Physical Therapists and Massage Therapists: Special Considerations Regarding Sales Tax

So-called medical treatments must be considered separately for VAT purposes. Unfortunately, there is increasing confusion regarding VAT, particularly when it comes to treatments provided by physical therapists and state-certified massage therapists. In this article, as tax advisors in Düsseldorf
and Oberhausen
, we will explain to you—as a self-employed physical therapist or massage therapist—as well as to your clients, which tax-related aspects should be taken into account.

Tax Exemption for Medical Treatments

Physical therapists and state-certified massage therapists help people with preventive care or rehabilitation. Often, but not always, these services are covered by health insurance. If a treatment is not covered by statutory or private health insurance, patients must pay out of pocket (in some cases, treatments are only partially covered, and the patient must pay a copayment). If a treatment is not covered by health insurance, there is sometimes confusion regarding sales tax.

Physical therapists and state-certified massage therapists can provide services tax-free or at a reduced rate if the necessary conditions are met. For a treatment to remain tax-free, it must first qualify as a so-called therapeutic treatment.

“Medical treatments are activities performed for the purpose of preventing, diagnosing, treating, and, as far as possible, curing diseases or health disorders in humans.”
Medical services are therefore only tax-exempt if the activity has a therapeutic goal as its primary focus. In addition, the medical treatment must have been prescribed by a physician or alternative practitioner in order to be billed tax-free.

Formal requirements for tax exemption

As already mentioned, the medical treatment must have been prescribed by a doctor in order to be exempt from sales tax. There is a duty to provide proof here! Both insurance prescriptions and private prescriptions are accepted as medical prescriptions. A “treatment recommendation” from a doctor or alternative practitioner is not sufficient.

If proof cannot be provided, the treatment is subject to tax. Anyone who, as a physical therapist or massage therapist, invokes “medical confidentiality” to avoid providing proof is also subject to tax.

Which services are not eligible for the exemption?

Not every treatment qualifies for a VAT exemption. In particular, wellness programs aimed at improving general well-being are not considered medical treatments and therefore do not qualify. The line between a medical treatment and wellness is often difficult to define. However, it is generally clear that the tax exemption does not apply if a service is not provided with the primary goal of protecting health. Services for prevention and self-help are also not eligible for the exemption. If there is no direct connection to an illness, sales tax must be paid.

What tax rate applies to medical treatments?

If a complete VAT exemption for treatment costs is not possible, a reduced tax rate of 7% may be applied. In this case, it must be determined whether the respective service is among the tax-exempt services listed by law. Therapeutic exercise or therapeutic massages, for example, are subject to the reduced 7% sales tax. A specific therapeutic purpose does not need to be proven in this case!

However, if the services are purely wellness treatments (e.g., Thai massages) or other services intended for fitness training, the standard VAT rate of 19% applies.

Small Business Regulation Also Applies in the Healthcare Sector

As a physical therapist or state-certified massage therapist, it makes sense to explore the possibility of qualifying as a small business owner in addition to the general tax benefits. Especially if your therapeutic practice is operated solely as a “side job,” you may qualify for the small business regulation as an entrepreneur. In such cases, no sales tax is levied!

Here you can find more information on the topic of small business owners. As tax advisors in Düsseldorf, we have summarized everything you need to know.

Examples from Daily Practice

Below, we have summarized a few brief examples for you. Using these everyday situations, we aim to make it easier for you to understand the aspects described above. Please note, however, that there are often variations in individual cases, and therefore professional advice from a tax advisor should always be sought if there are any uncertainties.

Example 1:
A physical therapist provides a back massage service to a private patient with a severe herniated disc. Although the patient has a medical reason for undergoing the treatment, they do not have a doctor’s prescription for the service. The massage service is therefore subject to tax. The tax rate for this treatment is a reduced 7%.

Example 2:
A physical therapist provides a back massage. This time for a patient with public health insurance who also has a severe herniated disc. The patient has a doctor’s prescription. The health insurance plan covers only a portion of the costs. Consequently, the patient must pay a copayment, which, however, remains tax-exempt because it involves a medical treatment with a prescription.

Example 3:
Following Example 2, the patient mentioned there undergoes five additional massages. He does this on the recommendation of the physical therapist and therefore does not have a prescription from a doctor this time. The so-called follow-up treatment must therefore be paid for out of pocket and is not tax-exempt. The service is subject to the reduced tax rate of 7%.

Checking Tax Liability for Treatments Step by Step

It is often difficult to determine exactly what the tax liability is in individual cases. To make it easier for you to check whether a treatment is exempt from sales tax, we have prepared the following diagram. By working through the various steps carefully and step by step, it becomes much easier to determine whether a tax liability exists or not.

Do you still have doubts or are unsure whether a service is VAT-exempt? As tax advisors in Düsseldorf and Oberhausen, we can help you find the correct solution. With our deep industry expertise and years of experience, our team can assist any physical therapist or massage therapist. We look forward to a consultation. Simply contact us to schedule an appointment.