Skip to main content
News from IVA members

Germany

By December 18, 2024No Comments

Federal Council approves Annual Tax Act 2024: Overview of the VAT related changes

1. Annual Tax Act 2024 finalised

As in the past, there will be an Annual Tax Act in 2024. It primarily serves to adapt the German VAT Act (UStG) to current legal developments. The German Bundestag passed the Annual Tax Act 2024 in October after its draft was significantly revised in the Finance Committee. The German Federal Council approved the bill on 22 November 2024. The Annual Tax Act 2024 is therefore likely to be promulgated in the Federal Law Gazette before the end of the year.

2. VAT related changes in the Annual Tax Act 2024

The main VAT related changes resulting from the Annual Tax Act 2024 are:

  • The transitional period for legal entities governed by public law (sec. 2b UStG) will be extended by another two years until 31 December 2026.

  • From 1 January 2025, event services with virtual participation will no longer be taxed at the event location, but rather at the place where the recipient is established or has his domicile. Legislative changes are made for B2C (sec. 3a para. 3 no. 3 UStG) and B2B (sec. 3a para. 3 no. 5 UStG). Compared to the original draft, the B2B rule has been adjusted to the effect that taxation will be at the place of the recipient if the admission authorisation enables virtual participation.

  • The VAT exemption for supplies in connection with storage and for supplies in a VAT warehouse will be cancelled with effect from 1 January 2026 (sec. 4 no. 4a UStG).

  • Contrary to the original plans to reform the VAT exemption of educational services, the certification procedure for public law institutions entrusted with such tasks, public schools and other general education or vocational training institutions will remain in place. The VAT exemption for private teachers (without certification) has been realised. The scope of the VAT exemption is extended to school and university education, vocational training and retraining, as well as closely related supplies (sec. 4 no. 21 UStG).

  • From 1 January 2025, the supply, intra-Community acquisition and import of works of art and collectors’ items will be subject to the reduced VAT rate (sec. 12 para 2 UStG). From this date, the margin scheme will no longer be applicable to works of art, collectors’ items and antiques if the preceding supply to the reseller was subject to the reduced rate (sec. 25a UStG).

  • The scope of the regulation for unduly charged VAT (sec. 14c para. 2 UStG) is extended to self-billing invoices.

  • Input VAT deduction on supplies procured from taxable persons calculating VAT on the basis of the remuneration received (cash accounting scheme) shall only be possible if and to the extent payment has been made for the supplies (sec. 15 para. 1 sent. 1 no.1 UStG). The effective date of this change was postponed to 1 January 2028 (instead of 1 January 2026). In order for the recipient to be informed that the supplier is subject to the cash accounting scheme, a new mandatory invoice detail will be introduced at the same time (sec. 14 para. 4 sent. 1 no. 6a UStG).

  • For input VAT apportionment (sec. 15 para. 4 UStG), it is clarified that the calculation of non-deductible input VAT, according to the total turnover key, is only permitted if this is the only possible apportionment method. The total turnover key is to be applied subordinate to other, more precise and appropriate apportionment methods.

  • The taxation of small enterprises (sec. 19 UStG) will be comprehensively amended as of 1 January 2025, in particular by adjusting the turnover limits and introducing the “EU small enterprises”. The reformed regulation entails various consequential changes, e.g. in sec. 13b, 15 UStG. In addition, the German VAT Implementation Code will introduce a regulation on invoices for small enterprises (sec. 34a). It is also important to note that small businesses will not have to issue e-invoices, but must be able to receive e-invoices.

  • The VAT rate, as well as the input VAT flat rate for agriculture and forestry businesses (sec. 24 UStG), are reduced to 8.4 per cent for the remainder of 2024 and to 7.8 per cent for 2025. The Federal Ministry of Finance is authorised to implement future changes to the flat rate by legislative decree.

  • After 31 December 2020, Northern Ireland is treated as Community territory (sec. 30 UStG).

3. Legislative proposals not included in the Annual Tax Act 2024

In contrast to the government draft, the following provisions are not included in the finalized Annual Tax Act 2024:

  • The VAT exemption for credit management by lenders (sec. 4 no. 8 lit. a and g UStG) was withdrawn due to the potential financial impact. Thus, the implementation of the VAT exemption in accordance with Union law has yet to be realised and the scope of the VAT exemption of services provided by consortium leaders remains in dispute

  • Furthermore, the extension of the VAT exemption for sporting events (sec. 4 no. 22 UStG) has been withdrawn. The extension will undergo further review.

The above information was kindly provided by KMLZ (Germany). If you need further information, please contact Dr. Matthias Oldiges at: [email protected].