Update - Temporal Reduction of German VAT Rates - Details
Aktualisiert: 1. Juli 2020
Hello and welcome,
The general German VAT rate will be temporarily lowered from 19% to 16%, the reduced rate from 7% to 5%. The lowered rates will apply from July to December 2020.
Decisive for the application of the lowered rate will be the date when the supply takes place
These dates are:
In the case of deliveries with movement of goods when the goods are sent or collected.
In the case of deliveries without movement of goods when the goods are made available to the customer.
In the case of services, the completion of the service.
In the case of supply and install contracts, generally the completion.
When a supply can be separated into economical distinct parts, a distinction may be made between partial supplies rendered before and after the transition date.
In the case of continuous supplies, e.g. rental services the supply takes place on the day on which the agreed service period ends, e.g. the end of the month in the case of monthly rent and in the case of supply of goods like electricity, the day when the meter was read.
Supply after the transition date
A customer orders a product (standard VAT rate) on 26.06.2020, payment is received on 27.06.2020, the seller ships the goods on 01.07.2020.
The lowered standard tax rate of 16% applies since the delivery is carried out on 01.07. Since the payment was made in June, the sale must be reported in the VAT return for June 2020.
Supply before the transition date
A customer orders a product (standard tax rate) on 26.06.2020. The seller ships the goods in June. Payment will be made on 01.07.2020.
The supply is subject to the 19% VAT rate because the sale took place in June.
In the case of taxation according to remuneration agreed upon (usually case), the delivery has to be declared in the VAT return for June.
In the case of taxation on the payment of remuneration received (cash accounting scheme), the supply has to be included in the VAT return for July.
Reporting of the supplies subject to the lowered rates
The supplies subject to the lowered rate have to be included on line 28 of the monthly or quarterly VAT return and on line 35 for intra community acquisitions. In the annual return the supplies have to be included on line 45 and the intra community acquisitions on line 84.
Invoices issued with the wrong VAT rate
Should an invoice have been issued with the wrong VAT rate, the situation is as follows:
Excessive VAT in an invoice, e.g. 19% for a delivery in August 2020
The seller owes the invoiced VAT. However, if the buyer is entitled to the deduction of input VAT, only a deduction in the amount of 16% is permitted.
Based on the new draft (as of 23rd of June 2020) of the notice by the Federal Ministry of Finance the tax authorities will not object if in case of B2B sales invoices for supplies made in July 2020 include the old (technically wrong) higher VAT rates of 19% or 7%. The recipient is entitled to deduct the full amount as input VAT (if the recipient is generally entitled to do so).
VAT included in an invoice is too low, e.g. 16% when invoicing in August for a service performed in May 2020
The seller must pay the higher VAT. However, the recipient of the invoice can only claim the invoiced VAT.
In both cases, however, the invoices can be corrected.
Even based on these simple examples, it is evident that the temporal reduction of the VAT rates will lead to considerable additional work and problems in its implementation.