Clarification on individual questions regarding the temporary reduction of VAT to 5%

In an information letter (GZ 2020-0.457.789 dated 20.07.2020), the Federal Ministry of Finance (BMF) answered further detailed questions on the temporary introduction of the reduced VAT rate of 5% from 1 July 2020 in the restaurant, hotel, cultural and publication sectors.

In addition to our article of July 1, 2020, we would therefore like to draw your attention to selected issues and their assessment for VAT purposes by the Federal Ministry of Finance.

1. Daily allowance and overnight stay

In the case of travel expenses for business trips in the sense of § 13 UStG, which take place between 1.7. and 31.12.2020, the input tax deduction from expenses for meals and overnight stays is to be carried out unchanged at the reduced VAT rate of 10%. The input tax deduction is therefore not reduced to 5%.

Example 1:

With a daily rate of EUR 26.40 (= gross amount) for domestic trips, the deductible input tax amounts to EUR 2.40.

Example 2:

In case of expenses for overnight stays (including breakfast) without proof of actual costs, the deductible input tax iHv 10% is to be deducted from the income tax relevant gross lump sum of EUR 15 per night. Accordingly, the entrepreneur can still deduct input tax of EUR 1.36 per night.

2. Invoice splitting for accommodation

In the case of overnight guests who arrive by the end of June 2020 and do not depart until after 1 July 2020, a breakdown into different tax rates is to be made when invoicing. This means that overnight stays until 1 July are taxed at 10% and from 1 July onwards at 5%.

3. Vending machines in company canteens

If food and beverages are sold through vending machines (which are installed e.g. in addition to the serving in the canteen and in the company), the reduced tax rate of 5% is applied, provided that it is warm food (including salads) or open drinks (e.g. coffee, tea). However, the sale of commercially packaged goods (e.g. packaged sweets, drinks in PET bottles) or cold snacks and snacks does not qualify for the reduced rate.

4. Grocery stores / catering

If a grocer (or other entrepreneur) supplies food and beverages, the reduced tax rate of 5% does not apply if this does not involve the delivery of hot food (including salads) and/or open drinks. If, on the other hand, an entrepreneur provides a more extensive service package (catering; e.g. delivery by cooks or service personnel, provision of plates, dishes, cutlery, glasses, tables, chairs, etc.), there is an activity comparable to the provision of food in a restaurant.

5. Old trade licences

Decisive for the application of the reduced tax rate of 5% to a turnover is that it concerns the administration of food and the serving of beverages as defined in § 111 para. 1 GewO 1994. It is not a prerequisite that a trade licence according to § 111 GewO 1994 is actually available. Therefore, the reduction also applies to the administration of food and the serving of beverages as defined in § 111 para. 1 GewO 1994 by entrepreneurs with an old trade licence (e.g. according to § 16 GewO 1859, § 189 GewO 1973, § 142 GewO 1994).

Do you have any further questions? Our experts Claudia Modarressy and Christian Weber will be happy to assist you.