Global VAT & Indirect Tax News

German economists warn that a shift from the current 19% VAT to 21% is possible amid weak growth and tight budgets. A 21% rate would raise gross prices of VAT‑able goods by about 1.68% and create a short‑term inflation bump, especially impacting discretionary sectors such as retail, e‑commerce, and hospitality.

Germany’s national e‑invoicing mandate requires all businesses to receive structured invoices from January 2025 and to transmit them by revenue thresholds, with full coverage by January 2028. The system accepts XRechnung, ZUGFeRD and Peppol BIS formats, all EN 16931 compliant, and mandates 8‑year electronic archiving under GoBD. Non‑compliance can trigger VAT deduction denial, GoBD violations and administrative fines.

The post highlights that the German BMF letter dated 15 Oct 2025 requires e‑invoices to be fully and correctly validated for VAT recognition. It points out common validator shortcomings—such as incomplete EN 16931 checks, superficial VAT checks, and lack of audit‑proof documentation—and warns that many validators only verify the existence of data fields, allowing invoices with missing content to be accepted.

This guidance explains that German businesses can apply to extend the deadline for filing VAT returns by one month. If the extension is used, a special advance payment equal to one‑eleventh of the previous year’s advance payments must be paid, and it is credited in the December advance payment calculation. The special payment can be corrected upon application if expected VAT changes due to a rate change.

The German Ministry of Finance clarified rules on input VAT deductions for subsidized service providers that operate at persistent loss. The BMF Letter states that such providers cannot deduct input VAT for services unrelated to taxable activity and must satisfy a two‑step test linking remuneration to performance and confirming economic activity. The letter also amends the VAT Application Decree.

The German e-invoicing market is projected to grow from USD 15.2 billion in 2024 to USD 41.86 billion by 2033, driven by EU Directive 2014/55/EU and a 13.5% CAGR. Cloud-based solutions dominate the market, holding over 70% share, while large corporations represent about 60% of the market and SMEs are rapidly expanding. The analysis highlights regulatory mandates, market segmentation, and strategic opportunities for technology providers.

Germany has permanently lowered the VAT rate on food served in restaurants, cafes and fast‑food outlets from 19% to 7% effective 1 January 2026, while drinks remain taxed at 19%. Receipts will now show separate VAT lines for food and beverages.

Germany introduces Section 21b to the VAT Act from 1 January 2026, addressing import VAT treatment when customs declarations are filed in one EU Member State but goods are cleared in another. The new rules clarify that import VAT liability arises domestically when goods are presented domestically, with specific provisions for AEO C holders using centralised clearance.

The German Federal Fiscal Court ruled in July 2025 that input VAT on renovation costs for a historic castle is deductible when the property is intended for taxable rental activities, regardless of whether the renovation was financed through grants or donations. The ruling confirms that profitability is not required for taxable person status.

The BFH ruling confirms that input tax can be deducted for the renovation of a historic castle even when financed by public grants and private donations, provided there is an entrepreneurial intent to generate taxable rental income. The decision clarifies that financing does not affect deduction, requires a clear allocation between private and taxable use, and mandates that the tax office determine the exact deductible share.

Germany's mandatory e-invoicing regime for B2B transactions began on 1 January 2025. All businesses must now be capable of receiving EN 16931 compliant e-invoices, with full sending requirements phased in through 2028.