The reduction in Value Added Tax (sales tax) is a measure to mitigate the economic impact of the Corona crisis that has taken many by surprise. Many companies were literally caught on the wrong foot. They now have to adapt their accounting programs or ERP systems such as SAP Business One to this measure for six months. It is not yet entirely clear which interventions will make the temporary VAT reduction in 2020 necessary.
Reduction of VAT - very easy?
From 07/01/2020 to 12/31/2020 the sales tax (VAT) will be reduced. The rates go down from 19 to 16 percent or from 7 to 5 percent for the reduced VAT rate, only to be increased again from January 1st, 2021. What sounds like a simple back and forth is driving one or the other for them financial accounting of a company is responsible, a shiver down the spine. Because there is a lot of potential for making mistakes when applying the sales tax reduction.
Which sentence is used when
When you perform is not necessarily always the same as when you do it Performance will be billed. However, the actual time at which the service is provided is relevant for the correct time of taxation. The correct time for taxation is:
- in the case of goods, the time at which delivery begins
- or if the recipient of the service obtains power of disposal over the service/goods (if they are not moved to do so)
- for other services, the completion of the service is decisive
- that under certain circumstances there is a partial service that can be defined as such and for which and the billing of which there is a corresponding agreement
This alone results in scenarios in which invoices that still have to be converted to 19% after the conversion of VAT to 16%. The reverse case can also occur, there will be invoices in 2021 that will be issued with 16% sales tax.
Standing invoices and standing orders deserve special attention. However, the treatment of deposits and final accounts. In case of doubt, this and much more will have to be clarified with the tax advisor.
Topics of the system change to reduce VAT
Not just changing the price lists comes into focus with the conversion of VAT. If necessary, together with their tax advisor, companies should check the following:
- What new accounts are needed?
- become new tax code needed?
- Which business transactions are relevant for tax purposes?
- Are there processes that are affected by the conversion of sales tax, even though they started before the change?
- Are there interfaces to systems through which the tax is also exchanged?
- Are there reports, Excel lists, forms or programs where a tax rate has been hard-coded?
- Are there systems in the company that do not consistently obtain their information from a central data storage system (e.g. web shops)?
- How will reverse charge and intra-community acquisitions treated?
- What special cases exist in the company?
Increased effort for several areas
Lowering the value added tax not only increases the effort due to the temporary conversion of the systems in financial accounting. Of course, one must not forget that from next month every incoming invoice will also have to be checked for the correctly declared sales tax.