Germany Cuts VAT from 19% to 16%

Germany Cuts VAT from 19% to 16%

Germany Cuts VAT from 19% to 16%

Germany has announced a €130billion COVID-19 stimulus package including a cut in the standard Value Added Tax rate from 19% to 16% from 1 July to 31 December 2020.  The reduced VAT rate of 7% will also be cut to 5%. This measure will cost Germany €20billion.

The initial German VAT cut implementation rules have now been published. This includes a proposed 1-month softlanding for B2B invoices. This means the higher VAT rate of 19% may be charged on sales invoices and then deducted as input VAT for July only. It only applies to supplies made in July. This easement does not apply to B2C invoices.

Germany has already agreed to cut the VAT rate on restaurant and catering services between 1 July 2020 and 30 June 2021. If t will drop from the standard VAT rate to the 7% reduced rate (5% for the last six months of 2020 based on the above cut). This tempoary cut will continue to the end of June 2021.

No implementing legislation has yet been published. It is anticipated that the Cabinet will approve it on 12 June.

The aim is to stimulate consumer demand as the lockdown phase of the crisis ends. The country is headed for the worst recession in over 60 years, with GDP forecast to fall 6.3%. The country has 7million furloughed workers.

Other measures in the package include:

  • Financial help for municipalities

  • Grants for the purchase of electric cars

  • A cut on private electricity prices to support renewable energies

  • Hospitality (cafes, restaurants and bars) aid package

The package will cost €130 billion over 2020/21, met by federal and local governments. It is addition to the already announced measures worth an estimated 10% of German GDP, including share purchase schemes.. This makes it the largest package in Europe.