Reduction of VAT rates in Germany between 1 July and 31 December 2020: Clarifications and simplifications at a glance
The German government surprisingly announced to reduce VAT rates for six months from 19% to 16% and 7% to 5%, respectively. This is pleasing consumers. However, it presents entrepreneurs with enormous challenges.
Nearly all trade associations have criticised that the reduction of VAT rates is far too short-term. At the same time, they have called for simplifications - especially in the case of services between companies where the reduction in VAT rates would not have any economic impact.
The BMF has now published a draft letter on the practical implementation of the planned amendment to the law.
However, the BMF draft hardly addresses the criticism and demands for simplification regulations. Rather, the draft contains some ambiguities.
The trade associations can now comment on the draft. It will be interesting to see what further improvements will result. However, the companies hardly have any time left to implement it in their internal processes a good 14 days before it comes into force on 1 July 2020.
The following overview summarises the most important points from the BMF draft regarding VAT rates:
Clarifications
| Advance payments / partial payments / advance invoices | If advance payments, partial payments or advance invoices are invoiced and received before 1 July 2020, but the service is performed after 30 June 2020, the invoice must or may (in this point the draft remains unclear) state the tax rates of 16% and 5% applicable from 1 July 2020. This will avoid later correction. In other words, invoices containing a 19% or 7% VAT statement must be corrected. This means that no general simplification is provided for, e.g. that for services between two entrepreneurs, a further 19% or 7% can be assumed if both act in accordance. In addition, no mention is made of the fact that the amending law will only be published shortly before 1.7.2020 and that there is basically no legal basis for the procedure described. |
| Actual control | For sales executed after June 30, 2020, the tax rates of 16% and 5% applicable from that date are to be applied (Section 27 (1) sentence 2 UStG). Conversely, the previous tax rates of 19% and 7% are applicable if the service is performed before 1 July 2020 - even if the remuneration was not received until after 30 June 2020 |
Further clarifications with regard to specific services
| Deliveries and services | If these are executed after 30 June 2020, the tax rates of 16% and 5% are applicable In the case of partial payments before 1 July 2020, the old tax rates are to be applied if the following conditions are met: · Economically delimitable part of a work delivery or work performance, · Power section must have been accepted or completed before 1 July 2020, · special partial fees are to be paid and · the partial fees are invoiced separately However, this procedure would not make sense, meaning this remark is more interesting for the opposite case. |
| Permanent services | The new tax rates are to be applied if the service is performed after 30 June 2020, i.e. · For other services, on the day on which the agreed service period ends, · For recurring deliveries on the day of each individual delivery If partial payments are provided for (e.g. in the case of quarterly invoicing) and the invoicing period begins before 1 July 2020 but ends after 1 July 2020, the new tax rates of 16% or 5% shall apply. Corresponding invoices for such partial payments may be corrected in this respect before 1 July 2020. The BMF requires that any permanent invoices or contracts that serve as permanent invoices have to be converted, which involves considerable effort. |
| Changes in the assessment bases | For changes occurring after 30 June 2020 and affecting sales made before 1 July 2020, the regular tax rates of 19% and 7% will continue to apply In the case of (discount) vouchers, a basic distinction must be made as to whether the underlying service was performed before 1 July 2020 (then 19% or 7%) or after 30 June 2020 (then 16% or 5%) In the case of annual bonuses, annual refunds and the like, a detailed breakdown must also be provided of the proportion of the refund on sales before 1 July 2020 (then 19% and 7%) which falls after 30 June 2020 (then 16% and 5%) |
| Supply of electricity, gas and heat | If 1 July 2020 falls in a billing period, the new tax rates of 16% and 5% are to be applied for this period This does not apply if the deliveries made before 1 July 2020 are invoiced separately in the invoicing period in question - the old tax rates of 19% and 7% apply to these deliveries |
| Services of commercial agents and commercial brokers | The services of commercial agents are subject to the new tax rate of 16% from 1 July 2020 if the represented entrepreneur has performed the delivery or other service to his customer after 30 June 2020. Services of commercial brokers are subject to the new tax rate of 16% if the contract notes are issued after 30 June 2020. |
