German VAT cut implementation rules

The German Finance Ministry has issued guidance on the implementation of the temporary VAT rate cut from 19% to 16% from 1 July until the end of 2020. The reduced VAT rate is also to be cut from 7% to 5%. Restaurant, café and other catering services will enjoy a VAT rate cut from 7% to 5% between 1 July 2020 and 30 June 2021.

The rate change comes into force on 1 July 2020 for all taxable supplies, including intra-community 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 provision of the supply – not the final completion date – which may require an invoice adjustment.

In the case of advance payments or instalments prior to the implementation date, an invoice adjustment is only required for that part of the supply provided after the implementation date.

Tax payers may now 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.

In all cases, it is the time of the provision of the supply that is important; the contract or invoice date has no bearing. Any tax collected prior to 1 July for supplies rendered after the 1 July must be refunded to the customer.

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).

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.

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.

Source Credit – Richard Asquith – (Avarala)