What is a sales tax audit

The equivalent of a sales tax audit is a VAT (Value Added Tax) audit, as the country primarily relies on VAT rather than a sales tax system. The tax office, or Finanzamt, conducts these audits to ensure businesses comply with VAT regulations, accurately report transactions, and pay the correct amount of VAT.

Audit Scope and Objectives

The VAT audit focuses on verifying that:

• The VAT returns filed by the business are accurate.
• The appropriate VAT rates are applied to goods and services.
• VAT on sales (output tax) and purchases (input tax) are correctly accounted for.
• VAT exemptions and special schemes are correctly applied where relevant.
• The business complies with documentation and reporting requirements.

Documentation Requirements

To prepare for a VAT audit, ensure the following records are complete and organised:

• Invoices: All sales and purchase invoices must be retained and should include required details such as date, supplier or customer name, description of goods/services, VAT amount, and total amount.
• VAT Returns: Keep copies of all submitted VAT returns, which are typically filed monthly or quarterly.
• Books and Accounts: Maintain comprehensive accounting records, including general ledgers, accounts payable/receivable, and cash books.
• Contracts and Agreements: Retain contracts, especially those that affect VAT treatment, such as international sales or services.
• Proof of Exports: For VAT-exempt exports, proper documentation proving the goods left the EU is essential.

Key Areas of Focus

During the audit, the tax office may focus on several key areas:

• Application of VAT Rates: Ensure the correct VAT rates are applied. There has standard, reduced, and zero rates.
• Intra-EU and International Transactions: Proper handling of VAT on intra-EU supplies, imports, and exports is crucial. This includes compliance with the reverse charge mechanism.
• Input VAT Deductions: Verify that input VAT claimed on purchases is correctly documented and corresponds to business expenses.
• VAT on Imports and Exports: Ensure correct treatment of VAT on cross-border transactions, including intra-EU supplies and exports.
• VAT Exemptions and Special Schemes: Correct application of VAT exemptions (e.g., for medical services, education) and special schemes like the margin scheme for travel agents or second-hand goods.