The standard German VAT rate has been temporarily lowered from 19% to 16% between 1 July and 31 December 2020 to help businesses and consumers during the coronavirus pandemic. The reduced VAT rate has also been cut from 7% to 5%. The German Finance Ministry has published a range of implementation guidance to cover the period of the changing Value Added Tax rate.
VAT returns not updated
An updated German VAT return has not been published indicating where to report the taxable supplies at the new temporary 16% and 5% rates. However, the existing monthly return does have some additional boxes which may be adapted. The same applies for the annual VAT return, due in 2021.
Which VAT rate? The time of supply rules.
Normally in Germany, the ‘time of supply’, the date which the VAT is due and so the date to determine the correct VAT rate, is the earlier of: invoice date; payment date; or delivery / completion of the supply. However, during a VAT rate change, the tax point is typically the delivery / completion date of the supply. This is to stop any manipulation of the invoice or payments dates to reduce the VAT payable.
Supplies over the VAT rate change date
Complications to this rule arise when supplies happen over the change dates or where they are ongoing. The Finance Ministry has provided guidance on this:
- Invoicing until 1 July VAT rise
Taxpayers may now, in June, invoice at 16% prior to the implementation date if the supply is to be provided after 1 July 2020. If the VAT is paid prior to the 1 July, the new rate should be used for the customer input VAT deduction (see B2B exception below). The same will apply for the reinstatement of the 19% VAT rate.
- Advance payments
Where payments were made prior to the rate change date, but delivery or performance is post change, then an adjustment will have to be made by a final invoice. (See B2B exception below). This applies to supplies after the VAT rate increase on 31 December 2020, too.
- Partially completed supplies
In the case of partially completed supplies of services over the period of the change, an allocation of the VAT rate reduction must be applied to the provision of the supply – not the final completion date – which may require an final invoice adjustment.
- Continuous supplies
Where services are supplied on an ongoing basis, some proportion of the final invoice may need adjustment if it covers periods with the higher or lower VAT rate. This includes: leases or rentals; power supplies; return of goods; construction; vouchers etc. Where the contract serves of the VAT invoice, e.g. rental agreements, the contract must be adjusted for any VAT change.
- VAT deductions – B2B enjoy 1-month soft-landing
Businesses customers must be careful to ensure their vendors do not use the wrong, higher rate. The German Finance Ministry has indicated that it will permit invoices to be produced and submitted for VAT deduction in July with the 19% VAT rate. This will only apply for supplies made in July 2020.
- Simplified invoice rules
There is an easement on the €150 simplified invoice VAT calculation for the period of the reduction. Qualifying invoices may use 13.74% (standard rate) and 4.76% (reduced rate).
- Import VAT
The due date of the import VAT – which is generally owed in the same amount as VAT rates when goods are imported in Germany – is postponed to the 26th of the second following month.
- VAT contract terms
Where a contract price is quoted gross of VAT (including the VAT), the vendor taxpayer may retain the VAT cut element. For contracts quoting net (excluding the VAT), the vendor must pass on the VAT cut to the customer. For B2C transactions, normally quoted gross, it is the option of the seller whether to pass on VAT cuts to their customers.
A complete list of issues covered is below:
- VAT calculation on simplified invoices
- Continuous service contracts, and the allocation of the VAT change
- Advance or instalment payments made over the implementation date
- Invoicing in the notice period prior the VAT rise; which VAT rate should be applied and how to report
- Partially completed supplies
- Processing deductions on input VAT paid before the implementation date but under the new rate
- Import VAT charges and credits
- Processing refunds of VAT, including dispute management
- Changes to the VAT return
- Special reporting obligations imposed to monitor the effects of the VAT change
- Subsequent additional bills after the implementation date for services concluded prior to the implementation date
- Deposit amounts accepted prior to the implementation but then refunded after the implementation date
- Exchange of goods after the implementation date, which includes a cancellation of the previous delivery and the invoicing of a new delivery
- VAT rate treatment for specific industries, including telecommunications and power
- Treatment of VAT on overnight workers’ fees at the implementation date.