VAT rate changes: June 2020
From 1 July 2020 to 31 December 2020, the below VAT rates are to be reduced in Germany:
- Standard VAT rate from 19% to 16%
- The reduced rate is to from 7% to 5%.
The reduction in the VAT rates comes as part of a €130 billion COVID-19 stimulus package. The aim of this package is to secure jobs and to get economy up and running again.
It is hoped that this temporary reduction in the VAT rate will stimulate consumer demand.
Angela Merkel stated the goal is to get out of the “extremely difficult situation” together.
The Ministry of Finance has announced its plan to increase the VAT rate from 1 July 2020.
The VAT rate will be increased from 5% – 15% to counter the economic difficulties arising from COVID-19.
This increased rate will apply to the supply of goods and services that are currently subject to the 5% VAT rate.
The tripling of the VAT rate is to address a number of issues that have risen due to COVID-19:
- A decrease in commercial and consumer spending
- The loss of oil and tax revenues
This will affect consumers both before and after the increased VAT rate is introduced – it is expected there will be a spike in consumer spending before the new VAT rate comes into effect.
There will be implications for businesses as they try to figure out how they can remain competitive and should they absorb part or all of the new VAT increase so the retail prices of goods and services are affected as little as possible.