Germany’s Annual Tax Act 2024, which was published on 5 June 2024, includes proposals for reforming the VAT system in Germany.  The legislative process is slated to be completed by this year.

Relevant time for input tax deduction

A new provision for determining the timing of input tax deductions will be introduced on 1 January, 2026. According to this rule, the period in which a purchaser can deduct input tax will depend on the VAT accounting method used by the supplier.

For suppliers using the standard calculation method, the buyer may deduct input tax when the supplier delivers the goods or services.

For suppliers utilising the cash accounting method, the purchaser can deduct input tax during the time of payment.

For advance payments, the input tax deduction becomes available at the time of prepayment.

New mandatory invoice details

The draft legislation introduces a new mandatory invoice detail, “Tax calculated based on consideration received”, that needs to be included on relevant invoices. This rule will inform the recipient of the calculation method used by the supplier.

The new regulation will take effect for invoices issued after 31 December, 2025.

Total turnover for subordinate input tax apportionment

When taxable persons buy goods or services for use in both deductible and non-deductible supplies, the input tax must be distributed accordingly. Under the proposed changes, the “total turnover” method for calculating non-deductible input VAT would be allowed only in situations when no other allocation methods are available.

The rule would go into effect when the Annual Tax Act 2024 is announced.

VAT exemption extension for credit management by creditors

Starting 1 January, 2025, the management of credit and credit guarantees by creditors will be exempt from VAT. This VAT exemption rule was introduced because the federal government is looking for avenues for extending the scope of its VAT exemption.

Small business threshold amendments

Effective 1 January, 2025, the thresholds for the small business scheme will be revised.

The lower domestic threshold will increase from EUR 22,000 to EUR 25,000 (for the previous calendar year).

The upper domestic threshold will increase from EUR 50,000 to EUR 100,000  (for the previous calendar year).