08.06.2020 · 3 min read

VAT reduction: what online retailers absolutely need to consider

As part of the economic stimulus programme adopted on Wednesday evening, the German government decided on a VAT reduction from 1 July 2020. What this purely temporary step really means for online retailers, and what you need to watch so you do not fall into the tax trap, we outline briefly here.

Price adjustments

Changing the VAT rates in an online shop is unfortunately not done in two clicks. For smaller shops as well as for somewhat larger online retailers, this creates various additional workstreams, all of which need to be finished within a short period. The current requirement from the German government only concerns the respective tax rates. At the end of the day, they have to decide whether they want to adjust the net or the gross prices.

Adjustments to ERP systems

There are also a few pitfalls to watch at the various interfaces of the online shop. ERP systems, for example, have to be adjusted in many places so that they then import correctly back into the online shop. To name just a few points:

  • individual forms
  • discount rules
  • price rules
  • handover to the tax adviser
  • etc.

B2B business models

For companies that sell only to business customers, the changeover is even more annoying: because VAT always has to be remitted anyway (or is refunded), this creates only costs that will not be recoverable. And given that everything then has to be reversed again on 1 January 2020, adjusting the VAT rates is doubly burdensome.

Takeaway

What now?

Of course, the motive of the German government in cutting VAT to stimulate the economy is good and commendable. But whether the calculation really works out remains to be seen. No company is obliged to pass the saved VAT on to private customers one-to-one. Many businesses that have so far been financially hit by the coronavirus crisis are likely to use the VAT reduction to increase their profit margin. They simply do not change their prices and remit less VAT to the tax office. Quite apart from how much extra effort this VAT reduction means for smaller companies and retailers. End consumers, who are actually the true VAT payers, will however watch very carefully which businesses pass the VAT reduction on to customers on 1 July 2020 through a price cut, and which businesses do not. So as not to be left behind by the competition, it should be weighed up with foresight what pays off more at the end of the day: a higher profit margin, or more orders because of lower prices?