Germany Discusses “21–10–0” VAT Reform

Germany is reportedly considering a major VAT reform that would shift part of the tax burden from income to consumption.

Under the proposal, the standard VAT rate would increase from 19% to 21%, while the reduced VAT rate would rise from 7% to 10%. At the same time, essential food products could become subject to a 0% VAT rate.

The reform is being discussed as a way to raise additional revenue and finance possible cuts to income tax and social security contributions. According to current reports, the package could generate around €16 billion net revenue per year, after the loss caused by applying 0% VAT to food.

The measure would be politically sensitive because VAT increases usually affect consumers directly, especially lower-income households. The proposed 0% rate on basic groceries is intended to reduce this impact.

If adopted, the reform could apply from January 1, 2027, but it is still not final law. Businesses should monitor the proposal because it would require changes to pricing, VAT codes, invoicing systems, POS systems, ERP setup, and tax reporting logic.