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VAT Reduction in Germany from July to December 2020 – How to Manage with MOCO
English image not yet available...Last updated on August 21, 2020
The Tax Reduction from July to December 2020
To strengthen the demand for products within Germany, the Corona stimulus package includes a reduction in VAT. The VAT rate is reduced from 19 percent to 16 percent, or from seven percent to five percent. The reduction is intended to be temporary, from July 1 to December 31 of this year.
End consumers are supposed to benefit from the reduction and consumption is expected to be boosted. However, for B2B business, the regulation means more effort without benefit for clients or contractors. As a rule, services are offered at the net price and the tax is added on top of the invoice. The collected tax is then remitted – so it is a pass-through item.
End consumers are supposed to benefit from the reduction and consumption is expected to be boosted. However, for B2B business, the regulation means more effort without benefit for clients or contractors. As a rule, services are offered at the net price and the tax is added on top of the invoice. The collected tax is then remitted – so it is a pass-through item.
Recommendations for Invoicing
As a general rule
All services provided up to the end of June 2020 must be invoiced at 19% and services from July 1 to December 31 at 16%.
Do not issue invoices spanning multiple periods
For services that cover an overlapping period, separate invoices should be created. This also makes accountants happy because the allocation is simpler.
How do I handle the changeover in MOCO based on this?
In MOCO, there is generally one tax rate for the entire invoice – and this is also a solid and simplified approach for this tax rate change. Separate invoices not only make it easier for the recipient and their accounting – but also allow your own accounting to book invoices faster and more efficiently.
Procedure for the changeover in MOCO:
All services provided up to the end of June 2020 must be invoiced at 19% and services from July 1 to December 31 at 16%.
Do not issue invoices spanning multiple periods
For services that cover an overlapping period, separate invoices should be created. This also makes accountants happy because the allocation is simpler.
How do I handle the changeover in MOCO based on this?
In MOCO, there is generally one tax rate for the entire invoice – and this is also a solid and simplified approach for this tax rate change. Separate invoices not only make it easier for the recipient and their accounting – but also allow your own accounting to book invoices faster and more efficiently.
Procedure for the changeover in MOCO:
- Ideally, all invoices for services up to June 30, 2020, should be issued at the end of June or beginning of July.
- For projects spanning multiple periods, inform the customer in advance that due to the VAT change, services between July and December will be invoiced separately.
- Once all invoices at 19% have been issued, generally adjust the VAT rate (Settings > Account) to 16%. This tax rate will then be automatically applied to all customers where the tax rate has not been overridden.
- The VAT can also be manually set to 16% on the invoice.
Pragmatic approach for small businesses
If you have overridden the tax rate for many customers (because it differs from the account-wide rate), it can be some work to adjust this for everyone – and then reset it on January 1. If the invoicing is handled by a responsible person, one might consider adjusting the tax rate directly on the invoice for this special half-year.
If you have overridden the tax rate for many customers (because it differs from the account-wide rate), it can be some work to adjust this for everyone – and then reset it on January 1. If the invoicing is handled by a responsible person, one might consider adjusting the tax rate directly on the invoice for this special half-year.
Relevant for the taxation of a continuous service such as hosting or domain is the end of the billing period indicated on the invoice (cf. VAT Application Decree – UstAE A 13.1 para. 3)
This means in detail:
> End of the billing period up to June 30, 2020 > 19%
> End of the billing period July 1, 2020, to December 31, 2020 > 16%
> End of the billing period from January 1, 2021 > 19%
> End of the billing period July 1, 2020, to December 31, 2020 > 16%
> End of the billing period from January 1, 2021 > 19%
Invoices already issued that show the end of the billing period within the tax reduction should be corrected. With the sending of the invoice correction (= cancellation invoice + corrected invoice), the difference should be refunded.
Advance payment invoice – Final invoice
If an advance payment invoice was issued with a different tax rate than the final invoice, this difference must be corrected. MOCO calculates the tax correction and shows it on the final invoice!
Transitional regulation for B2B cases according to BMF letter
According to this, the service recipient can also claim VAT shown too high at 19% or 7% as input tax for services provided in the month of July 2020. The condition is that the service provider has registered and paid this VAT to the tax office.
Advance payment invoice – Final invoice
If an advance payment invoice was issued with a different tax rate than the final invoice, this difference must be corrected. MOCO calculates the tax correction and shows it on the final invoice!
Transitional regulation for B2B cases according to BMF letter
According to this, the service recipient can also claim VAT shown too high at 19% or 7% as input tax for services provided in the month of July 2020. The condition is that the service provider has registered and paid this VAT to the tax office.
Important notes: All following information has been researched to the best of our knowledge, but without guarantee. Please ask your tax advisor if in doubt. We do not offer legal or tax advice.
Image source: Unsplash