| Exchange of goods | If an item acquired before 1 July 2020 is exchanged after that date, the new tax rates of 16% and 5% apply to the replacement item. |
Simplification and non-complaint rules
| Microbills | The value added tax for small amounts for services rendered after 30 June 2020 may be shown in invoices with the slightly rounded percentage of · 13.79% (regular tax rate) · 4.76% (reduced tax rate) |
| Determination of the assessment bases | For revenue generated after 30 June 2020, the total amount of the fees shall be calculated as follows: (regular tax rate): Total gross income recorded / 1.16 (reduced tax rate): Total gross income recorded / 1.05 |
| Changes in the tax bases for transactions with different tax treatment | Subsequent changes in the tax base for transactions carried out before 1 July 2020 shall be allowed to be apportioned between transactions carried out at different rates, exempt and non-taxable transactions. |
| Changes in the assessment bases due to (price reduction) vouchers | If vouchers are redeemed between 1 July 2020 and 31 August 2020 and the service is subject to the standard tax rate, the old tax rate of 19% may continue to be applied. If vouchers are redeemed after August 31, 2020, and if sales are affected that were executed after June 30, 2020, the new tax rate of 16% must be applied. |
| Changes in the assessment bases due to the return of empties to the entrepreneur | If the entrepreneur refunds deposit amounts between 1 July 2020 and 30 September, the old regular tax rate of 19% is to be applied For refunds made between 1 October 2020 and 31 December 2020, the new tax rate of 16% shall apply. |
| Changes in the assessment bases due to annual bonuses etc. | The following procedure is authorised: Determination of the ratio of revenues for the pro rata annual periods before and after the cut-off date of July 1 2020, and allocation of reductions in charges in accordance with this ratio Where some transactions are at reduced rates and some are at regular rates, the ratio shall be calculated either in total or in relation to the period before 1 July 2020 and once after 30 June 2020 An annual refund for the 2020 CY can be taken into account at 50% at 19% and 7% and 50% at 16% and 5%, regardless of when the sales were actually exported Furthermore, no objections are raised if the entrepreneur applies the regular tax rate of 19% without exception |
| Telecommunications services | If 1 July 2020 falls within the accounting period, no objection shall be raised if an additional accounting period is established which ends on 30 June 2020. |
| Supply of electricity, gas and heat | On request, a simplified invoicing procedure should be authorised for undertakings which apply a manual direct collection procedure for their tariff customers. |
| Transport services | If a ticket or season ticket ends on the operating day 30 June 2020, the old tax rate of 19% can be used if the transport service is subject to the regular tax rate. Taxis and car rental companies can already apply the new tax rate of 16% to the income from the night shift of 30 June 2020 as of 1 July 2020, provided an invoice has not been issued at the old tax rate of 19%. |
| Turnover in the hotel and restaurant industry | The new tax rates of 16% and 5% can be applied to revenues generated during the night from 30 June 2020 to 1 July 2020. |
The above rules should apply mutatis mutandis when the VAT rates are increased on 1 January 2021. In addition, the following shall be determined for the change back:
- If partial payments received before 1 January 2021 are subject to actual taxation, the further turnover tax due for these partial payments may be calculated and paid for the advance return period in which the remaining payment is received.
- If the remaining fee is collected in several instalments after 31 December 2020, VAT may be calculated and paid for the pre-notification period in which the last instalment is collected
- The total amounts of the fees are to be calculated using the divisors 1.19 (standard tax rate) and 1.07 (reduced tax rate)
Accompanying facilitations for price quotations
Retailers and service providers were also concerned that all price signs, e.g. in supermarkets, and also sales brochures would now have to be changed. However, the Federal Ministry of Economics and Energy published a letter with simplification rules already on 10 June 2020. According to this letter, retailers and providers of services to consumers can benefit from the exemption for so-called flat-rate discounts. The Price Indication Ordinance provides in principle that the total price including VAT and other price components, as well as the basic price for measurable goods, must be indicated transparently to consumers. However, an exception to this rule is possible under certain conditions. The Federal Ministry considers this exception to be fulfilled in the case of a temporary reduction in VAT if the trade and service providers make the price reduction transparent through advertising, carry out the changeover of the tax rates in the merchandise management system and only correctly indicate the applicable VAT rates on the payment receipts.