In the following, we wish to provide you with an overview of the, in our opinion, most important changes in tax law resulting from the 2020 Annual Tax Act, without presenting the sometimes detailed regulations in full.
Income tax / German General Tax Code / Trade tax
Home office allowance
- The new regulation pursuant to Art. 4 Sec. 5 sentence 1 No. 6b EStG (German Income Tax Act) allows taxpayers not having a home office or refraining from deducting any home office related expenses to deduct, for their entire business and professional activities, an amount of 5 Euro for each calendar day during which they perform their business or professional activities exclusively in their home (home office flat rate). The deduction is limited to EUR 600 per year.
- However, it should be noted that the home office allowance will be included in the flat-rate income-related expenses allowance of EUR 1,000, which is generally deducted from income from non-self-employed work as part of the tax assessment. It is therefore not granted in addition to such flat-rate allowance. A tax benefit only arises if the actually incurred income-related expenses exceed the flat-rate income-related expenses allowance in total.
- In a first step, the home office allowance is supposed to be limited to the years 2020 and 2021.
- Due to the amendment, the investment deduction is supposed to become significantly more flexible. Although the deduction still requires for the asset to be used almost exclusively for business purposes (at least 90%), Art. 7g EStG shall, in future, also apply to permanently leased out assets.
- Furthermore, the preferential investment costs are to be increased from 40 % to 50 % and, in accordance with the proposed resolution, a uniform profit limit of EUR 200,000 is to be introduced for all types of income. The government draft still assumed a profit limit of EUR 150,000.
- The amendments are applicable for the first time for investment amounts and special depreciations used in fiscal years ending after December 31, 2019.
Tax exemption of employer subsidies for short-time work allowances
- The tax-exemption of employer subsidies for short-time work allowances shall be extended by one year, i.e. until December 31, 2021 (Art. 3 No. 28a EStG).
- It extends the limited and temporary tax exemption of employer subsidies for short-time work allowances introduced by the Corona Tax Relief Act of June 16, 2020, to the existing extent, to wage payment periods in the calendar year 2021.
Consideration of expenses in connection with the renting of residential properties at a reduced price
- Art. 21 Sec. 2 sentence 1 EStG, as amended, provides for a general division of the transfer of use into a part rented for a consideration and a part rented free of charge in the event of a discounted provision of an apartment at less than 66% of the typical local rent, whereby only the income-related expenses attributable to the part of the apartment rented for a consideration may be deducted from the rental income. This limit is to be reduced to 50%.
- Furthermore, a total surplus forecast is required if the fee is between 50 and 66 percent of the typical local rent. If this is positive, the income-related expenses from such rental relationship will not be reduced.
- The new regulation will apply for the first time to assessment periods starting in 2021.
- Low-income earners whose taxable income is below the basic allowance and who therefore do not pay any taxes will receive the so-called mobility bonus from 2021.
- For simplification purposes, the mobility bonus is to be integrated into the income tax assessment procedure in future, Art. 105 EStG.
Definition of the additionality requirement for employer benefits
Due to the German Federal Court of Finance’s (“BFH”) divergent case law, the German Federal Ministry of Finance’s (“BMF”) view, which would like to provide for tax advantages only for such benefits paid by the employer in addition to the regularly owed salary, shall find its way into the law through the revised version of Art. 8 Sec. 4 EStG. Such provision now clarifies for the entire EStG that only so-called "genuine additional benefits" are covered by tax advantages.
Limitation of the possibility to offset losses from capital investments against income subject to standard taxation (Art. 32d Sec. 2 No. 1 lit b sentence 1 EStG)
According to the explanatory memorandum, the new regulation shall ensure that only such part of a shareholder’s (holding at least 10% of the shares) income from receivables from the company is subject to standard taxation pursuant to Art. 32a EstG which constitutes operating expenses at the company’s level. In practice, the new regulation aims to exclude losses, in particular from the sale or waiver of forfeiture of the shareholder’s loan receivables from the company, from standard taxation pursuant to Art. 32a EStG and to subject them to the withholding tax regulations. The legislative change raises various complex questions.
Implementation of data exchange in the private health and nursing care insurance sector
- Art. 39 et seq. EStG regulates the exchange of data between private health insurance companies, tax authorities and employers.
- The exchange of data is supposed to completely replace the paper-based procedures currently existing in the wage tax deduction procedure and to reduce the administrative burden.
Limitation of loss utilization in connection with income from capital investments (Art. 20 Sec. 6 sentence 5 and 6 EStG) – Increase of offsettable loses to EUR 20,000
- Pursuant to Art. 20 Sec. 6 sentence 5 EStG, losses from forward transactions could so far only be offset against profits from forward transactions and option writer income. Additionally, loss offsetting will be limited to EUR 10,000 p.a. Any losses not offset during an assessment period can be carried forward to subsequent fiscal years. The previous limitation of loss utilization in the amount of EUR 10,000 will be increased to EUR 20,000.
- Previously, losses from the retirement of non-value assets or the full or partial non-collectability of a capital receivable could previously only be offset against income from capital investments pursuant to Art. 20 Sec. 6 sentence 6 up to an amount of EUR 10,000 per year. In such cases, too, the limitation of loss utilization will be increased from EUR 10,000 to EUR 20,000.
Increase of training supervisor allowance (Übungsleiterfreibetrag) and flat rate for honorary offices (Ehrenamtspauschale)
The new regulation provides for an increase of the training supervisor allowance as of 2021 from EUR 2,400 to EUR 3,000 (Art. 3 No. 26 EStG) and the flat rate for honorary offices from EUR 720 to EUR 840 (Art. 3 No. 27 EStG).
