On 3 June 2020 the German government agreed on a EUR 130 billion stimulus package to help revive the German economy hit by the COVID-19 pandemic and the resulting recession. One of its postulates focuses on boosting consumer spending by lowering VAT rates: the standard rate is to be reduced from 19% to 16% and the reduced rate of 7% will be reduced to 5%. Lower tax rates will apply from 1 July until 31 December 2020. Now the package has to be approved by the German Bundesrat.
Lowering the VAT rate poses a challenge in terms of adjusting ERP (enterprise resource planning) systems and invoicing processes to the new, yet temporary, reality. Invoices for the supply of goods and services provided between 1 July and 31 December 2020 will have to be issued taking into account the new VAT rates. The obligation to apply new VAT rates will actually mean that the so-called recurring invoices (e.g. rental invoices for this period) that have already been issued will have to be adjusted.
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If, after 1 July 2020, an invoice is incorrectly issued with the old VAT rate, under Art. 14c sec. 1 of the German VAT Act, an entrepreneur who has indicated on an invoice issued for the supply of goods or provision of services a tax amount exceeding the amount due, shall be obliged to recognise this amount in the tax calculation. Moreover, the purchaser will not be allowed to deduct this portion of VAT resulting from this invoice that exceeds the amount specified in the new provisions. If the supplier uses a VAT invoice stating 19% VAT to confirm the sale, he will be obliged to take it into account when calculating the tax liability. The purchaser, however, will be entitled to deduct only the amount of tax that has been calculated taking into account the 16% VAT rate.
Restaurant and catering services
Under the Coronavirus Tax Assistance Act (Corona-Steuerhilfegesetz), the VAT rate on restaurant and catering services has been reduced from 19 to 7%, effective from 1 July 2020 until 30 June 2021. The reduced tax rate concerns not only catering firms but also all restaurant and catering service providers, including bakeries, butchers, cafeterias, etc.). It should be noted that there are different VAT rates on food and beverages: VAT rate on the sale of food may be lowered to 5%, and on the sale of beverages to 16%.
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