Sales tax reduction in e-commerce: Pay attention to the time of performance!
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Sales tax reduction in e-commerce: Pay attention to the time of performance!

Dealing with the impending reduction in value added tax is a matter of concern to us all. The great response to our webinar was an indication of the great need for information. We have already reported on key measures. Here you will also find all the options available to you under the Price Indication Ordinance on labelling.

The time of performance as the most important variable for the correct handling of the reduction of value added tax

The time of performance is decisive for the tax rate you have to apply. The question of correct billing is particularly relevant in e-commerce, but not only there. Which VAT rate you have to apply depends solely on when the service was performed. This applies regardless of,

  • when the invoice is issued,
  • when the payment was made,
  • whether and when down payments or advance payments were made, or
  • whether you tax your sales according to the remuneration received, the so-called actual taxation, or according to agreed remuneration, the so-called target taxation.

This is what you need to know for a clear clarification of the time of performance

In order to be able to determine clearly the time of performance, you should know a few example cases. How are the performance period and deliveries related? What is the regulation for services and partial services? What is important to know for a so-called intra-community acquisition?

Time of performance and delivery

A delivery is deemed to have been carried out when the recipient of the service – i.e. the customer – has acquired the power of disposal over the item. If the item is transported or dispatched, the delivery and thus the service is generally deemed to have been carried out at the start of the transport or dispatch.

Time of performance for services or partial services

Other performances, for example services, shall be deemed to have been performed at the time of completion. In the case of a period, the service is considered to be performed at the end of this period. Exceptions to this rule are genuine partial services. In the case of genuine partial services, the partial service period is decisive. In order for a partial performance to exist at all, it must be a reasonable and economically delimitable performance. In addition, there must be an agreement on the execution of partial services, which must also be accepted and invoiced separately.

VAT on an intra-community acquisition becomes chargeable when the invoice is issued

However, in the case of intra-community acquisitions, VAT shall become chargeable at the latest at the end of the month following the acquisition.

Examples for sales tax deferral

PurchaseOrderInvoicePaymentTax rate in percent
1.June 2020June 2020June 2020June/July 202019 or 7
2.June/July 2020July 2020July 2020June/July 202016 or 5
3.June 2020June 2020July 2020June/July 202019 or 5
4.June/July 2020July 2020June 2020June/July 202016 or 5
5.December 2020December 2020January 2021January 202116 or 5
6.December 2020January 2021January 2021January 202119 or 7

When determining the sales tax rate before and after reduction, base the calculation solely on the delivery date. When ordered, when the invoice was written and when paid is irrelevant.

What to consider in case of an exchange?

In case of an exchange, the original delivery will be cancelled. A new delivery is executed then. The original supply is reversed at the tax rate applied to the original supply. In the case of a replacement delivery, the generally applicable rules of a delivery apply. It becomes somewhat more complex if you have received down payments. Here there are special features that you must take into account. We will inform you about them in a separate article.

If you have any questions on how to deal with the reduction in sales tax, we will be happy to assist you.

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Lars Rinkewitz
Lars Rinkewitz
Tel.: +49 211-90 86 70