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last updated on 30 June 2020 | reading time approx. 4 minutes
On May 28, 2020, the German government passed the coalition's draft law on the implementation of tax relief measures to handle the corona crisis (the so-called "Corona-Steuerhilfegesetz"), which also includes changes in the Value Added Taxation, in this case a VAT rate reduction for the supply of food in place (restaurant services) for a limited period of one year; approval by the German parliament was already given just a few days after the draft, on June 5, 2020.
With even more far-reaching, significant changes in relation to VAT – and here as a big surprise – a corona economic stimulus package was announced by the German government on 3 June 2020. Now, since 12 June 2020 the draft version of the German government to change the VAT Act in that regard is already published. For a limited period of time, this already provides for the reduction of the regular VAT rate from 19 percent to 16 percent and of the reduced VAT rate from 7 percent to 5 percent for supplies of goods and services from 1 July 2020 to 31 December 2020. For a limited period of time, it provides for a reduction of the VAT rate from 19 percent to 16 percent and of the reduced VAT rate from 7 percent to 5 percent for revenues from 1 July 2020 to 31 December 2020. The law has now been passed by the German parliament in an extra session on 29 June 2020. An accompanying letter from the German Federal Ministry of Finance on the decrease of the VAT rate is already available in draft form (published on 15 June 2020). This draft has since been adapted once (here the status of the publication on the website of the BMF of 26 June 2020). In addition to a few minor changes and editorial changes, the non-objection in section 3.12. "Excessive VAT reporting between entrepreneurs" is particularly significant for entrepreneurs within B2B business. The final version of the BMF letter has been published on 30 June 2020.
A reduced VAT rate is to apply for a limited period of one year to so-called restaurant supplies (supplies of prepared food in place), in this case specifically to the supply of food which is served and consumed on the spot, i.e. in restaurants, but also in company-owned canteens and canteens operated by an entrepreneur (employer).
This is based on the implementation of tax aid measures to overcome the corona crisis (so-called "Corona-Steuerhilfegesetz"), which the German parliament (printed matter 290/20) thus approved unchanged with regard to these VAT regulations on 5 June 2020, following the government's draft bill.
The reduction of the VAT rate from currently 19 percent to 7 percent (possibly even to 5 percent as a result of the further Corona economic stimulus measures; see below) on the supply of food (restaurant and catering services) is planned for one year, i.e. for sales that are exported from 1 July 2020 up to and including 30 June 2021. This is intended to provide support primarily for the restaurant and catering area.
The scheme is applicable to all entrepreneurs providing the beneficiary services, such as restaurants and catering businesses, bakeries, butchers, canteens and canteens run by public authorities or non-profit organisations.
The supply of alcoholic/non-alcoholic beverages remains excluded from the VAT rate reduction. Only the proportion of food in the restaurant service is eligible for the VAT reduction, not the proportion of drinks. A total price (e.g. in the case of a "Hamburger menu with drink") is therefore to be divided accordingly, into a share for the favoured meals (7 percent, possibly 5 percent) and a share for beverages (19 percent, possibly 16 percent).
It should be noted that this VAT rate reduction will probably also apply to certain "canteen sales", e.g. the self-operated canteen by an entrepreneur/employer. Also, the employer would probably be burdened with lower costs (reduced by 12 or 14 percentage points) on the input side if, for example, the caterer who runs the canteen for him as an independent leaseholder / operator were to send the employer statements of account regarding his subsidy for meals for his employees ("non-cash benefits to his personnel"), from which the employer cannot claim any input VAT deduction; in this case, he is simply and positively burdened with less non-deductible VAT.
This means that such a reduction is not only at first glance considerable for typical restaurant and catering businesses, but at second glance also for a large number of other entrepreneurs, here on the input and output side, in relation to expenses from input turnovers and to VAT owed and to be paid for restaurant services provided.
