Lowered VAT rate in Germany

LOWERED VAT RATE IN GERMANY

In an unexpected statement, German Chancellor Angela Merkel and several high-ranking cabinet members announced on Wednesday late evening (June 3, 2020) the introduction of a temporary reduction in German VAT rates. The regular rate from 19% will be reduced to 16%. The reduced rate from 7% to 5% respectively. The reduced VAT rates are to enter into force on July 1, 2020. They will be in force until December 31, 2020. These changes are aimed at reducing the negative impact of a pandemic on the economy and increasing domestic demand.

Although the legislative change has not yet been finally adopted, it has so far been proposed only by the coalition committee. The legislative process is expected to proceed quickly, given that the reduction in the VAT rate will soon come into force. In addition, the German Ministry of Finance is likely to issue administrative guidelines for the transitional period resulting from these reductions in the VAT rate. They will probably be similar to those for past VAT changes. These guidelines should provide assistance to companies, particularly in the areas of continuity of supply and payment of installments.

Due to the short deadline of July 1, 2020, there is a quick need to take steps to ensure that sales are recorded correctly. It is especially important to update the ERP systems.

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