All You Need to Know About the VAT Increase from 01.01.2021

1 Introduction

Following the temporary VAT reduction decided under the Second Corona Tax Assistance Act for the second half of 2020 to relieve citizens and businesses, the tax rates are now set to increase again. The standard tax rate will rise from 16% to 19% as of 01.01.2021, and the reduced tax rate from 5% to 7%. How entrepreneurs and taxpayers can prepare for these changes and what structuring options are available will be discussed in the following sections.

2 Tax Rate Change as of 01.01.2021

2.1 Legal Background

On 01.07.2020, the temporary VAT reduction from 19% to 16% (standard rate) and from 7% to 5% (reduced rate) came into effect as part of the Second Corona Tax Assistance Act. As of 01.01.2021, the tax rates will be raised back to the previous levels of 19% and 7%, respectively. The exact time of performance will be crucial for private consumers and businesses not entitled to input tax deduction.

2.2 Special Case: Gastronomy

The gastronomy sector will continue to benefit from a further VAT reduction for on-site consumption of food until 31.12.2022. From 01.01.2021, a VAT of only 7% will be levied here.

3 Criterion of Performance Timing

The decisive factor in the reversion of tax rates is the timing of performance. To benefit from the reduced VAT, deliveries and services should be completed before the end of the year.

4 IT Adjustment as of 01.01.2021

With the upcoming increase in tax rates, existing tax codes must be adjusted and IT systems must be accordingly updated. It is important to schedule appointments with IT administrators in a timely manner and make the necessary adjustments.

5 Statutory and Contractual Compensation Claims

The question arises as to who benefits from the VAT reduction, depending on whether a net price agreement or a gross price agreement was made. Long-term contracts may include compensation claims for the reduced VAT burden.

6 Structuring Options Before Year-End

Companies can try to take advantage of the lower VAT rates until the end of the year by restructuring contracts into partial services or issuing vouchers.

7 Possible Audit Focuses of Tax Offices

Tax offices may conduct external audits and special VAT audits to verify the correct implementation of the VAT reduction.

8 Requirement for Invoice Correction

If an invoice has been issued incorrectly, there is an obligation to correct the invoice to avoid legal consequences.

These measures should be taken in a timely manner to minimize tax risks and take advantage of the opportunities presented. In case of questions or uncertainties, it is advisable to consult professionals such as tax advisors for guidance.