As an economic stimulus and crisis management package, a Corona Economic Stimulus, Crisis Management and Future Development Package was announced by the German government on 3 June 2020. To that date and up to now only, the document "Fighting Corona Consequences, Securing Prosperity, Strengthening Sustainability" has been published on 15 pages as a result of the government. On 12 June 2020, the German government published the draft of the Second Act on the Implementation of Tax Aid Measures to overcome the Corona Crisis ("Zweites Corona-Steuerhilfegesetz") after the Federal Cabinet adopted the first comprehensive measures of the economic stimulus package on 12 June 2020, including the temporary reduction of Value Added Tax rates within the second half of 2020. The German parliament approved that law unchanged on 29 June 2020, meaning that the temporary decrease of German VAT rates have now been adopted and will come into force on 1 July 2020.
In order to strengthen domestic demand in Germany, the VAT rate will be reduced from 19 percent to 16 percent and the reduced VAT rate from currently 7 percent to 5 percent for a limited period from July 1, 2020 to December 31, 2020, i.e. in principle for supplies of goods and services that are performed during this period, as well as intra-Community acquisitions and imports in Germany.
This applies to all entrepreneurs in the trade with goods and services who, in Germany during this period generate taxable turnovers in Germany at all standard VAT rates, i.e. currently (still) 19 percent and 7 percent.
On 1 January 2007, the previously applicable, non-reduced VAT rate in Germany was increased from 16 percent to 19 percent. In practice, the then comprehensive letter of the German Federal Tax Authority dated 11 August 2006 (Ref. IV A 5 - S 7210 - 23/06) on the individual VAT accrual issues can now be applied analogously to the reduction of the tax rate during the year. In the meantime, an accompanying letter of the German Federal Ministry of Finance regarding the decrease of the VAT rates is already available in draft version, which contains explanations largely identical in content or transferred to the temporary tax rate reduction and comments on the delimitation issues, e.g. in the case of down payments, permanent services, recurring services, and provides for certain simplifications in practice, e.g. for the repayment of deposits, for (annual) discounts and bonuses, for electricity, gas, heat supplies or telecommunications services. Thus, in the opposite direction of the VAT rate decrease and after the temporary reduction, the increase back to 19 percent and 7 percent respectively is now also provided for in the draft of an accompanying letter "Temporary reduction of the general and reduced VAT rate as of 1 July 2020", which has been adapted in the meantime but not finalized published. A first draft of the letter was published on the BMF website on 12 June 2020. On 23 June 2020, a revised draft was published in the same place. Of particular importance is the non-complaint rule for B2B transactions – i.e. transactions between two entrepreneurs – in July 2020, which has now been included in the second draft. If the invoice shows the VAT rate applicable prior to 1 July 2020 (19 percent instead of 16 percent or 7 percent instead of 5 percent) and this VAT amount has been paid by the supplier, the administration believes that for reasons of simplification it should not be objected to the entrepreneur not correcting the VAT statement in the invoices. For reasons of practicability, a recipient of services entitled to deduct input VAT will also be granted an input VAT deduction based on the VAT rate stated in such incorrect invoices within the meaning of Sec. 14c (1) of the German VAT Act (incorrect tax statement) for services rendered by an entrepreneur after 30 June 2020 and before 1 August 2020. This means that the consequences of an incorrect VAT statement according to Sec. 14c (1) German VAT Act in the B2B sector (VAT liability of the overstated VAT amount by the supplier / invoice issuer and no right for input VAT entitlement for the part of the VAT that is actually not legally due) are suspended for one month; but this is only for one month and not for the entire term of the temporary VAT rates decrease. The final version of the BMF letter also incudes that content.
In practice, in order to ensure that the changeover takes place on the exact date, it is important to regularly deal with questions of delimitation in certain case variants where, for example, recurring services are provided (permanent services, e.g. taxable tenancies, leasing) or transactions are only carried out in the period of the tax rate reduction, but where advance payments for services and related invoices have already been made before, i.e. before 1 July 2020.
In the final version of the letter it is also included and indicated that there will be no new forms for the advance VAT return or annual return for this "phase of low tax rates". The taxable supplies carried out during this period (at both decreased VAT rates) are to be entered approximately in one line, here in line 28 (of the form for year 2020), under "Taxable transactions at other VAT rates". How technically (via which lines) down payments or prepayments at still invoiced 19 percent are to be considered / corrected in the declaration can be taken from the BMF letter.
