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Temporary reduction in German VAT rate

The German government has decided to temporarily reduce the German tax rate. This scheme is part of the so-called "Konjunkturpaket" and will officially take effect July 1, 2020. With this support package, the German government wants to stimulate the economy in these turbulent times of the coronavirus. In this article you will read what you, as an e-commerce entrepreneur, need to know about this German tax cut.

VAT applies to every sale in Germany. So the reduction affects any service or product sold through your online shop or Amazon. The high VAT rate goes down from 19 to 16 percent. The low VAT rate is reduced from 7 to 5 percent. In this way, all businesses and consumers will benefit from this tax credit. Under this low VAT rate, you can think of the following goods:

  • Food
  • Water
  • Agricultural goods
  • Medicine and devices
  • Art, collectibles and antiques
  • Books and periodicals

Who does this VAT reduction apply to?
The VAT reduction applies to everyone who delivers products in Germany between July 1, 2020 and December 31, 2020. In this, it therefore applies not only to retailers but also to webshop entrepreneurs and sellers on Amazon.

What should you do when you sell products online in Germany?
It is good to know that VAT is calculated on the moment the product is received by the customer. So not at the moment the product is sold. For example, if you now sell a bicycle online in Germany worth €200 (excluding VAT) and deliver it before July 1, it will be cheaper (200×1.19 = €238) than if you deliver it after July 1. It is better to deliver the bike on or after July 1 because it will cost €6 less (200×1.16 = €232). If you sell ongoing services, such as an annual subscription, a license for a certain period or something similar, it becomes more difficult. The outcome in that case depends on the specific terms and conditions.

What does this mean for sellers in Germany?
The reduction means that entrepreneurs in Germany can charge lower product prices for six months. This can be beneficial for sales and competitiveness. So, good news, but a few things need to be looked at carefully to avoid problems with the German Finanzamt.

What does this mean for you as an entrepreneur in terms of taxation?
It is not yet known how entrepreneurs will have to deal with transitional situations for German VAT, for example with down payments already made for deliveries in the second half of this year. It is expected that entrepreneurs will have to make many adjustments with regard to German VAT in the short term. It can have many consequences for your company or organization when you have to deal with deduction or indebtedness of German VAT. Therefore, keep the following things in mind. 

  • Adjust conversions in your ERP system. 
  • Charge receipts, invoices and quotations with the correct rate.
  • Check all your contracts for possible agreements on pricing (gross and net prices) and adjust where necessary. You may have to allow for a transition period in the contract. You must then reverse this when the temporary reduction is lifted.
  • Ensure that VAT compliance towards the Finanzamt is in order in a timely manner.

Where should you indicate VAT on a web shop?
The price indication regulation applies to sales to consumers. This regulation does not require you to indicate the VAT in your (web) store, but it does require you to indicate the total price that the consumer eventually has to pay for his products (including offers). In doing so, you must indicate that these prices include VAT. For web shops, this means that you have to mention VAT on the product page, shopping cart and the order page. By the way, this does not have to be mentioned in the "Allgemeine Geschäftsbedingungen". It is not allowed in Germany according to the law § 5 Abs. 1 Satz 1 UWG to state concrete phrases, amounts or rates on websites that are not correct. This can be seen as misleading.

Get advice

For many Dutch companies that can sell their products in Germany, now is the right time to start. Of course, this is different in every situation. Would you like advice on your opportunities in Germany? Then feel free to contact one of our advisors via 088 339 7678

Andreas Giese - CEO Dexport