As part of a stimulus package, as response to the Corona crisis, Germany has introduced a temporary reduction in sales tax to be applied from July 1 to December 31, 2020. We have created this short Q&A, based on the questions we have received from our clients:
Q: What are the detailed sales tax reduction rates?
A: The standard tax rate drops from 19% to 16%, the reduced sales tax rate from 7% to 5%. (the reduced tax rate is used for categories like food, plants, animals, books etc.)
Q: When can we change the rate to the new lower rate?
A: In the case of physical deliveries of goods, the sales tax liability arises at the time of shipping. If possible, the goods should be handed over to the shipping company between July 1 and December 31 in order to benefit from the reduction in sales tax. If you ship the same day as you receive an order, this should also be the date you change the sales tax rate in your shop.
Q: When do we need to change the rate back to the higher rate?
A: Again the important point in time is when products are handed over to the shipping company. If you expect 2-3 days to fulfill the order we would recommend to change back to the normal rate on the December 24. This leaves 3 working days for you to pack and ship the orders.
Q: What happens if I use the wrong (current) tax rates during the period from July 1 to December 31?
A: The German consumers are fully aware of the reduced sales tax and charging the higher rate will reduce the conversion rate in your shop and create unnecessary customer service calls. On top of this, the mistake can lead to disputes over differences between invoiced sales tax and the amount paid to the authorities. If you are selling BtB, the German company will not be able to deduct the full (wrongly) invoiced sales tax, but only the reduced rate. This leads to customer service issues and manual settling of differences later.
If you have other questions to the German tax rate reduction, please don't hesitate to call or write us!