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Germany Cuts VAT Rates to Boost Economy

Germany has reduced its standard VAT rates from 19% to 16% and from 7% to 5% for the period of 1 July to 31 December 2020. Although this provision will cost Germany €20 million Euros, it acts as part of Germany’s €130 billion COVID-19 stimulus package. It is also the largest stimulus package in Europe.   

As Germany returns to a slightly more normal way of life, Germany hopes the decrease in the VAT rates will stimulate consumer demand and avoid what could be the worst recession the country has had since the early 20th Century. With 7 million furloughed workers, Germany’s GDP is expected to decrease by 6.3%.

The stimulus package consists of other measures that will hopefully keep Germany’s economy afloat and promote the more economical use of renewable energies. The package includes: hospitality aid package, cut on private electricity prices, grants on the purchase of electric cars and monetary aid for municipalities. 

Germany was also one of the first countries to allow easements on 13th Directive VAT submissions for non-resident businesses. They allowed for the late submission of VAT refund requests if sufficient evidence could be provided.

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