The German legislator has recently published a draft law reducing the German VAT rates for the second half of 2020 in order to cope with the consequences of the Covid-19 pandemic. According to the draft law, the standard VAT rate will be reduced from 19% to 16% and the reduced VAT rate from 7% to 5% in the period 1 July to 31 December 2020.
The Federal Ministry of Finance (BMF) has already published a draft decree dated 11 June 2020 on the temporary reduction and (re)increase of VAT rates. To date, it is not yet fully clear when a final version of the decree will be published. In many cases, the draft of the decree resembles in detail the BMF decree of 11 August 2006, which was issued at the time of the last standard VAT rate increase (on 1 January 2007) from 16% to 19%.
According to the draft decree, the tax point will be decisive for determining the applicable VAT rate. If a supply is performed before 1 July 2020 or after 31 December 2020, a VAT rate of 19% or 7% will apply. In the second half of 2020, however, a VAT rate of 16% or 5% applies. Please note that the VAT rate changes also affect the calculation of import VAT. Among other things, the draft decree also deals with cases of advance and down payments collected before 1 July, whilst the supply will be rendered after that date. The draft decree also contains regulations on small amount invoices and tickets as well as transitional regulations e.g. for partial services, for the reduction of the tax base and for certain matters such as permanent services, annual rebates, redemption of vouchers, transport services and services in the hotel and restaurant industry.
It appears that the current draft decree presently contains some drafting errors of a substantive nature. This is not the only reason why the draft of the decree should be treated with caution – it is the final version only that will be decisive in the end.
The draft of the BMF decree can be found on the BMF website (in German only): https://www.bundesfinanzministerium.de/Content/DE/Downloads/BMF_Schreiben/Steuerarten/Umsatzsteuer/2020-06-12-befristete-Senkung-umsatzsteuer-juli-2020.html
We will hold a webcast on Wednesday, 24 June 2020 12.30 pm to 2 pm German time discussing the practical implementation of the VAT rate reduction. Further information and online registration are available here: https://www.pwc-events.com/vat-reduction
In addition, we have developed a questionnaire to guide you through the various special regulations you may have to take into account with respect to the temporary VAT rate change. This questionnaire enables you to easily identify possible pitfalls and can be used as a checklist to cover as many relevant areas as possible. You can access our questionnaire, which is available in German and English, via these links: