On June 4, 2020, the members of the coalition committee in Germany have agreed on an economic stimulus package which amounts close to EUR 130 billion, making it the grandest economic support package for the recovery after COVID-19 pandemic worldwide so far.

The package is mainly aimed at supporting families and businesses to overcome the economic struggles caused by the COVID-19 pandemic. One of the key measures of this package is aimed to stimulate the domestic consumption by reducing the current VAT rates, both standard and reduced. The changes in the VAT rates are namely the following:

  • the standard VAT rate reduced from 19% to 16%
  • the reduced VAT rate reduced from 7% to 5%

The said reduction will apply as of 1 July 2020 up until the 31 December 2020.

The stimulus package was agreed by the coalition committee on 3 June 2020 and is still to undergo the approval by the lower house of the parliament (Bundestag) and the Federal Council (Bundesrat).

Be prepared for the changes

Although many countries are introducing only temporary reductions of the VAT rates for specific products due to the Covid-19 pandemic, the time window for adopting internal IT systems for the companies are often rather short, e.g. a couple of days or weeks. Therefore, your business and IT systems must be able to adopt the VAT rate changes in a fast and efficient manner.

Should you wish to discuss the specific impact the VAT rate change might have to your company, the VAT compliance experts at Eurotax will gladly assist you with any queries. Do not hesitate to contact us.

German Government Announces Reduced VAT Rate