date | theme

08. June 2020 | Reducing Sales Tax: What Consumers Should Know Now

08. June 2020 | Change in the sales tax rate 2020: What entrepreneurs have to consider (this post)

10. June 2020 | Corporate tax for partnerships as a new alternative

12. June 2020 | Loss carryover 2020: Increase of the maximum amount to 5 million euros

15. June 2020 | Increase in the crediting of business tax to income tax

Due to the new sales tax rates of 16% instead of 19% for the regular sales tax and 5% instead of 7% for the reduced sales tax, entrepreneurs have a variety of special features to consider. Thus, determining the timing of a delivery or service (for example, a service) is important to apply the correct VAT rate. On the other hand, other requirements apply in the case of partial services and continuous services or in the case of contractual provisions regarding sales tax. Furthermore, advance payments in the context of discount invoices must be checked retrospectively for the appropriate VAT rate when drawing up final statements. The correction of advance payments already made for sales tax can also be an issue if it is subsequently determined that a customer payment is irrecoverable. Overall, the differences between target taxation and actual taxation must always be taken into account here as well. So these and many other aspects are of great importance in the introduction of the new sales tax rates for entrepreneurs. And for us to inform you comprehensively.

The Federal Government has adopted a stimulus package that includes a reduction in sales tax rates for the second half of 2020. In this way, the German economy is to be stimulated especially in the demand for consumer goods. However, this change in the VAT rate includes a large number of aspects that entrepreneurs have to consider with regard to the VAT payable.

2nd Sales Tax: Debt Taxation or Actual Taxation?

When registering VAT (advance tax declaration, VAT return), the distinction between the so-called target taxation and the actual taxation is important. In the case of debit taxation, the entrepreneur has to calculate and register the sales tax according to the final money agreed with his customer. On the other hand, an entrepreneur who applies the actual taxation only has to register the sales tax actually received by his customers with the tax office and pay it to it. The debit taxation is the rule, while the actual taxation can only be set up on request at the tax office. Essential here is the requirement that the total turnover of a company in the year is not more than EUR 600,000 (§ 20 UStG).

As a result, you as an entrepreneur, depending on the type of taxation, sometimes have to observe very different regulations. In our article, we primarily deal with the target taxation and explain the exceptions in the case of actual taxation in individual cases.

3rd Guide to the calculation of VAT

In order to present the complex topic of sales tax, but at least as important for entrepreneurs, as simply as possible, we work out the following guide. A checklist for entrepreneurs is also available for download.

Our first point contains some special features. For the catering industry, further changes are added to the reduction in sales tax rates. Thus, the change in the sales tax rate in the catering industry applies in deviation from the general validity of this economic measure from 01.07.2020 to 30.06.2021 and thus for a whole year.

The catering of guests in gastronomic facilities is assessed by the VAT Act as another service. After all, service is at the forefront. Accordingly, the regular VAT rate of 19 % is normally expected. But from 01.07.2020 this is different. Because then the catering with the reduced VAT rate of 5% should also be considered. However, this only applies to food. Drinks, on the other hand, will still be charged at the regular sales tax rate.

3.1.2. VAT rate on delivery outside the home

The other case is the delivery of food and drink for consumption outside the home. Sales tax law sees the delivery of food as a priority. Therefore, in this case, invoices have so far been associated with the reduced VAT rate. This also applies for the duration in which the sales tax is reduced, whereby then instead of 7 %, now with 5 % sales tax is to be expected.

3.2. Time of delivery or performance decides on the VAT rate

As already indicated, VAT law distinguishes between a delivery and another service. Deliveries are associated with items that a trader hands over to a buyer for what is usually monetary consideration. The other service is usually services. In both cases, the time at which the performance took place is decisive. On one of these two possibilities, the entrepreneur must therefore issue his bill. Therefore, when it comes to determining the correct VAT rate, the time of invoicing is irrelevant. Here are two explanatory examples of practice: