Temporary VAT rate reduction in Germany

On June 3, 2020, Germany announced a temporary decrease in VAT Rates for the period July 1, 2020 to December 31, 2020, as part of a significant stimulus package as the country begins emerging from the COVID-19 crisis.

The rate reductions are as follows:

• The Standard Rate will be reduced from 19% to 16%
• The Reduced Rate will be reduced from 7% to 5%

This will of course, effect organizations’ billing, purchasing and reporting processes at a bare minimum. There is a very short lead time to update systems with the adjusted rates.

Temporary VAT Rate reductions were implemented in many EU countries following the 2008 financial crisis. There is a strong probability that more European countries will be following in Germany’s footsteps by temporarily reducing their VAT Rates.

It is not uncommon that initial decreases in VAT rates are followed by increase in VAT rates.

Companies should be aware and remember to adjust the temporary rates back to the VAT rates once the VAT Rates prior to the temporary reduction once the reduction period has completed.