Important in practice, in order to ensure that the changeover is carried out on the correct key date, are the questions of accrual and deferral in certain case variants, where, for example, recurring services are performed (permanent services, e.g. taxable rental, leasing) or supplies are only made in the period of the VAT rate decrease, but down payments for supplies and the corresponding invoices have already been made before, i.e. before 1 July 2020.
In addition, there is a further proposal for measures, here on German 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.
This provides a liquidity effect for companies in Germany that are debtors of import VAT (e.g. in the case of Incoterm® DAP Delivered At Place, previously used DDU, agreed with the third country supplier). According to the government, it also enables companies in Germany to have a "level playing field" with many other EU member states.
Due to the fact that VAT is levied on supplies of goods and services, every private consumer (non-entrepreneur) pays this tax when consuming in Germany. In principle, therefore, all consumers can benefit from a VAT rate reduction if entrepreneurs take this VAT rate reduction of three or two percentage points into account in their prices and also pass on that reduction to their customers. This is expected to boost the consumption in the country.
If prices are not reduced due to the VAT rate reduction accordingly, entrepreneurs can positively increase their own margins in this respect. Entrepreneurs who are not entitled to deduct input VAT and who purchase goods and services from other entrepreneurs should in any case notice a reduction in their costs on the input side.
As now both measures (Corona-Steuerhilfegesetz and Zweites Corona-Steuerhilfegesetz) are passed by law before 1 July 2020, which is necessary to allow the VAT changes to come into effect from 1 July 2020, this will mean a considerable time bottleneck for companies with regard to VAT and considerable effort to implement all of this in the shortest possible time:
If – as planned and now adopted – both measures (draft Corona-Steuerhilfegesetz and proposal for a Corona Economic Stimulus Package) are passed by law before 1 July 2020, which is necessary to allow the VAT changes to come into effect from 1 July 2020, this will mean a considerable time bottleneck for companies with regard to VAT and considerable effort to implement all of this in the shortest possible time:
Accounting/ERP systems as well as cash register systems, and possibly also the inventory control system, must be adjusted to the new VAT rates accordingly, and invoice layouts must be adapted accordingly. So, that from 1 July 2020 sales can be properly booked and invoiced at the VAT rate applicable at that time. Today, entrepreneurs are generally dependent on the support of IT colleagues who make the corresponding changes in the system. As the Second Corona Tax Assistance Act has been formally adopted now, it should be considered and prepared in parallel. The adjustments are due to a double changeover on 1 July 2020 and back after 31 December 2020. It should be noted that the adjustments do not only relate to the creation of new VAT keys or tax accounts (as a matter of urgency, tax keys currently in place should not simply be overwritten, but new ones should be created for both new VAT rates, e.g. for the outgoing and incoming supplies, for reverse charge transactions and intra-Community acquisitions, including import VAT). The adjustments should also include the review and, if necessary, the changes to the determination logic with regard to the point in time of performance in the automated tax determinations in the ERP system in order to be able to create correct invoices or credit notes as well as self-billing invoices. The many accrual issues for permanent services, rentals, possibly simplifications in contracts and permanent invoices, for example for taxable rentals, rental sales, vouchers, project work, year-end adjustments, annual bonuses and refunds, etc. must be resolved.
It will also be interesting to consider how one could continue to act beyond the "low VAT rate phase" in order to secure the reduced tax rate for services, e.g. by issuing single-purpose vouchers for specific, individually fixed services in the second half of 2020. This needs to be considered in detail from a VAT and economic / sales promotion point of view. It is important to avoid VAT risks that could potentially exist from 1 July 2020 as a result of an incorrect VAT rate statement, insofar as invoicing is still carried out at the old VAT rates, especially at the level of service receiving entrepreneurs who may only claim input VAT in the amount of the legally owed VAT (i.e. in this case, incoming invoices should be carefully checked for the applicable VAT rate at the relevant service date/period).
Coronavirus: What you need to know
Dr. Heidi Friedrich-Vache
Certified Tax Consultant (Germany), VAT Services
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