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VAT Reduction in Germany from July to December 2020 – How to Manage with MOCO.
(English image not yet available)Article last updated on 21.8.2020
The Tax Reduction from July to December 2020
To boost demand for products within Germany, the Corona stimulus package includes a reduction in VAT. The VAT rate decreases from 19 percent to 16 percent, or from seven percent to five percent. This reduction is intended to be temporary, from July 1 to December 31 of this year.
End consumers are expected to benefit from the reduction, stimulating consumption. However, for B2B transactions, this regulation means more effort without benefit for clients or contractors. Typically, services are offered at net prices, with tax added on the invoice. The collected tax is then remitted, making it a pass-through item.
End consumers are expected to benefit from the reduction, stimulating consumption. However, for B2B transactions, this regulation means more effort without benefit for clients or contractors. Typically, services are offered at net prices, with tax added on the invoice. The collected tax is then remitted, making it a pass-through item.
Recommendations for Invoicing
General Rule
All services provided by the end of June 2020 must be invoiced at 19%, and services from 1.7. to 31.12. at 16%.
Avoid Cross-Period Invoices
For services spanning multiple periods, separate invoices should be issued. This also pleases accountants, as it simplifies the allocation process.
How to Handle the Transition in MOCO Most Easily?
MOCO generally uses a single tax rate for the entire invoice – a solid and simplified approach for this tax rate change. Separate invoices not only simplify matters for the recipient and their accounting but also allow your own accounting to process invoices more quickly and efficiently.
Steps for Transition in MOCO:
All services provided by the end of June 2020 must be invoiced at 19%, and services from 1.7. to 31.12. at 16%.
Avoid Cross-Period Invoices
For services spanning multiple periods, separate invoices should be issued. This also pleases accountants, as it simplifies the allocation process.
How to Handle the Transition in MOCO Most Easily?
MOCO generally uses a single tax rate for the entire invoice – a solid and simplified approach for this tax rate change. Separate invoices not only simplify matters for the recipient and their accounting but also allow your own accounting to process invoices more quickly and efficiently.
Steps for Transition in MOCO:
- Ideally, issue all invoices for services up to 30.06.2020 by the end of June or early July.
- For projects spanning multiple periods, inform the client 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, adjust the VAT rate generally (Settings > Account) to 16%. This rate will then automatically apply to all clients where the rate hasn't been overridden.
- VAT can also be manually set to 16% on the invoice.
Pragmatic Approach for Small Businesses
If many clients have an overridden tax rate (different from the account-wide rate), it can be laborious to adjust this for all – and then reset it on January 1. If invoicing is handled by a responsible person, consider adjusting the tax rate directly on the invoice for this specific half-year.
If many clients have an overridden tax rate (different from the account-wide rate), it can be laborious to adjust this for all – and then reset it on January 1. If invoicing is handled by a responsible person, consider adjusting the tax rate directly on the invoice for this specific half-year.
For the taxation of ongoing services like hosting or domain, the end of the billing period shown on the invoice is relevant (see VAT Application Decree – UstAE A 13.1 para. 3)
Specifically, this means:
> End of billing period by 30.06.2020 > 19%
> End of billing period 01.07.2020 to 31.12.2020 > 16%
> End of billing period from 01.01.2021 > 19%
> End of billing period 01.07.2020 to 31.12.2020 > 16%
> End of billing period from 01.01.2021 > 19%
Invoices already issued, which show the end of the billing period within the tax reduction, should be corrected. Send the invoice correction (= cancellation invoice + corrected invoice) and refund the difference.
Advance Invoice – Final Invoice
If an advance invoice was issued with a different tax rate than the final invoice, this difference must be corrected. MOCO calculates the tax correction and displays it on the final invoice!
Transitional Regulation for B2B Cases According to BMF Letter
Accordingly, the service recipient can claim input tax for services provided in July 2020, even if the VAT is shown too high at 19% or 7%. The condition is that the supplying entrepreneur has declared and paid this VAT to the tax office.
Advance Invoice – Final Invoice
If an advance invoice was issued with a different tax rate than the final invoice, this difference must be corrected. MOCO calculates the tax correction and displays it on the final invoice!
Transitional Regulation for B2B Cases According to BMF Letter
Accordingly, the service recipient can claim input tax for services provided in July 2020, even if the VAT is shown too high at 19% or 7%. The condition is that the supplying entrepreneur has declared and paid this VAT to the tax office.
Important Notes: All following information is researched to the best of our knowledge but without guarantee. Please consult your tax advisor in case of doubt. We do not offer legal or tax advice.
Image source: Unsplash
