Tax liquidity aid for companies - VAT

The German Federal Ministry of Finance has issued a letter dated 19 March 2020 relating to deferral and enforcement measures:

1. By 31 December 2020, taxpayers who can prove that they are directly and not insignificantly affected by corona pandemic may submit applications (on presentation of their circumstances) for deferral of VAT payments due or coming due. These applications are not to be rejected on the grounds that the taxpayers are not able to provide detailed evidence of the value of the damage caused. No strict requirements are to be set when reviewing the conditions for deferral. Deferral interest can generally be waived. Applications for deferral of taxes due after 31 December 2020 must be justified specifically.
    
2. If it becomes known to the tax office on the basis of information from the judgment debtor or in any other way that the judgment debtor is directly and not insignificantly affected, enforcement measures shall be waived until 31 December 2020 for VAT in arrears or coming due by that date as defined in paragraph 1. In the cases in question, the late payment fines imposed in the period from 19 March 2020 until 31 December 2020 shall be waived in respect of these taxes as at 31 December 2020.

VAT is administered by the state tax authorities on behalf of the Federal Government. Thus the aforementioned framework is subject to individual handling at the level of the state tax authorities. As a consequence the application forms to be utilized will differ, e.g. between Bavaria and Hesse.

On top the measures indicated above, state tax authorities have also established support mechanisms and may (partially) refund the special advance payments that have been paid in order to be granted a permanent extensions of the filing deadline for the preliminary VAT returns.

VAT rate reduction

On 3 June 2020 the leaders of the black-red governing coalition have agreed on a so-called economic and crisis management package in response to the consequences of the Corona crisis. This 31-point package provides a cut in VAT rates and an extension of the due date for paying import VAT to the 26th of the following month.

Starting on 1 July 2020, the regular VAT rate shall be reduced from (currently) 19% to 16% and the reduced VAT rate from (currently) 7% to 5%. The measure shall be limited in application until December 31, 2020.

At the present time, there is still no legislative proposal and thus further details are missing.