Actual taxation (Istversteuerung) vs target taxation (Sollversteuerung)

Learn about the different ways of declaring your VAT to the Finanzamt

As a self-employed professional, you will need to decide on how to declare your value-added tax (VAT), unless your revenue is below a certain the threshold and you decide to make use of the small business regulation.

What is target taxation?

Target taxation is also known as Sollversteuerung.

This means that you have to pay your VAT (in your advance and annual VAT reports) based on when you have provided the services or goods – regardless of whether your customer pays the invoice immediately or perhaps months later.

What is actual taxation?

Actual taxation is also known as Istversteuerung.
This means that you have to pay your VAT (in your advance and annual VAT reports) based on when you have received the payment from your client – not when the service or goods were provided.

How do I know what to choose?

Actual taxation is often a great relief for self-employed people as they do not have any liquidity disadvantages here.
Freelancers are always allowed to opt for actual taxation, whereas sole-traders can only choose this simplification if their turnover was less than 600'000€ per year.

Sorted tax guides are provided without liability and do not replace a tax advisor.
To get an accurate answer for your specific case, please consult a tax advisor.
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