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Germany: Temporary reduction in value added tax: what needs to be considered?

As part of the COVID-19 economic stimulus package, the German federal government is reducing value added tax. In order to strengthen purchasing power and stimulate consumption, the tax rate in Germany will be reduced from 19% to 16% and from 7% to 5% respectively from July 1, 2020 to December 31, 2020. What do Swiss companies exporting to other countries need to know about this?

Mehrwertsteuer

The following should be noted:

  • These reduced tax rates apply to services in the period from July 1, 2020 to the end of the year.
  • In the case of down payments made before June 1, which are made for services carried out during the transitional period, the total amount will be subject to the reduced tax rate.
  • There are also changes in relation to annual payments for services: For the transitional period, the reduced tax rate applies even if the payment has already been made for the whole year. An adjustment of the payment is necessary.
  • The tax rates must be adjusted for all outgoing invoices subject to German tax.
  • New accounts will be needed in the accounting department for the new tax rates.
  • The existing tax codes should not be used during the transitional period. New tax codes will be required quickly. Furthermore, new codes will also be required for expenses.
  • The tax rate changes concern both the standard and the reduced tax rates. Particular attention should therefore also be paid to travel expense claims. Bookings of overnight stays, train journeys, etc. for periods after July 1, 2020 should already be calculated using the reduced tax rates if they are paid for advance.
  • Furthermore, when checking incoming invoices, it must be ensured that suppliers’ invoices for services provided during the transitional period only show the reduced VAT. If, on the other hand, the value-added tax is calculated based on the previously applicable tax rates, it should be noted that this would be a pro rata tax statement pursuant to Section 14c (1) of the Value Added Tax Act (UStG). The excess tax paid may not therefore be claimed as input tax.

Short-term adjustments necessary for Swiss companies with German sales tax identification number (UID no.)

As a result of this, Swiss companies exporting to Germany will have to adapt their accounting, processes and any contracts. And this must be done taking into account the fact that the changes may be reversed after six months.

 

ExportHelp

Do you have questions about exporting in general? The ExportHelp team of Switzerland Global Enterprise is the first port of call for Swiss and Liechtenstein SMEs with administrative export-related issues of any kind. Please feel free to contact us!

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