When you create a product, you specify how and how much the customer pays for the product in the Payment plans tab. At Digistore24 we distinguish between three types of payment plan, which you can select in the Payment plans tab under Number of payments:
- Single payment: The customer pays the price once and the purchase is complete.
- Subscription: The customer pays a fixed amount on a regular basis (e.g., monthly). Subscriptions usually have a minimum term, after which the customer can cancel.
- Limited number of payments: The customer pays a fixed amount on a regular basis (e.g., monthly), but only a certain number of payments, e.g., 12 monthly installments.
The payment type Limited number of payments is taxed in a special way in Germany. Namely, the tax should not be paid exclusively when the payment is received, but when the service is provided. This process may seem complicated, but you shouldn't let that slow you down:
To ensure you can continue to focus fully on growing your business, we will automatically select the correct taxation type for you so that your installment sales are handled correctly for tax purposes.
For this purpose, we divide the payment type Limited number of payments into two subtypes:
- Installments
- Temporary subscriptions
One of these two subtypes is selected for you automatically:
| Product type | Which subtype? |
| Digital – other download products | Installments |
|
Seminar for business customers |
Installments |
| Shipping product | Installments |
|
Book (printed) |
Installments |
| Remote service provided electronically | Installments |
| Food supplements | Temporary subscription |
| In-person service | Installments |
| Seminar/event (for recreation) | Installments |
| Audio book (on CD) | Installments |
| Digital – software | Installments |
|
Digital – member area |
Temporary subscription |
| Digital – e-books | Installments |
| Audio book (download) | Installments |
| Digital – webinar/online workshop/event | Installments |
| Online coaching | Temporary subscription |
In the following, we will explain to you exactly what the difference is.
Installments
The main service is provided at a fixed point in time or over a short period of time. No further services will be provided after this date/period.
Examples
- A high-priced seminar that takes place over a single weekend and can be paid off in several installments.
- A high-priced DVD set that is shipped and can be paid off in several installments. The service is the shipping of the DVD set.
In both cases, no further services are provided, which is why installment payments are used (and not a temporary subscription).
Tax treatment
Tax treatment always relates to the time at which the service is provided.
That is why, in the case of an installment payment, the complete payment amount should be immediately recognized as income and taxed, even though not all partial amounts have been received yet. In other words, as a vendor, you should make advance payments to pay VAT to the tax office.
As such, an invoice for the full payment amount should be issued immediately.
Example
You sell a product that is paid for in installments. The total gross cost of the product is €714 (€600 net + €114 VAT), divided into 12 net monthly payments of €50 each.
Since the service is provided on a fixed date or over a short period of time in the case of an installment payment, the full amount of the payment should be recorded and taxed immediately. Accordingly, the €114 VAT is paid to the tax office directly after the purchase.
What happens to the VAT if a customer does not pay?
For installment payments, the VAT on the entire amount, i.e., not just a single installment payment, is paid to the tax office. However, if a customer fails to pay an installment, the order is written off as uncollectible and the VAT is subsequently refunded for the unpaid installments.
The receivable is written off:
- after 30 days if there is a return
- after 30 days if there are no payments
- otherwise after 180 days
The write-off is shown as a negative amount in the order details under “Transactions”. Alternatively, you can view all your write-offs by going to Reports > Commissions > Receivables and searching for the receivables type “Written-off receivable”.
Temporary subscription
The service is provided over the entire payment period. Regular partial services are invoiced.
Examples
- Annual coaching with monthly coaching sessions. Each coaching session is a partial service, meaning the service is provided over the entire payment period.
- A 6-month online course with lessons published weekly. Each published lesson is a partial service that is provided on a regular basis over the entire period.
Tax treatment
The tax treatment always relates to the time at which the service is provided.
As such, each partial payment is recognized as income and taxed accordingly.
A separate invoice is issued for each payment.
Example
You sell a product as a temporary subscription. The total gross cost of the product is €714 (€600 net + €114 VAT), divided into 12 net monthly payments of €50 each.
Since the service is provided over the entire payment period in the case of a temporary subscription, each partial payment is recognized and taxed individually. Accordingly, €59.50 (€50 net + €9.50 VAT) is paid to the tax office for each monthly payment.
Comparison table: Installments vs. temporary subscription
| Installments | Temporary subscription | |
| When is the service provided? | Over a fixed period or a short period | Over the entire payment period |
| When is VAT paid? | VAT on the total price is paid immediately after the purchase. | VAT on the partial amounts will be deducted after receipt of the partial payment. |
| When is the invoice issued? | An invoice for the full payment amount is issued immediately after the purchase or at the end of the paid period. | A separate invoice will be issued for each partial amount when the partial payment is received. |
Example of processing an installment payment
You have set up an installment payment where €300 is paid off across three monthly installments. As is common with installment payments, the first installment is paid at the time of purchase.
First installment payment on purchase
Transactions:
- Installment: 100 EUR
- Outstanding receivable: 100 EUR
- Outstanding receivable: 100 EUR
As this is an installment payment, the VAT on the total price should be paid immediately after purchase.
Second payment
When a payment is made, an “open receivable” is cleared by a “paid receivable”.
Transactions:
- Payment: 100 EUR
- Outstanding receivable: 100 EUR
- Payment: 100 EUR
- Paid receivable: – 100 EUR
- Outstanding receivable: 100 EUR
VAT is not deducted for this payment, as it was already deducted when the purchase was made.
Third payment
Transactions:
- Payment: 100 EUR
- Outstanding receivable: 100 EUR
- Payment: 100 EUR
- Paid receivable: – 100 EUR
- Outstanding receivable: 100 EUR
- Payment: 100 EUR
- Paid receivable: – 100 EUR
All outstanding receivables have been settled. The order is paid in full.
Writing off unpaid receivables
Unpaid receivables can be written off if it can be reasonably assumed that the customer will not meet their payment obligations.
Let's assume that a customer does not pay the third installment of the above example. In this case, a “Receivable written off” is created:
Third payment fails
- Payment: 100 EUR
- Outstanding receivable: 100 EUR
- Payment: 100 EUR
- Paid receivable: – 100 EUR
- Outstanding receivable: 100 EUR
- Written-off receivable: – 100 EUR
In this case, the tax office refunds the VAT for the third payment.
Please be sure to read the information on legal advice.