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How much will you save on products with Germany’s new VAT reduction?

From July 1st the VAT (value added tax) was reduced for six months, meaning many products will become cheaper. We looked at what that means for you.

How much will you save on products with Germany's new VAT reduction?
How much will you save in the last six months of 2020? Photo: DPA

When will VAT go down?

The standard VAT rate fell from 19 to 16 percent between July 1st and December 31st. The reduced rate, which applies to many foods and everyday goods, fell from seven to five percent.

It means lots of items in supermarkets, furniture stores, electrical stores and elsewhere are likely to become cheaper for six months.

Retailers are not obligated to pass on the discount to customers. However, lots of firms, such as supermarket retailers and Deutsche Bahn, have said that they plan to do this.

Retailers may change their price labels to reflect the discount or apply it at the till.

Why is it happening?

The measure is part of an aid package aimed at boosting the economy after the coronavirus pandemic shutdown. It is hoped by reducing value added tax to products, consumers in Germany will simply buy more to get the economy moving.

READ ALSO: How Germany's new multibillion aid package will benefit you

 

This step is intended to relieve the burden on low-income earners in particular, as VAT is often the only tax they pay in a large amount. It will cost the federal government around €20 billion.

The big question is whether the reduction will really bring the expected increase in consumption – or whether many people will wait until the crisis is over.

“The aim is for citizens to make a possible purchase decision now and not to postpone it until next year or the year after,” said Federal Finance Minister Olaf Scholz.

When it comes to buying food, the reduction will often only work out at a few cents less. But the tax cut will make a bigger difference for large purchases such as washing machines.

How much of an impact will it have?

Savings on everyday products will remain small but for larger purchases there will be a noticeable difference.

If a car previously cost €30,000, for example, the customer could in theory only have to pay €29,243.69 from July – in other words, around €750 less.

READ ALSO: What you should know about Germany's planned VAT cut

As well as citizens, the reduction will also benefit companies in all sectors, from gastronomy to the automotive industry, according to the government.

Here's some possible savings on products:

1 litre milk 3.5 percent fat – current market price: 79 cents – possible saving: 2 cents

VW Golf, basic model – current market price: €19,995 – possible saving: €504 

Levis ladies jeans – current market price: €85 – possible saving: €2.14

Fuel tank Golf E10 (50 litres) – current market price:  €58.37- possible saving: €1.47 

Billy bookshelf Ikea – current market price: €79 – possible saving: €1.90

Blood sugar measuring device Salter – current market price:  €39.99 – possible saving: €1.01

Garden shears Gardena – current market price:  €11.86 – possible saving: 30 cents

Nivea Skin Cream – current market price:  €1.16 – possible saving: 3 cents

Canon Camera 2000D – current market price:  €329 – possible saving: €8.29 

According to German news site Merkur, which analysed the VAT reduction plans, there could also be savings on other products such as bicycles, lamps or furniture (these products have a standard rate).

READ ALSO: Is Germany doing enough to ensure small businesses survive the coronavirus crisis?

The reduced rate applies to some foods, medical supplies, domestic transport, books, tickets to cultural events, flowers, e-books, audiobooks and periodicals, and short-term hotel accommodations.

What is VAT anyway?

Companies must add value added tax (VAT) to their prices. The tax is then transferred to the tax authorities on a monthly, quarterly, or annual basis.

According to EU law, EU Member States are required to levy a standard VAT rate of at least 15 percent and a reduced rate of at least 5 percent.

In Germany the VAT rate of 19 percent is just below the European average of about 21 percent. A reduced rate of 7 percent applies to certain consumer goods and everyday services (such as food, newspapers, local public transport and hotel stays). Some services (such as bank and health services or community work) are completely VAT exempt.

The official German term for VAT is Umsatzsteuer (USt), but it was originally called Mehrwertsteuer (MwSt) and is often still referred to by this name.

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LIVING IN GERMANY

REVEALED: The most commonly asked questions about Germans and Germany

Ever wondered what the world is asking about Germany and the Germans? We looked at Google’s most searched results to find out – and help clear some of these queries up.

Oktoberfest
Hasan Salihamidzic, the sports director of FC Bayern, arrives with his wife at Oktoberfest in full traditional dress. Photo: picture alliance/dpa |

According to popular searches, Germany is the go-to place for good coffee and bread (although only if you like the hard kind) and the place to avoid if what you’re looking for is good food, good internet connection and low taxes. Of course, this is subjective; some people will travel long stretches to get a fresh, hot pretzel or a juicy Bratwurst, while others will take a hard pass.

When it comes to the question on the bad Internet – there is some truth to this. Germany is known for being behind other rich nations when it comes to connectivity. And from personal experience, the internet connection can seem a little medieval. The incoming German coalition government has, however, vowed to improve internet connectivity as part of their plans to modernise the country.

There are also frequent questions on learning the German language, and people pointing out that it is hard and complicated. This is probably due to the long compound words and its extensive grammar rules, however, as both English and German are Germanic languages with similar words in common, it’s not impossible to learn as an English-speaker.

Here’s a look at some of those questions…

Why is German called Deutsch? Whereas ‘German’ comes from the Latin, ‘Deutsch’ instead derives itself from the Indo-European root “þeudō”, meaning “people”. This slowly became “Deutsch” as we know it today. It can be a bit confusing to English-speakers, who are right to think it sounds a little more like “Dutch”, however the two languages do have the same roots which may explain it.

And why is Germany so boring? Again, probably a generalisation, especially given that Germany has a landmass of over 350,000 km² with areas ranging from high rise, industrial cities to traditional old town villages and even mountain ranges, so you’re sure to find a place that doesn’t bore you to tears.

Perhaps it is a question that comes from the stereotype that Germans are obsessed with being strict about rules, organised and analytical. Or that they have no sense of humour – all of these things being not the most exciting traits. 

Either way, from my experience I can confirm that, even though there is truth to German society enjoying order and rules, the vast majority of people are not boring, and I’m sure if you come to Germany you’ll meet many interesting, funny and exciting people. 

READ ALSO: 12 mistakes foreigners make when moving to Germany

When it comes to the German weather, most people assume a cold and cloudy climate, however this isn’t entirely true. While the autumn and winter, especially in the north, come with grey skies and sub-zero temperatures, Germany can have some beautiful summers, with temperatures frequently rising above 30C in some places.

Unsurprisingly, the power and wealth of the German nation is mentioned – Germany is the largest economy in Europe after all, with a GDP of 3.8 trillion dollars. This could be due to strong industry sectors in the country, including vehicle constructions (I was a little surprised to find no questions posed on German cars), chemical and electrical industry and engineering. There are also many strong economic cities in Germany, most notably Munich, Frankfurt am Main and Hamburg.

READ ALSO: Eight unique words and phrases that tell us something about Germany

Smart and tall?

Why are Germans so tall? They are indeed taller than many other nations, with the average German measuring a good 172.87cm (or 5 feet 8.06 inches), however this may be a question better posed to the Dutch, who make up the tallest people in the world.

Why are Germans so smart? While this is again a generalisation – as individuals have different levels of intelligence in all countries – this question may stem from Germany’s free higher education system or their seemingly efficient work ethic. Plus there does seem to be some scientific research behind this question, with a study done in 2006 finding that Germans had the highest IQ in Europe.

So, while many of the questions posed about Germany and Germans on Google stem from stereotypes, we can confirm that some aren’t entirely made up. If you’re looking to debunk some frequently asked questions about France and the French, check out this article by our sister site HERE.

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