Increase of the threshold for a simplified proof of donation from EUR 200 to EUR 300
The regulation provides for a simplified proof of donation up to an amount of EUR 300 (previously EUR 200) as of January 1, 2021 (Art. 50 Sec. 4 sentence 1 No. 2 ESt-DV).
Increase of tax-exempt limit for remunerations in kind
- Previously, pursuant to Art. 8 Sec. 2 EStG, remunerations in kind remained tax-free if, after crediting the payments made by the taxpayer, the total benefits did not exceed EUR 44 in a calendar month.
- The limit for remunerations in kind will be increased for all employees from EUR 44 to EUR 50. The new regulation shall apply from 2022.
Relief amount for single parents: Removal of the increase’s time limit pursuant to Art. 24b EStG
The relief amount for single parents, which was already increased to EUR 4,008 in the second Corona Tax Relief Act, was previously limited in time. The time limit is to be removed so that the increase also applies to assessment periods from 2022 onwards.
Extension of the payment term for the tax exemption of Corona special payments
- Special payments made to employees due to the Corona crisis at an amount of up to EUR 1,500, are tax-exempt pursuant to Art. 3 No. 11a EStG. This applies to special payments the employees received during the period from March 1, 2020 through December 31, 2020.
- The period will be extended until June 2021. The explanatory memorandum makes clear that the extension does not provide for another tax-exempt payment of a Corona aid in the first half of 2021. Only the period for such aid’s granting will be extended.
Interest in case of a provisional loss carryback
- Previously, Art. 111 EStG allowed taxpayers to deduct, upon request in the 2019 tax assessment, a lump-sum amount of 30 percent of the 2019 total income as loss carryback from 2020 (provisional loss carryback for 2020).
- The amended version of Art. 111 EStG supplements the previous provision according to which Art. 233 Sec. 2a AO must be applied accordingly to the 2020 loss carryback. The interest payment period for 2019 will then only start 15 months after the calendar year in which the loss was incurred.
Various changes to the German General Tax Code’s (AO) non-profit law
- The purposes of climate protection, free radio and embellishment will be included in the General Tax Code’s list of non-profit purposes.
- There are a number of other changes to the AO, in particular in the areas of the use of funds, the transfer of funds and the protection of confidence in connection with the transfer of funds.
Extension of the limitation period in case of tax evasion
In the event of particularly serious tax evasion, the limitation period will be extended from 10 years to 15 years. Such change was justified with the fact that, in connection with cum-ex offenses, the previously applicable limitation period of 10 years was not sufficient in order to uncover the facts relevant under criminal tax law in a timely manner and to investigate them fully.
Valuation discount for rental relationships between employer and employee
- As a result of the sharp rise in rents, linking the valuation of company-owned apartments to the dynamically rising rent index is resulting in increasing tax burdens for employees. In order to counteract this development, a valuation discount has been introduced for wage payment periods since January 1, 2020, which is to be deducted when determining the local rental value relevant for benefit taxation, provided the apartment’s net rent does not exceed EUR 25 per square meter.
- Inclusion of affiliated companies in the valuation discount applicable to rental benefits since 2020 (Art. 8 Sec. 2 Sentence 12 EStG).
Applicability of Art. 8d KStG to trade tax deficits
Implementation of a regulation for a corresponding application of Art. 8d KStG (German Corporate Income Tax Act) to trade tax deficits (Art. 10 Sec. 10a GewStG (German Trade Tax Act)).
Relocation of accounting
- In future, a relocation of accounting into an EU member state pursuant to Art. 146 Sec. 2a AO will also be possible without application. Only a relocation to third countries still requires a written (in future electronic) application.
- However, in both cases full data access to the records must be ensured.
Value Added Tax (VAT)
- As of July 1, 2021, the JStG 2020 will implement the “VAT Digital Package”, which includes inter alia:
- the introduction of a “one-stop shop” for deliveries within one member state through an electronic interface, intra-community distance selling and all services provided at the user’s place of residence to non-entrepreneurs with a place of business/place of residence within Community territory;
- the introduction of an “import one-stop shop” for the distance selling of items in shipments from third countries with a value of up to EUR 150.
- In future, the reverse charge regulation shall also apply to telecommunication services to resellers.
- In future, there will be a legal regulation for the taxation of local corporate bodies which are subject to Art. 2b UStG (German VAT Act).
- With regard to the reporting obligations in the EC sales list pursuant to Art. 18a UStG for consignment warehouse simplification pursuant to Art. 6b UStG, the cases of a change of acquirer pursuant to Art. 6b Sec. 5 UStG or the return of the goods to the Member State of dispatch before the expiry of the 12-month period pursuant to Art. 6b Sec. 4 UStG are now to be legally regulated in Art. 18a Sec. 6, Sec. 7 UStG.
- According to Art. 4 No. 23 lit. c UStG, accommodation and catering services provided by daycare facilities for children and by vocational school hostels (formerly: apprentice/trainee hostels) for students and pupils shall also be exempt from VAT.
- A decedent’s tax refund claims shall in future be part of the taxable acquisition, even if they did not exist at the time of the inheritance (Art. 10 Sec. 1 sentence 3 ErbStG (German Inheritance Tax Act)).
- The deduction of debts in the determination of the taxable acquisition shall be reduced proportionately if debts are not economically related to individual assets, Art. 10 Sec. 6 sentences 5-10 ErbStG.
- Finally, an amendment option for the correction of the subsequent acquisition is to be introduced for cases in which the tax assessment with regard to the previous acquisition is amended on the basis of Art. 175 Sec. 1 sentence 1 no. 2 AO (Art. 14 Sec. 2 sentence 1 ErbStG).