The VAT Reduction Options You Will Have to Consider

If the temporary VAT reduction is already expensive for the retail trade and craftsmen with shops, then it becomes even more complicated for construction and finishing companies and their customers. Here it always depends on the individual case, i.e. whether net or gross prices or specific tax rates or tax amounts have been agreed.

The time of performance decides

Whether contractors have to apply the then applicable tax rate of 16 or 19 percent from July 1st depends on the time of performance. “When the contract was signed, how long the construction work takes, when the invoice is issued or when the money is in the company’s account, it does not matter.

The time of performance in construction is basically the time of completion and acceptance.

The following applies to the delivery of building materials:

They are deemed to have been delivered when the goods are with the recipient. If the goods are transported or shipped, the delivery is carried out when the transport or dispatch begins.

VAT reduction

What applies to prepayments or down payments for finished partial services?

Even with prepayments or down payments for completed partial services, the point in time at which the service is completed remains decisive. If the completion falls within the period of the reduced sales tax, then the entire service is taxable at the low tax rate of 16 percent. If the completion is in the coming year 2021, then the entire performance is taxable at 19 percent.

In his final invoice, the entrepreneur must then apply the tax rate applicable at the time the service is completed and correct any payments received so far. In his online tax filing this is something that you would need.

Partial services / partial invoices

It is different with partial services. Like the fully completed service, a completed partial service also results in final sales tax. If the partial services are carried out by June 30, 2020, 19 percent sales tax applies to them. The 16 percent tax rate applies to partial services performed between July 1 and December 31, 2020.

In the case of completed partial services, entrepreneurs do not have to correct the partial invoices in their final invoice.

In order for a partial service to actually count as a partial service, the following requirements apply:


  • It must be an economically sensible, delimitable service.
  • There must be an agreement on the performance of the service as partial services.
  • The partial service must be accepted and billed separately.

In practice, however, the prerequisites for partial performance would rarely be met. “Although economically distinct services are often performed, the corresponding agreement and tax-effective acceptance are usually missing,” reports Stefan Reichert.

So far it has not been clarified whether the legal requirements for partial payments according to § 632 a BGB are sufficient without a separate agreement or whether an express agreement of partial services and their acceptance is required.…