Skip links

Germany VAT rate cut boosted household spending

Germany cut its VAT rate in 2020, as part of the largest Covid-related economic stimulus package in Europe. The decision appears to have paid off. A study shows that VAT cuts drove €34 billion of household spending. Significantly, the cut only resulted in 7 billion in lost revenue.  

Germany’s VAT cut encouraged purchases of vehicles, furniture  

According to the study, the temporary VAT cut encouraged consumers to purchase durable goods such as cars and appliances. Germany cut its VAT rate between 1 July to 31 December 2020. Officials cut the standard rate of VAT from 19% to 16%. Germany also lowered its reduced VAT rate from 7% to 5%.

Inflation concerns as energy prices surge

Amid the uptick in household spending, some observers have expressed concern about inflation. In particular, rising energy prices in Germany and beyond are putting the squeeze on consumers. Across Europe, policymakers are responding with a range of measures, including lower VAT rates to mitigate rising costs

VAT extensions after recent German flooding

Like many countries, Germany took numerous steps to mitigate the economic effects of the Covid downturn, including cutting VAT rates.

Officials in Germany recently also provided VAT relief in response to severe flooding in the west of the country. Earlier in 2021, a number of federal states extended the deadline for submitting VAT returns. The move came amid massive economic damage caused by flooding. Some estimates at the time put insured losses as high as €5 billion.

Flexible VAT technology when you need it most

Lawmakers increasingly understand VAT as a powerful policy option. However, that can also mean that VAT rates and regulations are subject to frequent changes. Managing changing VAT compliance rules is an ongoing challenge, especially for smaller businesses.

Vatglobal’s powerful VAT compliance technology makes meeting your VAT obligations simple, efficient and cost-effective, under all conditions. It’s the simplest way to ensure you are always 100% VAT compliant. 

Get a quote