To face economic consequences of the Covid-19 pandemic, Germany introduced different measures with the so-called economic and crisis management package, inter alia, implicating a reduction of the standard VAT rate from 19% to 16% and the reduced VAT rate from 7% to 5% for the period 1 July 2020 until 31 December 2020.
Due to various issues with practical implementation, the German Federal Ministry of Finance issued two circulars dated 30 June 2020 and 4 November 2020, providing guidance covering, inter alia, the following topics:
1. General background
In general, the application of the different VAT rates depends on when the supplies and services are provided (date of supply) – therefore, it is irrelevant when the respective transaction is contractually agreed, when the invoice is issued or when the invoice is paid.
2. Supplies of services
Supplies of services are provided at the date of completion.
Example: A service is completed in December 2020, but the invoice will only be issued in January 2021 = the reduced VAT rate is applicable, given that the date of supply of the service is before 1 January 2021.
Thus, for services provided/completed in the period 1 July 2020 until 31 December 2020, the reduced VAT rates (16% and 5%) are applicable. For services provided/completed before 1 July 2020 and after 31 December 2020, the general VAT rates (19% and 7%) are applicable.
3. Supply of goods
For the supply of goods, the date of supply depends on the right of disposal. In cases of supplies of goods including transport, the starting date of the transport is deemed to be the date of supply.
Example: Regarding a supply of goods, the transport starts in December 2020, but the invoice will be issued in January 2021 = the reduced VAT rate is applicable, given that the date of supply is before 1 January 2021.
Therefore, supplies of goods for which the transport starts in the period 1 July 2020 until 31 December 2020 need to be invoiced with the reduced VAT rates (16% and 5%). Supplies of goods for which the transportation starts before 1 July 2020 and after 31 December 2020 have to be invoiced with the general VAT rates (19% and 7%).
4. Supplies of goods including installation
Supplies of goods including installation are deemed to have been made at the time when the acceptance takes place (after completion of the installation).
Thus, all supplies of goods including installation for which the acceptance takes place in the period 1 July 2020 until 31 December 2020 have to be invoiced with the reduced VAT rates (16% and 5%). All supplies of goods including installation for which the acceptance takes place before 1 July 2020 and after 31 December 2020 have to be invoiced with the general VAT rates (19% and 7%).
5. Advance and down payments
For advance and down payment invoices received after 30 June 2020 and before 1 January 2021 and for which the remuneration has been made during this period, VAT must be calculated using the VAT rate of 16% or 5%. If the supply is performed after 31 December 2020, a correction to 19% or 7% at the time the supply is performed must be made. Insofar as it is certain the respective service will only be provided after 31 December 2020, the applicable tax rate of 19% or 7% can already be applied regarding said advance or down payment. The recipient of a respective invoice can claim the stated VAT amount as input VAT under the general conditions.
6. Partial supplies
For partial supplies provided in the period 1 July 2020 to 31 December 2020, the reduced VAT rates (16% and 5%) are applicable. For partial supplies provided before 1 July 2020 and after 31 December 2020, the general VAT rates (19% and 7%) are applicable.
7. Permanent and recurrent services
Regarding permanent and recurrent services, e.g. rental, leasing or specific maintenance contracts, for which partial supplies of services are common practice, the contracts are often the invoice document. As the invoice needs to show the VAT rate applicable, an amendment needs to be issued to assure the input VAT deduction.
8. Other guidance topics
The circulars provide guidance to several further topics, inter alia:
→ Annual bonuses
→ Telecommunications services
→ Membership fees, subscriptions, etc.
→ Taxation of electricity/gas/heat supplies
→ Taxation of passenger transport
→ Taxation of commercial agents
→ Taxation of commercial brokers
→ Taxation of hotels and restaurants
→ Exchange of goods
