Germany lowers VAT rates in attempt to strengthen demand in the midst of economic recession

Author: Lionel van Rey

Germany has recently announced that it will lower its standard and reduced VAT rates. The standard VAT rate that is currently set at 19% will be reduced to 16%. The reduced VAT rate of 7% that applies to a limited category of expressly listed supplies of goods and services will be lowered to 5%.

The VAT rate cuts are intended as temporary measures to boost the German economy that has slipped into a recession as a result of the Covid-19 pandemic. The rate cuts will take effect as from July 1 for the period through December 31^st.

Businesses will have to make sure they apply the appropriate VAT rate on supplies of goods and services during this period. Insofar as VAT accounting is an automated process, it is important that systems are configured appropriately so as to take this change into account. Businesses will also need to monitor that they’re being charged the correct VAT rate by their vendors.