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Temporary VAT Change in Germany

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The VAT rate in Germany is to be reduced from 1 July 2020 to 31 December 2020. This is part of an economic stimulus package to mitigate the consequences of the Covid 19-induced lockdown. Specifically, the regular tax rate is to be reduced from 19% to 16% and the reduced tax rate from 7% to 5%. From 1 January 2021, the previous rates will apply again.

For information in German, see Temporäre Mehrwertsteueränderung.

Info

The information in this article does not constitute any legally effective tax advice. JustOn cannot and must not provide such services. For any detailed questions, contact your tax consultant.

General Information

In practice, the tax rate changes meet different scenarios, which – depending on the business case – may require different adjustments to relevant software systems.

Please note: The corresponding law has been adopted on 29 June 2020. So far, however, only the draft legislation DE and a paper on the implementation of the tax rate reduction DE have been published.

Since there could still be changes, we continue to monitor the statements and instructions currently published by fiscal authorities or tax advisors. As soon as new details relating to JustOn Billing & Invoice Management are available, we will update this article.

Improperly stated taxes

Basically, the following rules apply:

  • If an invoice is issued for services rendered between July and December 2020 at the previous tax rates of 19% or 7%, the VAT then shown as too high is still payable, according to Article 14c (1) of the German Value Added Tax Act.
  • If an invoice is issued for services rendered from January 2021 onwards at the then no longer valid tax rates of 16% or 5%, the legally applicable VAT of 19% or 7% is payable again, according to chapter 14c.1 section 9 of the German Value Added Tax Application Decree.

Separate accounting transactions by tax rates

Remember to separate bookings by tax rates. For correctly processing your VAT bookings, you therefore need not only booking accounts for 19% or 7% VAT, but in addition booking accounts for 16% or 5% VAT between July and December 2020.

Invoice Generation with JustOn

Using JustOn Billing & Invoice Management, you generate outgoing invoices and can support related accounting processes by providing the relevant data. This covers businesses that are subject to taxation under both the accrual accounting approach (JustOn default) and the cash accounting scheme (JustOn-Option Move Tax Booking Details to Payment Date).

Some specific scenarios, like permanent invoices, are not supported by default.

One-Time Services or Limited Service Period

If you bill one-time products or if the service period of your invoices is closely limited, the following cases are possible:

Service or end of service period until 30 June 2020

You issue your invoices as before including a VAT of 19% or 7%.

Service or end of service period between 1 July and 31 December 2020

You must adjust your tax rules so that the produced invoices reflect the reduced VAT rate of 16% or 5%. You may have to correct invoices that have already been issued with the invalid tax rate.

Service or end of service period from 1 January 2021

You must re-adjust your tax rules so that the produced invoices will again apply the VAT rate of 19% and 7%. You may have to correct invoices that have already been issued with the invalid tax rate.

Service period beyond tax rate change

For services that extend over a longer time period and thus extend beyond the deadlines of 30 June and 31 December, two approaches are likely, according to the current understanding:

  • Invoice line items may be split along the tax rules' validity period. So one invoice line item becomes two – one with a service period until the deadline date and with the tax rate valid in this service period, and a second one with a new service period starting after the deadline date and with the tax rate valid in the new service period.
  • Invoice line items may remain in one whole for the entire service period, with the tax rate that is valid at the end of the service period.

Timing of the tax origin determines approach

The timing of the tax origin determines which approach to take. This may depend on the type of service you invoice. Certain services can be split and therefore charged and taxed separately according to the validity periods. Other services are considered to be fully rendered when the agreed service period ends and are taxed using the tax rate applicable on that date.

Contact your tax consultant to determine the appropriate way for your business.

Consequently, you must adjust your tax rules and may have to correct invoices that have already been issued for these service periods.

Consider monthly invoicing

If your business model allows for this, you may consider changing the billing period in order to issue monthly invoices. Be aware, however, that this may impact your cash position.

