The Role of the Vat in the New Packages

Lavern Vogel

The reduction in VAT for six months is a central measure from the Corona package, with which the Federal Government wants to cushion the economic consequences of the pandemic. From an economic point of view, it is positive that this instrument works across all sectors. After all, the federal government […]

The reduction in VAT for six months is a central measure from the Corona package, with which the Federal Government wants to cushion the economic consequences of the pandemic. From an economic point of view, it is positive that this instrument works across all sectors. After all, the federal government expects an economic stimulus of 20 billion euros.

However, it should also be taken into account that customers may now postpone planned purchases until July in order to be able to buy the goods at a lower price. In addition, it must be observed to what extent the tax rate reductions also lead to lower prices and thus offer positive purchase incentives.

Three weeks for two extensive changes

The administrative burdens of a temporary change in accounting or bookkeeping and in company pricing are also open. Because the companies are threatened with considerable effort due to new price labeling in sales rooms, catalogs, online shops, etc. In addition, registers have to be reprogrammed – once now and a second time at the end of the year.

Smaller companies in particular are quickly overwhelmed by such a change, after all, there is a lack of experience on how to tackle it in detail. It is necessary to reconfigure software, update master data, train employees. Direct debit contracts must be changed, interim invoices must be written. At the same time, many IT companies and tax advisors are likely to be overwhelmed. In any case, there are costs that must be offset against the hoped-for positive economic stimulus. For online tax filing this is important.

Who will now benefit from the reduced sales tax?

Who will ultimately benefit from the reduced sales tax depends on who the contracting partner of a construction company is and which remuneration agreement has been made in advance.

Contractors usually agree gross prices with consumers. The consumer must pay the agreed price and the building contractor must pay the applicable sales tax amount to the tax office. “So the building contractor benefits from the reduced tax rate.

If net prices plus the applicable sales tax have been agreed, which is common among entrepreneurs , then the tax reduction is a transitory item. The contract partner pays the applicable tax and the entrepreneur pays it.

In the case of net price agreements, the final price is cheaper for clients who are not entitled to input tax deduction because they are private builders and property developers. The purchased construction work will be cheaper for you due to the reduced tax rate.

Practical tip

For contracts with consumers, building contractors should now agree gross prices and check whether the completion of the entire work or completed partial services can be achieved during the six months of the reduced sales tax.