Unpublished draft of the JStG (Annual Tax Act) 2024 - changes to VAT

Legal entities under public law, §§ 2b, 27 (22a) UStG (German VAT Code)

The transitional period for the application of § 2b UStG, the central VAT standard for legal entities under public law, will be extended by a further two years until 1 January 2027. Entry into force: 1 January 2025

Virtual events, § 3a (3) UStG

With regard to event services, Art. 53 and 54 of the VAT Directive were amended with regard to virtual participation and will take effect on 1 January 2025.  § 3a (3) UStG will be amended accordingly. Currently, the place of supply for both B2B and B2C customers is always the event’s venue.  For virtual events in the B2C sector, the new regulation stipulates that the place of supply is where the customer is established, domiciled, or habitually resides if the service is transmitted via streaming or made available virtually in another way. For B2B customers, the special rule of § 3a para. 3 no. 5 UStG no longer applies to virtual events according to the new regulation, so these are taxed at the place of destination in accordance with the general rule of § 3a para. 2 UStG. Entry into force: 1 January 2025

Work supplies, § 3 para. 4 UStG

Based on the case law of the BHF (German Federal Fiscal Court), the Federal Ministry of Finance had already clarified in its letter dated 1 October 2020 that a work supply requires the treatment or processing of another party's goods. If the supplier treats or processes an item they own, on the other hand, this is a supply of assembled goods to which the reverse charge procedure in accordance with § 13b para. 2 no. 1, para. 5, para. 7 UStG does NOT apply. The new version is compatible with case law. Entry into force: On the day after the JStG 2024 is promulgated. However, since this is merely a clarifying amendment to the law, the considerations on which it is based also apply before then.

VAT warehouse, § 4 No. 4a UStG

The tax exemption for supplies to or in a VAT warehouse and for other supplies in this context is eliminated entirely. Entry into force: 1 January 2026

Credit management, § 4 no. 8 letters a and g UStG

In addition to the granting of loans and loan collateral, their administration by lenders will also be exempt from VAT. Entry into force: 1 January 2025

Private educational services, § 4 No. 21 UStG

The current German regulation is incompatible with EU law - the European Commission reached this decision in infringement proceedings against Germany. The new regulation is closely modelled on Art. 132 para. 1 letters i and j of the VAT Directive; the certification procedure is no longer applicable. Entry into force: 1 January 2025

Wrongful VAT in credit notes, § 14c (2) UStG

In its judgement of 27 November 2019 (V R 23/19), the Federal Fiscal Court ruled that credit notes issued by a stock corporation to a supervisory board member for their supervisory board activities with VAT do not result in a tax liability for the supervisory board member in accordance with § 14c para. 2 UStG if they were no taxable persons. This is because the law’s wording states that the credit note must account for supplies of goods or services provided by the taxable person. The new version closes this loophole by extending it to credit notes. Entry into force: On the day after the JStG 2024 is promulgated.

Time of input VAT deduction, § 15 para. 1 sentence 1 no. 1 sentence 2, § 14 para. 4 sentence 1 no. 6a UStG

Until now, German VAT law has not explicitly defined the point in time at which the right to deduct input VAT arises for input supplies by taxable persons taxing their turnover based on payments received. The tax authorities assumed that the input VAT deduction must always be claimed in the period of the purchase, even if the supplier taxes the transaction in accordance with § 13 (1) no. 1 lit. b), § 20 UStG upon receipt of the payment.  In its ruling of 10 February 2022 (C-9/20) in the case "Grundstücksgemeinschaft Kollaustraße 136", the ECJ declared this to be contrary to EU law The recipient must claim the input VAT deduction upon payment if the supplier taxes their turnover based on payments received. The new regulation now explicitly regulates this. In addition, suppliers taxing their turnover based on payments received must use a corresponding invoice reference. Entry into force: 1 January 2025

Input VAT apportionment, § 15 para. 4 UStG

Sentence 3 of the provision currently stipulates that the non-deductible part of the input VAT amounts may only be determined according to the ratio of the transactions that exclude the input VAT deduction to the transactions that entitle the input VAT deduction if no other economic allocation is possible. The new regulation adapts the UStG to the ECJ case law, according to which the member states may only require a key other than the turnover key if there is no other economic allocation that provides more precise results than the turnover key. Entry into force: On the day after the JStG 2024 is announced. As the previous wording of sec. 15 para. 4 of the German VAT Act was contrary to EU law, it must also be interpreted accordingly for earlier periods.

Small businesses, § 19 UStG 

Small business regulation is being fundamentally reformed. This is due not only to obligations arising from EU Directive 202/285 but also includes other additional, independent adjustments. Under the previous regulation, VAT was not levied on small businesses. In the future, the turnover of small businesses will be VAT-exempt.  The regulation may be applied if the total turnover of a taxable person based in Germany did not exceed EUR 25,000 in the previous calendar year and does not exceed EUR 100,000 in the current calendar year.  The small business regulation is also available in Germany to taxable persons from other EU member states if their total turnover did not exceed EUR 100,000 in the previous calendar year and does not exceed EUR 100,000 in the current calendar year and they have been issued a small business identification number by the foreign authority. German entrepreneurs who wish to invoke the small business regulation in other EU countries can apply to the BZSt (Federal Central Tax Office) for a small business identification number. In a special reporting procedure, these entrepreneurs must submit a turnover report to the BZSt every quarter under further conditions.  Entry into force: 1 January 2025

Northern Ireland, § 30 UStG 

According to the Northern Ireland Protocol, Northern Ireland will continue to be regarded as a Community territory for intra-Community supplies and intra-Community distance sales as well as intra-Community acquisitions even after Brexit. This is implemented by the new regulation in the VAT Act. It is also clarified that the Northern Irish VAT ID numbers issued by the UK with the prefix "XI" are deemed to have been issued by another EU Member State. Entry into force: On the day after the JStG 2024 is promulgated.

Author

Nadia Schulte
+49 211 83 99 330