Software Update

JustOn 2.67 supports time-based tax rules and allows, optionally, for automatically splitting invoice line items according to the validity period of tax rules. This facilitates the handling of the temporary VAT change. However, some manual adjustments to your tax rules and invoice templates may still be necessary, which must be made by an administrator after updating JustOn.

The new version has been published on 24 June 2020. Make sure to allow sufficient time for the installation, configuration and tests.

To automatically get this update, you must have agreed to the automatic JustOn update (Push Upgrade). Should this not yet be the case, please contact our support with a corresponding request.

Note

Some project-specific customizations may prevent a JustOn update from working and delivering the intended improvement in managing the temporary VAT change.

Next Steps

Adjusting Tax Rules

In any case, you must adjust your tax rules so that the generated invoices show the correct VAT rate: 16% or 5% from 2020-07-01 to 2020-12-31, and 19% or 7% as of 2021-01-01.

  1. Make sure that JustOn 2.67 is installed in your org.

    Check the version in Setup > Apps > Packaging > Installed Packages.

    Delete – as with every software update – all invoices in Draft status to make sure that the changes are applied correctly.

  2. Optionally, modify the tax rule list view to display the new fields Start Date and End Date.

    tax_rule_table

    For details, see Create a Custom List View in Salesforce Classic in the Salesforce Help.

  3. In your current tax rules for Germany, specify the end date 2020-06-30.

    Tax Rule Tax Rate Start Date End Date
    DE-19 19.0 2020-06-30
    DE-7 7.0 2020-06-30

  4. Create new tax rules for Germany that cover the period during the tax reduction from 2020-07-01 to 2020-12-31 and the period after the tax reduction as of 2021-01-01.

    Tax Rule Tax Rate Start Date End Date
    DE-16 16.0 2020-07-01 2020-12-31
    DE-19-2021 19.0 2021-01-01
    DE-5 5.0 2020-07-01 2020-12-31
    DE-7-2021 7.0 2021-01-01

    For details, see Start Dates and End Dates on Tax Rules.

  5. Optionally, adjust the taxation rule to determine the correct way to process invoice line items that span multiple time-based tax rules.

    Taxation Rule Description
    Service Period Forces the invoice line items to be split automatically along the tax rule validity period, so one invoice line item becomes two – one item with a service period until the deadline date and with the tax rate valid in this service period, and a second item with a new service period starting after the deadline date and with the tax rate valid in the new service period.
    End of Service Period Does not split the invoice line item and applies the tax rate that is valid at the end of the service period.

    For details, see Managing Taxation Rules.

  6. If necessary, adjust the rules for the booking account allocation.

    For details, see Booking Account Allocation.

  7. If necessary, adjust the invoice templates to correctly display the taxes.

    For details, see Working With Templates.

Correcting Existing Invoices

Currently, there is no clear indication on whether previously issued invoices are to be corrected to reflect the tax changes. This may be required, however. To this end, proceed as follows:

  1. Cancel the affected current invoices and delete all invoices in Draft status.

    For details, see Canceling Invoices, Setting Up Finalization or Cancellation Using Flows and Setting Up Automatic Draft Invoice Deletion.

  2. Adjust the applicable tax rules on the relevant deadline date.

    For details, see Adjusting Tax Rules.

  3. Create the relevant invoices again.

    For details, see Executing an Invoice Run.

Check for correct invoicing dates

In order to apply the correct tax, make sure that the invoice line items have set a correct service period or, as a fallback, the invoice has set a correct date.

JustOn 2.67 Release Notes
Ger­man cab­i­net adopts ma­jor stim­u­lus pack­age (German Federal Ministry of Finance)
Draft legislation DE (German Federal Ministry of Finance)
Paper on the temporary tax rate reduction, final version as of 30 June 2020 DE (German Federal Ministry of Finance)
FAQ on the temporary tax rate reduction DE (German Federal Ministry of Finance)
Informationsseite zur Corona-Krise und zum Konjunkturpaket DE (DATEV)
Herausforderungen durch die Absenkung des Umsatzsteuersatzes 2020 DE (Haufe)