount, so do not rely on older articles.

Switching between Soll and Ist

If you change the way you calculate the tax, turnover must not be recorded twice or remain untaxed (section 20 sentence 3 UStG). In practice: an invoice you already taxed on the Soll basis and that is paid only after the switch must not be taxed a second time, and services you performed before the switch must not slip through. Agree the timing of the switch with your tax office or tax adviser.

Records under Ist taxation

You must record the consideration your turnover is made of. Under Ist taxation the consideration received replaces the agreed consideration (section 22 (2) no. 1 UStG). So for every invoice you also need the date the payment arrived.

Small businesses: where does the method come in?

The turnover of small businesses is exempt under section 19 (1) UStG, and they usually file no advance return (more: advance VAT return for small businesses). For the limit test too, received turnover counts: total turnover is the sum of taxable turnover calculated on consideration received (section 19 (2) UStG).

Common mistakes

• Simply applying Ist taxation without applying for it. It applies only if the tax office has allowed it on application (section 20 UStG).
• Mixing up payment date and performance date. Under Soll the performance counts, under Ist the money.
• Forgetting prepayments. Even under Soll the tax on prepayments arises when the money arrives.
• Not keeping the payment date. Under Ist it is the basis of your records (section 22 (2) no. 1 UStG).
• Recording turnover twice or not at all when switching. The law forbids both (section 20 sentence 3 UStG).

How it works with VAT GPT

Once you know your method, the VAT return takes three steps:

1. Upload files: your Amazon or eBay CSV reports and your invoices. The AI reads amounts, countries and tax rates.
2. Check the result: VAT GPT breaks down the VAT for Germany and the EU (OSS) and prepares the advance return, monthly or quarterly. You check and confirm.
3. Send: with VAT GPT Pro via ELSTER directly to the tax office.

Everything is in one place: VAT return, annual VAT return, OSS return, EÜR, trade tax and income tax return. With Go you use all Pro features free of charge for 30 days. Get to know VAT GPT or create an account right away.

What VAT GPT does not do

• VAT GPT is not tax advice, for example on whether Ist taxation makes sense for you or when to switch.
• The AI reads amounts, countries and tax rates; you check and confirm the result.

What does VAT GPT cost?

Free (basic features, free of charge), Go (30 days free with all Pro features), Pro €49 per month or €444 per year, each including VAT.

Frequently asked questions

What is the difference between Soll and Ist taxation? Under Soll the tax arises with the performance, under Ist with the receipt of payment (section 13 (1) no. 1 UStG).

Which method applies without an application? Soll taxation (section 16 (1) sentence 1 UStG).

Up to what turnover can I apply for Ist taxation? One condition is total turnover of at most 800,000 euros in the previous year (as of October 2026, section 20 sentence 1 no. 1 UStG). There are other cases as well, for example for freelancers.

Does the tax office decide on the application? Yes, it may allow it on application (section 20 sentence 1 UStG).

Does Ist taxation change input VAT deduction? Section 20 UStG governs how the tax on your sales is calculated. Input VAT deduction follows section 15 UStG.

Do I record anything different under Ist taxation? Yes: the consideration received replaces the agreed consideration (section 22 (2) no. 1 UStG).

Further reading

• File a VAT return online in Germany
• Advance VAT return for small businesses in Germany
• Input VAT deduction: conditions and exclusions
• VAT return deadlines in Germany 2026 and 2027

Not tax advice: the content does not replace individual advice.

Sources

• Section 16 UStG (in German)
• Section 13 UStG (in German)
• Section 20 UStG (in German)
• Section 22 UStG (in German)
• Section 15 UStG (in German)
• Section 19 UStG (in German)