Emmerich, Germany

Reduction of German VAT rates from 01 July 2020 to 31 December 2020

By Ingo Prang, KPP Steuerberatungsgesellschaft mbH

One of the most important measures of the COVID-19 economic stimulus package adopted by the German Federal Government is the temporary reduction in VAT rates from 19% to 16% (standard VAT) and from 7% to 5% (reduced VAT) respectively. This measure applies from 01 July 2020 to 31 December 2020. The same applies in a mirror image from 01 January 2021, when these temporary reductions are removed.

Which companies are affected?

All companies and all sectors are affected.

Opportunity

On the input side, provided that net prices have been agreed, the services purchased will become cheaper, in particular for companies that are not/partially entitled to deduct VAT.

On the output side, in principle the companies (especially applicable in cases where the gross prices are agreed – e.g. B2C transactions) are not obliged to give the reduction benefit to the customer.

Risk

In principle, the time of service performance is still the decisive factor, not the invoice date. This general rule is in principle for all applicable transactions, e.g. (net) pricing agreements entered into prior to 01 July 2020, but shipment made after 01 July 2020, year-end TP adjustment, rental/leasing/ maintenance services, etc. Due to that, in particular, a risk arises from a wrong tax statement in the invoice or similar documents which are seen as invoice (e.g. contracts). The issuer of the invoice will have to pay the VAT in total, without the permission to deduct the VAT correspondingly.

Challenge

Each affected company has to ensure the correct recording and correct declaration of the transactions. Please consider that not only the invoice or the VAT declaration will change. In addition and especially the change of the VAT rate will have an impact on ERP/accounting systems, cash register systems, pricing software, automatic invoicing verification systems, etc.

Additional

The reduction is also applicable for import VAT


Ingo Prang

Ingo Prang

GGI member firm
KPP Steuerberatungsgesellschaft mbH
Tax
Kleve, Emmerich, Weeze, Germany
T: +49 2821 72 04 0
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W: kpp.de

In the past 20 years, KPP Steuerberatungsgesellschaft mbH has become one of the leading tax consultancy offices in the Lower Rhine region of Germany. The company offers taxation, legal and consulting services. As KPP is close to the Netherlands, the company has acquired considerable expertise in advising on cross-border matters, especially for foreign companies investing in Germany, e.g. real estate.

Ingo Prang is a German-certified Tax Advisor and Partner of KPP. In addition, he lectures on Comparative Business Taxation at the Rhine-Waal University of Applied Sciences


Published: Indirect Taxes Newsletter, No. 11 Autumn 2020 l Photo: Tobias Arhelger - stock.adobe.com

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