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Tax
05. Oct 2026
Julian Frische

New declaration-based procedure for VAT grouping - Preparations required for the changes from 2029/2030

Far-reaching changes are planned for VAT grouping under the 2026 Annual Tax Act. In future, the legal consequences of a VAT grouping will no longer arise automatically, but instead will require the parent company to make an explicit declaration. This will admittedly provide companies with greater legal certainty, however they will also have to address the new requirements and structuring options at an early stage.

Basic principles of VAT grouping

A VAT group would exist if, based on the overall picture of the actual circumstances, an enterprise is financially, economically and organisationally integrated into the business of a parent company. Such enterprises, as so-called subsidiary companies, together with the parent company are treated as a single company for VAT purposes. Payments between business units located in Germany, as intra-Group sales here, are not taxable and therefore not subject to VAT. According to the present regulations in Section 2(2) no. 2 of the VAT Act (Umsatzsteuergesetz, UStG), the consequences of a VAT group arise automatically once all the integration prerequisites have been satisfied, irrespective of whether or not the VAT group has been initially recognised by the parties involved or the local tax office. This gives rise to considerable legal uncertainty because assessing the integration prerequisites is frequently very complicated, particularly for larger groups of companies. 

Please note

In addition, transformations in the context of restructurings, share transfers or changes of managers can establish or eliminate the prerequisites for a VAT group without the parties involved being immediately aware of this. It is therefore not uncommon for VAT groups to be established or rejected only retrospectively in the course of tax audits; this can entail considerable tax consequences.

Planned changes in the 2026 Annual Tax Act

The draft bill for the 2026 Annual Tax Act now provides for a comprehensive revision of the regulations for VAT grouping. The core element is the introduction of a new Section 2c UStG, which is intended to fundamentally change the existing system. It is true that the prerequisites of financial, economic and organisational integration as such are to remain unchanged. However, the most significant change is that, in the future, the legal consequences of a VAT group will no longer arise automatically once all the integration prerequisites have been satisfied, but instead only via an explicit declaration by the parent company to the competent tax office with effect for the future. This would likewise apply when additional companies are included in an existing VAT group.

Conversely, the parent company will however likewise be able to disband the entire VAT group or terminate the membership of individual subsidiary companies with effect for the future. Moreover, if the integration prerequisites can longer be satisfied, then there would be an obligation to immediately notify the local tax office. So, all in all, the declaration by the parent company constitutes an additional prerequisite on top of the (unchanged) integration prerequisites. According to the current version of the draft legislation, this will also apply to existing VAT groups.

Furthermore, the new Section 2c(2) UStG is intended to be introduced as a specific correction provision for the retroactive unwinding of erroneously assumed VAT groups. The aim is to ensure that the correct tax conclusions can be drawn with respect to all members of the group of companies mentioned in the parent company’s declaration.

Please note

However, to avoid unnecessary bureaucracy, under Section 2c(3) UStG the complicated retroactive unwinding of an erroneously assumed VAT group may be waived if there is no risk that this would result in a loss of tax revenue. For this purpose, it would be necessary for the persons designated as the parent company and subsidiary companies to submit a joint and irrevocable application.

Categorisation of the effects in practice

In the future, companies will obtain greater legal certainty. A VAT group can no longer arise solely because the companies involved satisfy all the integration criteria without this being recognised. Irrespective of the parent company’s declaration, in the future it will also be necessary to check and continuously monitor that the integration prerequisites have been satisfied.

The changes set out in the current draft bill will admittedly only apply from 1.1.2030. However; to allow for an appropriate lead time, the declaration that is required from the VAT group may already be submitted from 1.7.2029.

Therefore, the companies concerned should review their ownership and management structures as well as their service relationships in good time. In particular, it must be determined whether a VAT group is desired at all and, if yes, which companies should be included in this group from 2030. In addition, it must be ensured that, also in the future, changes in ownership structures, of managers or economic ties will also be promptly identified and reported to the local tax office.

Conclusion

The planned declaration procedure would eliminate a significant risk associated with the current system, namely, a VAT group that was unintentional and only retrospectively recognised. The declaration of a VAT group made to the local tax office will however not replace the application of financial, economic and organisational integration prerequisites. In the future, it will therefore also be necessary for companies to carefully check that these have been satisfied. In view of the existence of a declaration option from 2030, the companies concerned should address the new structuring possibilities at an early stage.