Tax tip: The cake tax is coming

Many schools and daycare centres hold an open day at the start of the Easter holidays: Parents and children often agree to sell coffee and cakes to visitors. From 1 January 2025, however, this popular source of income may be subject to VAT.

The reason for this is the change in VAT taxation for local authorities from 2025. While the public sector was only considered an entrepreneur to a limited extent under the previous legal situation, the introduction of Section 2b of the German Value Added Tax Act (UStG) means that in future it will be treated comprehensively as an entrepreneur competing with the private sector. According to these principles, the sale of cakes to schools and daycare centres could therefore become subject to VAT if the schools or municipal kindergarten act as a seller in the same way as a bakery. If the school or municipal daycare centre itself acts as the organiser, the proceeds are generally attributable to the local authority as the so-called "Sachaufwandsträger".

If the sale is only aimed at a limited group (e.g. children, teachers and their relatives), there is no participation in the market and therefore no entrepreneurial activity. The opposite is the case if the sale is aimed at the general public (e.g. sale at the weekly market). In this case, the cake tax is due.

If a sale is made to the public, the formation of a student company under civil law (GbR) or a support association can be a solution to avoid operating in the name of the school or daycare centre. This is because GbRs and support associations can both utilise the small business regulation (Section 19 UStG). According to this, no VAT is charged if the turnover plus the tax due on it did not exceed EUR 22,000 in the previous calendar year and is not expected to exceed EUR 50,000 in the current calendar year. As a rule, this should not be the case for cake sales.