Shopping and the Taxes You Will have to Consider

Elvera Bartels

Shopping list already created? From July 1, 2020 VAT will decrease for half a year. The statutory shopping discount is intended to encourage shopping. But the new tax rates are also having an impact on banks, savings banks and the construction industry. What that means exactly and how you as a savings bank customer can benefit from it, we have put together for you in 5 questions and answers.

Two girls shopping

As part of its economic stimulus package, the federal government has decided to reduce sales tax for a limited period. Most people know it as VAT, but there is no such common term in the law. Sales tax is used there with the same meaning.

The measure will already apply from July 1 and then until the end of 2020. This is intended to promote consumption and stimulate the economy again after the slump in the Corona crisis.

The standard rate of value added tax is to fall from 19 percent to 16 percent, the reduced value added tax rate from seven percent to five percent. It is the first reduction in this tax since it was introduced in the Federal Republic of Germany in 1968. 

Will the reduction reach the end customer?

Infographic: VAT will drop from 19 to 16 percent

The temporary VAT cut will not automatically lead to cheaper prices in stores. It only becomes cheaper if, for example, retailers include the temporary reduction in their prices. However, this is a voluntary decision by the company.

Still, there are good reasons to believe that price cuts will come. There had been a comparable temporary tax cut in the UK during the financial crisis. The result was that three quarters of the dealers adjusted their prices accordingly.

When does the tax cut for services apply and what happens to advance payments that have already been made?

While in purchasing it is relatively clear when the reduction applies, in the case of services it is about the point in time at which the services are provided. The day of invoicing or the day of payment is not relevant. The same applies to partial services.

If consumers have already made down payments for services that are now in the period of the temporary VAT reduction, the tax rate must be corrected in the final invoice if partial services are provided before, during or after the tax cut, the different tax rates must be shown in the invoices. Trust the online tax services in this case.

To what extent are customers of the savings banks affected by the reduction?

Much of the banking services are exempt from VAT. A lowering cannot take effect here. This applies, for example, to the approval or brokerage of loans. The deposit business is also exempt from VAT. In addition, the tax does not apply if the entrepreneur arranges building society contracts or insurance. This does not correspond to the classic sales that are recorded by VAT.

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