German VAT reduction from July 1st 2020 The reduction in sales tax (VAT) from 19% to 16% and 7% to 5% will take effect on July 1, 2020. The reduced VAT rates currently apply until December 31, 2020.
Organizational need for action
Before July 1st, 2020 it must be ensured that programs, master data, contracts etc. correspond to the new VAT rates of 16% and 5% respectively.
For example, will be adjusted or updated:
- Price lists, catalogs, flyers
- Order software
- Online sales - prices
- invoicing programs
- Electronic cash register systems
- accounting software
Execution of sales crucial
The reduced VAT rates apply to all sales executed from July 1st, 2020. When the fee for these sales is received is not important. The only decisive factor is the time of performance.
This is e.g.
- the procurement of power of disposal (delivery of goods),
- in the case of work deliveries (construction work), acceptance by the purchaser,
- in the case of services (advice, transportation), the end of the service,
- for long-term services (rentals, leasing, maintenance contracts) the day on which the service period ends.
The following are not decisive:
- Date of conclusion of the contract
- Order received
- Date of the invoice
- date of payment
The principle of debit taxation = performance of services applies to the registration of sales tax.
For many small and medium-sized companies, however, taxation will / can be based on received fees.
This means that VAT is only to be registered for the pre-registration period in which the fee was collected.
In these cases, please note:
- Receivables arose until June 30, 2020
- Payment received in the period from July 1st, 2020
- The old tax rates of 19% and 7% apply.
This means that in the case of taxation based on received fees, the new tax rates will only be applied to sales whose performance was carried out in the period from 1.7. - December 31, 2020.
Down payments, advance payments
Budget bills or down payments with 19%
If an advance or partial invoice with a 19% VAT ID is issued and the down payment is received before July 1, 2020, and the corresponding services are only rendered after June 30, 2020, the difference between the old and new tax rates will result in a tax overpayment when the service is performed. The down payment of 19% is to be deducted from the final invoice at VAT 16%.
Elsa Neubert purchases a car from Hab-Alles with a contract dated May 28, 2020 for a purchase price of 20,000 euros + statutory sales tax. When the contract was concluded, a down payment of € 5,950 gross was due. The rest of the payment is due in September 2020.
The power of disposal will be obtained in September 2020. The delivery will then have been carried out. The new VAT rate of 16% applies.
The time of performance is decisive for the tax rate. The final invoice can look like this:
Purchase price for cars, net € 20,000
16% VAT 3,200 €
Gross purchase price € 23,200
Down payment € 5,000
19% VAT 950 € - 5,950 €
Final payment € 17,250
Budget bills or down payments with 16%
If down payment invoices are now being issued in June 2020, then open sales tax should not be shown to private customers.
Because if the payment is received in June, the VAT is 19%.
If payment is received in July 2020, VAT will be charged at 16%.
For down payment invoices to customers who are entitled to deduct input tax, it should be clarified whether the customer is still paying in June or only in July 2020. After that, the tax return should be 19% or 16%.
Standing contracts (standing services)
The permanent services can regularly be other services (e.g. rentals, leasing, maintenance, monitoring, ongoing financial and payroll accounting).
Different periods (e.g. 1 month, ½ year, 1 year, 1 calendar year, 5 years) or no time limit are agreed for permanent services.
Execution of a continuous service
In the case of another service, permanent services are carried out on the day on which the agreed service period ends.
Impact on tax rate
The permanent tax rate of 19% applicable until June 30, 2020 is to be applied to permanent services that are rendered before July 1, 2020 and that are subject to sales taxation according to the general tax rate. In the period from 1.7. - 31.12.2020 continuous services are subject to taxation according to the new general tax rate of 16%.
Adjustment of contracts
Contracts for long-term services that are to be regarded as an invoice or as part of an invoice are to be adjusted to the tax rates applicable from 1.7.2020. A contract changed as a result of the reduction in tax rates must contain all the mandatory information required by the VAT law for the purposes of the recipient's input tax deduction.
Execution and billing of partial services
If a continuous service is not invoiced in total for the agreed contract period, but for shorter periods (e.g. quarter, calendar month), partial services in the sense of § 13 sales tax law are available.
This also applies to permanent, long-term benefits insofar as they are billed for certain periods.
Rental of shop premises. Duration of the contract from 1.1.2018 - 31.12.2022.
Monthly rent agreed 3,000 + VAT
June 2020 VAT 19% of € 3,000 = € 570
July 2020 VAT 16% of € 3,000 = € 480
Jan. 2021 VAT 19% of € 3,000 = € 570
The above statements and contributions have been written with the greatest of care and to the best of our knowledge and level of knowledge. It is not a conclusive and complete presentation and does not replace advice in individual cases. No liability can therefore be accepted for the content of this information letter.