This article serves as an overview – for you as a service provider – of the tax rules and the legal regulations for selling vouchers and issuing discount codes in the Federal Republic of Germany, especially in the field of e-commerce.
At first, I want to separate the discount codes and taxes this article addresses to from the guerrilla coupon platforms that have extensively spread all over the internet during the last years. As this topic was already discussed comprehensively, I only want to give the advise to have a rather critical look at such offers. Such providers usually limit your rights to issue vouchers and discount codes by means of sensitive clauses and, in doing so, create a certain dependency for you.
Therefore, I would like to address this article only to the selling of vouchers and issuing of discount codes directly by the provider without third party platforms, no matter if the vouchers and discount codes are issued via the internet, via print media or directly in a shop.
Two types of vouchers
As an introduction to the tax treatment of vouchers, I would like to emphasize one important benefit, being the most important difference in the taxation of vouchers at the same time. You will note that the time of the tax effectiveness of a voucher is not same for all cases:
„You can either be happy about future or direct revenue.“
The distinction is made by the way how this voucher is used.
- If the voucher refers to a product (1), the tax rate for selling the voucher is known. In this case, the sales tax contained in the amount of the voucher has to be paid to the tax office upon selling the voucher. Example: “Voucher for the purchase of a bike”. In B2C business, the value of the voucher is the gross price, which means for you, when redeeming a voucher, you have to deduct the amount of the voucher from the total amount in order to adjust the final amount including the sales tax.
- If the voucher is undefined and valid for your complete product range, (2), it simply represents an exchange of means of payments, as you change “bank money or cash” against “voucher money”. When selling this voucher, you did not create any sales tax liability towards the tax office as the final proportion of the sales tax is not yet known. At this point, selling the voucher is not considered as revenue. Only when the voucher will be redeemed by the client, the amount becomes valid for tax purposes. The total amount and the included amount of sales tax will not be changed when calculating the price. Upon settlement of the total amount by the client, only a partial amount is settled by means of the currency “voucher” and the residual value by means of bank money or cash.
In both cases mentioned above, that amount of sales tax to be paid to the tax office would be the same, if the same product was purchased. The only difference is that in the first case, (1) the sales tax liability has been created when selling the voucher. In the second case (2) the sales tax liability is created upon selling the product itself. Knowing this, the above mentioned benefit is easy to understand: case 1 is “a direct revenue” and case 2 “a future revenue”.
In this case, I would like to illustrate both cases mentioned above through the example of the purchase of a product in the value of $300 gross. At first, a voucher in the amount of $50 gross was redeemed, its sales tax had been retained in advance as this voucher was valid for a special product only (1). Furthermore, another voucher of $50 gross was redeemed, its sales tax has not yet been retained as this voucher was valid for the whole product range (2):
The initial total of $300 contained $47.90 of 19% sales tax. When selling the voucher (1) you have already retained $7.98 at 19% sales tax, therefore, the amount of the sales tax shown was $29.92. As you did not retain any sales tax when issuing the second voucher (2) the sales tax of $7.98 contained when redeeming the second voucher are included. Therefore the tax office will completely receive the initial amount of $47.90. The residual amount adds up to $200. This amount has to be settled by means of bank money or cash.
Time of maturity of vouchers.
As an issuer of vouchers, you are not free in limiting their validity at your own discretion. At first, please take into account the limitation period of civil law claims – which is usually three years starting with the end of the year the voucher was issued.
In some cases the lifetime of a voucher can be shorter, if the reason for that is legally justified. Such would be the case, if the voucher has been issued for a service or a product that might be subject to a significant increase in their costs in the subsequent year. In any case, you may not drop below the minimum limitation period of one year.
Despite this special rule, your client can claim the amount of the voucher minus a compensation for profit, after expiry of this limitation and until the time of maturity starts. The vouchers mentioned in case 2 of this article, representing an exchange of means of payment, are excluded from this shortened limitation.
Vouchers and shopping carts with two different tax rates
Another situation that occurs repeatedly in some industries is selling one product bundle consisting of two different tax rates. One such example would be a gift hamper consisting of a tea pot at a sales tax rate of 19% as well as tea at a sales tax rate of 7%, at a package price of $20. The tax office usually provides two possibilities to indicate the tax amount. Either you distribute the tax proportion according to the percentage of the ratio of the taxable product based on its value or you pay tax on the total amount at the tax rate which is predominant in percentages in the bundle. Please discuss your decision in detail with your financial agency.
In order to refer to the core topic of this article – the voucher – I want to emphasize the following: Already when selling a voucher specifically issued for the product bundle (1), you have to remember to indicate sales tax according to your chosen taxation rule.
How wonderful a discount code can be
In contrast to vouchers that represent – sooner or later – a form of revenue, discount codes are a mere reduction of the purchase price without any equivalent. Therefore, you do not have to pay any sales tax for this amount of reduction. Discount codes exclusively result in a reduction of the purchase price of a product. Furthermore, they are not subject to any regulations with regard to temporary validity, as long as you do not want to obviously mislead the consumer.
This article provides you with an overview of current applicable tax and legal rules for selling vouchers in Germany. This article does not constitute the provision of legal advice and does not replace it. The information provided serves merely informative purposes. Please discuss your individual approach with your tax consultant and your competent financial agency.
Don’t be discouraged by the regulations for sales of vouchers but apply such an important instrument, for example, to sell effectively products or goods groups, to tie clients to your company, and to achieve higher shopping carts.
Thank you for being interested in that topic and for your related interest in e-commerce in general. If you have any questions or remarks, I look forward to receiving your message to firstname.lastname@example.org