4 September 2026 • 2 minute read

Germany to replace the automatic VAT group with an elective regime

Written by:Dr Björn Enders Florian Hader

Germany’s VAT grouping reform replaces the current automatic regime with an elective one. Groups will need to opt in rather than being treated as a single taxable person by operation of law. The reform also confirms - consistent with CJEU and BFH case law - that partnerships can qualify as controlled entities within a VAT group. In addition, it introduces new rules on corrections, unwinding, interest and joint liability where a VAT group was incorrectly assumed to exist.

Under the government draft, the timeline has been pushed back: the first election may be filed from 1 July 2029, taking effect from 1 January 2030.

The change matters most for groups whose outputs are predominantly exempt from VAT. Where a VAT group is in place, supplies between members fall outside the scope of VAT altogether. Without grouping, those same intra-group charges become taxable, and—because the recipient's activities are largely exempt—the input VAT is largely irrecoverable. The choice of whether to form a VAT group therefore has a direct impact on the group's overall VAT cost.

The same legislative package increases the full interest assessment rate (Vollverzinsung) to 3.6 per cent per annum from 1 January 2027. This raises the financial exposure where a group has been operating on the assumption that a VAT group existed but that assumption later proves incorrect, as interest will now accrue at the higher rate on any resulting VAT adjustments.

Key takeaway / recommendation

Electing for a VAT group may take time, and existing structures must be tested against the new correction, unwinding, interest and liability rules for incorrectly assumed VAT groups. For financial services and insurance groups with largely exempt outputs, the decision drives irrecoverable VAT across shared services and intra-group charges. Businesses are encouraged to start mapping their group structure before the first election window opens on 1 July 2029.