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Temporary reduction of VAT rate under discussion

The German Government has agreed on a business activity support programme, which consists of 57 measures and contains a volume of EUR 130 billion.

The agreement stipulates, that the VAT rates shall be reduced from 19 % to 16% respectively from 7% to 5 %. The reduced VAT rates shall be applied between July 1, 2020 and December 31, 2020.

Independent from the fact, who will benefit from this measure – either the mass market, if the businesses reduce their prices or the businesses itelf by optimizing their margin – businesses must now start to adjust to the upcoming changes in law.

Necessary adjustments: Besides the implementation of new VAT Codes, businesses must adjust their invoice layouts. Further it is crucial to identiy the correct tax point (date of supply) in order to secure the application of the correct VAT rate. Practical experiences have shown in the past, that changes in VAT rate often challenged the correct VAT treatment of prepayments or price adjustments.


The articel was originally published by Warth & Klein Grant Thornton