1. Introduction & Problem Statement
Annual Tax Acts are a long-standing tradition in Germany: each year, the legislature consolidates a variety of individual corrections, clarifications, and adjustments to case law into a single omnibus act. The JStG 2026 is no exception – but it does contain several changes with significant practical implications for businesses. In the area of VAT in particular, structural reforms are on the horizon that warrant early attention.
2. What Is the JStG 2026 Draft?
On 26 May 2026, the BMF published its internal draft. Associations were invited to submit comments until 12 June 2026. Cabinet deliberation is scheduled for 1 July 2026, after which the parliamentary process will begin. Final adoption and entry into force are expected by the end of 2026. Most VAT changes are due to take effect on 1 January 2027 – one key reform, however, will not apply until 2029.
3. The Most Important Change: Reform of VAT Grouping (§ 2c UStG-E)
The most significant VAT change is the shift of VAT grouping to an application-based procedure. Under current law, a VAT group arises automatically once the material conditions – financial, organisational, and economic integration – are met. Under the new rules, it will only be recognised if the controlling entity actively applies for it. The application must be submitted electronically; the controlling entity may determine which companies are included and from which date the group is to apply. The risk that the conditions are actually satisfied remains with the taxpayer. Also new: partnerships will be able to be members of a VAT group without restriction. The reform applies from 1 January 2029; applications may be submitted from 1 July 2028.
4. Further VAT Changes from 2027
Additional planned changes include: the taxation of non-monetary supplies will be restricted to the non-business (private) sphere. Internal transfers within a business – such as from the business sector to the sovereign activity sector in the case of public law entities – will no longer be taxable from 1 January 2027. Rules on the place of supply for electronically rendered services and intra-EU distance sales (§§ 3, 3a, 3c, 3f UStG-E) will also be adjusted – particularly relevant for platforms and digital service providers. The Platform Tax Transparency Act (PStTG) will also be expanded: automatic information exchange will be extended to third countries.
5. What Do Businesses Need to Do Now?
Even though most changes do not take effect until 2027 or 2029, now is the right time for an initial assessment. Companies with existing VAT group structures should review whether they are affected and whether a timely application will be required to maintain recognition beyond 31 December 2028. Companies with non-monetary supplies between business units, as well as digital service providers, should monitor the planned place-of-supply amendments and begin preparing their systems accordingly.
6. Conclusion
The Annual Tax Act 2026 introduces substantive changes to VAT. The VAT group reform is a long-overdue step towards legal certainty – even if the transition period extends to 2029 and the taxpayer continues to bear the material risk. Businesses should actively monitor the legislative process and assess at an early stage what internal measures will be required. The draft is an important first step – but the final word rests with the Bundestag at the end of 2026.
