on 29.06.2020, the Bundestag and Bundesrat have now agreed to the reduction in the value-added tax (VAT) for revenues from 01.07.2020 to 31.12.2020 within the framework of the coronavirus economic stimulus package. As there are considerable sources of error in practice regarding taxable rental and leasing relationships, we provide you with the most important information and recommendations for action below.
As we already informed you in our info mail of 16.06.2020, the application of the correct VAT rate depends solely on the point in time when the agreed service has been provided in full. A rental service is deemed to have been rendered when the agreed service period ends. If, however, such a continuous service is invoiced and paid for a shorter period of time (e.g. calendar month, calendar quarter, calendar year, ...), as is generally the case in practice, partial services are deemed to exist in this respect. This partial service is then deemed to have been rendered at the end of the accounting period.
The following examples illustrate the differences:
A rents out rooms to B for his company, who is liable to pay VAT. A and B agree on a monthly settlement and rent payment.
The rental service is rendered at the end of the respective month. For the months January to June 2020 the VAT rate of 19% shall be applied. For the months July to December 2020, the VAT rate of 16% shall be applied.
A and B now agree on quarterly invoicing and payment of the rent at the beginning of the respective calendar quarter (January to March, April to June, etc.)
The rental service is provided at the end of the respective calendar quarter. For the 1st and 2nd calendar quarter 2020, the VAT rate of 19% will be applied. For the 3rd and 4th calendar quarter of 2020, the VAT rate of 16% shall be applied.
In this case, A and B agree on an annual settlement and payment of the rent at the beginning of the calendar year.
The rental service is rendered at the end of the calendar year. In 2020 the rental service will be taxed in full with 16% VAT. If, in this case, A and B agreed to pay the rent at the beginning of the following year (01.01.2021), this would not change the result - i.e. 16% - since the actual payment is not important.
Depending on how you classify your rental revenues in the above examples, the following has to be done in the short term:
If you are acting as a landlord, you must ensure that the VAT rates and amounts in the rental agreements or standing invoices for the rental services rendered in the period from 01.07.2020 to 31.12.2020 are amended by supplements for this period. If the documents are not adjusted, too much VAT will be stated in this period, which you will also have to pay to the tax office.
If you are acting as a tenant, please note that for the rental services received in the period from 01.07.2020 to 31.12.2020, you only pay the rent plus 16% VAT to the landlord. If you pay the rent plus 19% VAT, the difference of 3% will not be refunded as input tax by the tax office.
According to the 3rd draft of the letter of application by the Federal Ministry of Finance (BMF - as of 26.06.2020), there should be no consequences for services that are carried out in July 2020 and are therefore generally subject to the lower VAT rate, if invoicing and payment is carried out as before. From August onwards, however, the tenant will be denied an input tax deduction of an excessive payment of 3%, but the landlord will still have to pay an overstated VAT to the tax office.
Use this transitional period to adjust the basis of settlement (contract, standing invoice, Standing transfer)!
For detailed questions or for clarification of necessary conversion processes, please contact us! We will be happy to assist you!