The German government has announced measures to stimulate the economy during the corona crisis. As a part of this so-called ‘Konjuncturpaket’ Germany temporarily lowers its VAT rates from 19% to 16% (high tariff) and from 7% to 5% (low tariff).
On June 29th, the German parliament passed the proposed legislation. German VAT rates will be reduced over a period of time running from 1 July 2020 until 31 December 2020. This legislation is relevant for entrepreneurs that:
- supply goods from Germany or acquire goods in Germany;
- sell goods to German private individuals when the German threshold for distance sales is exceeded;
- ave a fixed establishment in Germany or supply services with a specific taxable place of service, like services relating to hotels, restaurants, passenger transport or immovable property.
Temporary lowering VAT tariffs; which actions should/could entrepreneurs take?
The temporary lowered VAT rates bring several necessary modifications and chances simultaneously. We align these down below:
- ERP systems as well as cash registers and other IT systems have to be adopted.
- Concluded contracts have to be review in terms of pricing.
- Entrepreneurs with a limited right of deduction of input VAT could potentially benefit from the temporarily lowered VAT rates by bringing forward investments and other purchases, to gain maximum advantage of the lower VAT rates.
Please be aware that this only applies to purchases of goods and services taxed with German VAT.
Advice
The new legislation is drafted within such short timeframe that important questions remain unanswered regarding transactions taking place in and around the transition period. Examples of such questions is what to do with an advance payment in June for a supply of goods that is taking place in July or services that were factually provided before the new legislation entered into force, but the invoice is sent in the period where the lower VAT tariffs apply.
For VAT compliance purposes it is crucial that the consequences of the temporary VAT legislation in the context of your business is surveyed and that your administration and invoicing software is adapted so it complies with the new VAT tariffs.
We advice entrepreneurs who file German VAT returns to get in touch with your German VAT advisor. In case you do not have a German advisor yet, please contact our VAT advisors. They will gladly refer you to one of the member firms from Leading Edge Alliance.
