Pay VAT when your customer actually pays you, or when you issue the invoice? Most freelancers and small businesses qualify for the cash-flow-friendly option.
Last updated: June 2026
Under Soll-Versteuerung (the default "target" or accrual method), you owe VAT to the Finanzamt based on when you issue an invoice, regardless of whether your customer has actually paid you yet. Under Ist-Versteuerung (the "actual" or cash method), you only owe VAT once you’ve actually received payment.
Both methods result in the same total VAT paid over the life of a transaction — the difference is purely about timing, which matters significantly for cash flow if there’s a gap between invoicing and getting paid.
You can generally apply for Ist-Versteuerung if your previous year’s turnover was under €800,000, or if you’re a Freiberufler regardless of turnover (Freiberufler are not required to keep double-entry books, which is the underlying eligibility test), or in certain other qualifying circumstances. Most freelancers and small businesses qualify comfortably.
Ist-Versteuerung is generally the more favourable choice for freelancers and small businesses, since you never owe VAT to the Finanzamt on an invoice a client hasn’t paid yet — avoiding the situation where you’re out of pocket for VAT on unpaid work. You must apply for this treatment with your Finanzamt; it isn’t automatic, so freelancers who don’t explicitly request it may default to Soll-Versteuerung.
No, you need to apply for it with your Finanzamt — it isn’t automatically applied even though most Freiberufler are eligible.
No, it only changes the timing of when VAT becomes due — not the total amount owed over the life of a transaction.
Yes, subject to meeting eligibility requirements and applying to your Finanzamt, though there are specific transitional considerations to avoid double-counting.
You generally lose eligibility for Ist-Versteuerung based on turnover alone, though the Freiberufler exception may still apply regardless of turnover.
Not necessarily — VAT and income tax accounting method choices can be handled separately, though many freelancers keep them consistent for simplicity.
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