Upcoming reduction of the German VAT rate

A key point in the draft of the Second Corona Tax Assistance Act (Zweites Corona-Steuerhilfegesetz) is the reduction of the regular VAT rate from 19 % to 16 % during 1 July 2020 and 31 December 2020.

Rental real estate enterprises should be particularly aware of the following issues:

  • The new tax rate applies if the service has been rendered (i.e. rental period lies) within the period of 1 July 2020 to 31 December 2020.
  • Relevant invoices (such as long-term rental invoices) have to be issued with the new tax rate. Generally, an adjustment of the lease agreement is not necessary; however, if the lease agreement qualifies as invoice, an additional document should be issued which sets out the new tax rate (Sec. 31 UStDV).
  • The changes also apply to other services and ancillary services or service elements provided within a lease agreement during the relevant rental period (e.g. in case of VATable (construction cost) subsidies and (ancillary) services invoiced as ancillary rental costs).
  • In the case of gross leases (i.e. leases that do not disclose VAT or include VAT; most common in parking space leases or short-term leases), the all-over rent remains the same; i.e. after the registration and payment of VAT the landlord can keep a higher “net rent” to himself.
  • In principle, there is no legal obligation to pay out the VAT “benefit” to the tenant. However, the tenant may have contractual claims or a claim acc. to Sec. 29 UStG (lease agreement was concluded four calendar months or earlier before the change in the law came into force).
  • Received invoices have to be checked carefully with regard to the set-out VAT rate in order to avoid any unlawful deduction of input VAT from an incorrect invoice.
  • Please also note impacts on VAT exempt leases, insofar as the costs from services received (e.g. ancillary rental costs) should generally be lower. Therefore, received invoices should also be carefully checked with regard to the set-out VAT rate.

Please see the draft letter of the fiscal authorities (BMF-Schreiben) “Befristete Absenkung des allgemeinen und ermäßigten Umsatzsteuersatzes zum 1. Juli 2020” for further details. It is doubtful whether a final version will be available by 01 July 2020.

The final resolution on the draft of the Second Corona Tax Assistance Act in the German Bundestag is still pending; however, it is expected that the Act will be published in the Federal Law Gazette before 1 July 2020 and will thus enter into force, shortly.

Isabel Tannenberg