Germany: Guidance on temporary VAT rate reduction, through December 2020

Germany: Guidance on temporary VAT rate reduction

The Ministry of Finance (BMF) issued guidance to implement reductions to the rates of value added tax (VAT) provided as relief measures in response to the coronavirus (COVID-19) pandemic. The VAT standard rate is reduced to 16% and the VAT “reduced rate” is further reduced to 5% for the period 1 July 2020 to 31 December 2020.


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Ministry of Finance guidance (30 June 2020) contains explanations and transitional arrangements about certain items such as:

  • Advance invoices
  • Long-term supplies
  • Partial supplies
  • Payment reductions
  • Redemption of price discounts and refund vouchers
  • Single-use vouchers
  • Refund of deposit amounts
  • Granting of annual bonuses
  • Annual rebates
  • VAT on telecommunications services
  • VAT on supplies of electricity, gas, water, heating and cooling as well as wastewater disposal
  • Passenger transport
  • Transactions in the hospitality industry
  • Exchange of items

If the supplying trader issues an invoice to another trader for a supply conducted after 30 June 2020 and before 1 August 2020, but showing the VAT rate applicable before 1 July 2020 (19% instead of 16%, or 7% instead of 5%) and has remitted this VAT amount, no objection will be raised in an effort to keep the matter simple if the trader does not correct the VAT amounts shown on these invoices. For practical purposes, during the transition period (in July 2020), a trader that is entitled to deduct input VAT will be granted an input VAT deduction on the basis of the VAT rate shown. For transactions on which the recipient of the supply owes VAT in accordance with section 13b UStG, this provision also applies for the VAT calculated by the recipient of the supply.

As a result of COVID-19 relief measures, restaurant and catering services (with the exception of the tax treatment of drinks) will be taxed at 5% from 1 July 2020 until 31 December 2020, and at 7% from 1 January 2021 until 30 June 2021.

Separate BMF guidance (2 July 2020) includes certain “no-objection rules” in instances for separating the total purchase price of so-called “combo offers” (such as a buffet all-inclusive offer) for food (reduced VAT rate) and for drinks (regular VAT rate). Also the guidance refers to the VAT treatment of business packages, in which supplies are partially not subject to reduced VAT.

Read a July 2020 report [PDF 312 KB] prepared by the KPMG member firm in Germany

Other recent VAT developments that may affect businesses in Germany include the following items:

  • Postponement of the e-commerce regulations until 1 July 2021
  • Hosting services in a computer center (CJEU, judgment of 2 July 2020 – case C-215/19)
  • Legal effects of an external audit (CJEU, judgment of 2 July 2020 – case C-835/18)
  • Distance sales regulation and double taxation (CJEU, judgment of 18 June 2020 – case C-276/18)
  • CJEU submission on VAT group (BFH, resolution of 7 May 2020, V R 40/19)

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