In order to overcome the coronavirus crisis, in addition to relief for single parents, a child bonus for families, and short-time work benefits, temporary changes to the Value Added Tax Act have also been in effect since July 1, 2020.
Value added tax will be reduced by up to 3 percentage points from July 1 to December 31, 2020, bringing the general sales tax rate down from 19% to 16% and the reduced tax rate down by 2 percentage points from 7% to 5%the reduction in VAT is intended to help stimulate consumption and slowly boost the economy after the lockdown and the resulting economic damage.
The temporary reduction in the tax rate is intended to mitigate the effects of the coronavirus pandemic, particularly in the hospitality industry, and to support restaurateurs when they reopen. From July 1, 2020, to December 31, 2020, a reduced tax rate of 5% (instead of 19%) will apply to the sale of food. The VAT rate will then rise to 7% for six months (January 1, 2021 to June 30, 2021). The general sales tax rate of 19% will apply again from July 1, 2021.
Against this background, companies should note the following points during the relevant period:
- all contracts should be reviewed and amended if necessary
- all IT and accounting systems and processes should be reviewed and adjusted if necessary
- Cash register systems should be adapted to the changes so that cash register receipts show the correct amount
- Incoming and outgoing invoices should be checked for the new sales tax rate
Depending on the sales strategy pursued, the reduction in sales tax may benefit consumers and businesses alike. Companies are free to decide how they want to use the tax reduction for themselves. For example, they can reduce prices for end customers in order to increase sales through a higher number of customers. However, companies can also take advantage of the higher profit margin resulting from the lower sales tax.
