VAT reduction: Implementation aid to change VAT rates from July 1, 2020

The Federal Government’s surprising announcement that it would lower VAT rates from 19% to 16% and 7% to 5% for six months is delighting consumers. However, it poses enormous challenges for entrepreneurs. It does not seem as if there will be no complaints regulations due to the shortness of the preparation time until the entry into force on July 1st, 2020. In any case, the draft BMF letter published on June 15 to lower the tax rate does not provide for any corresponding simplifications. Therefore, entrepreneurs are well advised to adapt their ERP systems and cash register systems very quickly to the changed VAT rates in order to avoid VAT chaos. The following topics are particularly important to consider when lowering VAT:

The time at which the service is performed is decisive for the amount of the VAT rate:

until June 30, 2020, regular tax rate of 19% and reduced tax rate of 7% between 1.7. and 31.12.2020 tax rate of 16% and reduced tax rate of 5% from 1.1.2021 tax rate of 19% and reduced tax rate of 7%

When is the service carried out for VAT?

Deliveries Time at which the recipient of the service acquired the power to dispose of the item. In the case of moving deliveries, it depends on the start of the delivery. For permanent services at the end of the service section.

What are the special features of down payments?

Payment date (partial payment) Flow VAT rate between 1.7. and 31.12.2020 before 1.7.2020 taxed at 19% or 7% (but can also be taxed at 16% or 5%); The tax rate must be reduced to 16% or 5% at the latest with the final invoice. Any correction will be made at the latest in the pre-registration period in which the service has been carried out. and 31.12.2020 deposit is generally taxed at 16% or 5% (but can also be taxed at 19% or 7%); The tax rate must be increased to 19% or 7% at the latest with the final invoice. Any correction will be made at the latest in the pre-registration period in which the service was carried out.

What other special features are there?

Partial services … lead (unlike down payments) to the final creation of VAT. In order for a partial service to exist, two prerequisites must be met:

1. economically sensible definable performance,

2. Agreement on the performance of the service as a partial service. Partial performance must be accepted and billed separately.

Construction work … are grds. only carried out with acceptance, i.e. the tax rate applies to the entire construction work at the time of acceptance. However, agreements can be made on partial services. Long-term services (e.g. rental) … are taxed as a whole at the VAT rate applicable upon completion (e.g. monthly partial services when renting). A special challenge is now to adjust contracts and standing invoices, otherwise there is a tax liability according to § 14c UStG. Annual bonuses… are to be determined according to the tax rates of the underlying sales. Vouchers If the tax rate of the services to be redeemed is unclear, there is no single-use voucher. In the case of multi-purpose vouchers, the tax rate applies at the time the voucher is redeemed.

What should be considered when deducting input tax?

Input tax deduction from advance payments (for advance payment and advance payment invoices); Down payment received before 1.7.2020; Service execution between 1.7. and 31.12.2020 Input tax deduction from the down payment invoice permitted depending on the tax rate shown and paid (19% or 16% or 7% or 5%). In a final invoice, however, the overall tax rate of 16% or 5% applicable when the service is performed is to be settled. Input tax deduction ultimately only in this amount. Correction at the latest in the pre-registration period for the performance. Input tax deduction from invoices (performance execution between 1.7. And 31.12.2020) input tax deduction only in the amount of 16% or 5%. Sales tax identification of 19% or 7% in invoices amounts to the difference to § 14c UStG and does not entitle to deduct input tax; such invoices must therefore be adjusted to the lower tax rate. In this respect, the draft BMF letter does not provide for an equity arrangement.

Who benefits from the VAT cut?

Value added tax regulation in the contract Net price clause / net fixed price The service provider must generally take advantage. Pass on to the service recipient. Gross price clause / gross fixed price The service provider can generally take advantage. Retain But: Special feature of long-term contracts (conclusion> 4 months before lowering the tax rate, i.e. before March 1, 2020) Entitlement to compensate for the over or under burden Specials may have to be taken into account if the contracts include fixed sales tax amounts.

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Venkkat Prannit Nissankara
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