Germany Lowers VAT Rates and Extends Import Payment Date

On June 3, 2020, the Grand Coalition in Germany agreed on an economic stimulus package of EUR 130 billion during the COVID-19 crisis. Over the next six months, VAT rates will be reduced to 16% (from 19%) and 5% (from 7%) starting July 1 and ending on December 31. This sharp drop is primarily designed to trigger consumer spending. By reducing VAT it should encourage individuals to start consuming again and thereby strengthening domestic demand in Germany.

EU economists speculate that despite being an effective way to boost consumption, the unpredictable nature of this health pandemic might encourage consumers to save their money despite these government incentives to spend. Companies seeking to improve their bottom line, will most likely keep prices at the same level and thereby forego passing on the VAT reduction.

Chancellor Angela Merkel said the initial emergency measures would aim to shorten the duration and soften the blow of the coming recession. Negotiations between the Conservatives (CDU) and the Social Democrats (SPD) resulted last week in around 50 measures designed to boost consumption.

Germany was the first EU country to announce this post-coronavirus economic stimulus package. In the upcoming weeks we will see if this recovery plan will serve as a role model for other EU coronavirus impacted economies.

In the meantime, please make sure to implement these new VAT requirements immediately, so you can provide the required back up for your 2020 VAT filings. Please feel free to contact us directly at vat@eurovat.com for additional information and questions.

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