Federal government decides to reduce VAT as of July 1st, 2020 and to extend the due date of the import VAT

The coalition parties of CDU/CSU and SPD agreed on an economic stimulus package on June 3, 2020 to combat the economic consequences of the corona pandemic. The planned changes should now go through the legislative process as quickly as possible.

An equally essential and surprising part of this economic stimulus package is the temporary reduction of VAT rates in order to strengthen domestic demand in Germany. It is planned to reduce the standard VAT rate from 19 % to 16 % and the reduced VAT rate from 7 % to 5 % in the period from July 1st, 2020 to December 31, 2020. These planned VAT rates are within the minimum levels of 15 % and 5 % regulated by the EU, which means that no EU approval is required for the planned change. This change will also have a positive effect on gastronomy sales, which will again benefit. Only recently, for example, a reduction in the VAT rate for restaurant and catering services (excluding beverages) to the reduced tax rate from July 1, 2020 to June 30, 2021 was initiated with the draft bill for the Corona Tax Assistance Act (previously 7%, then 5%).

As a result of these temporary changes in VAT law, companies can expect considerable changes in their processes, ERP systems and invoicing. It must be avoided that non-deductible VAT pursuant to sec. 14c UStG is incurred and that a correct changeover is carried out on the exact reporting date. This requires a good approach and planning so that the need for conversion does not "undo" the tax advantage.

This applies both to the forthcoming reduction in VAT and the expected increase respectively reduction to the currently still applicable VAT rates at the end of the measure. From the company's point of view, these points in time are particularly neuralgic because no transition phase is planned and for this reason it can be expected that they will be looked at more closely in future external audits.

In addition, the due date of the import VAT is to be postponed to the 26th of the second following month if a deferment of payment account is used. This gives companies a liquidity effect and enables companies in Germany to maintain a "level playing field" with many of our European neighbours.

We would be happy to assist you in identifying and implementing the necessary changes in your individual case - please contact us!

We will keep you informed about further decisions in the ongoing legislative process.

You can find the key points of the economic stimulus package at
https://www.bundesfinanzministerium.de/Content/EN/Standardartikel/Topics/Public-Finances/Articles/2020-06-04-fiscal-package.html