While, up to now, the investment allowance (Investitionsabzugsbetrag, so-called IAB) only applied to those assets that were used 90% in business operations in the year when the investment was made and in the subsequent year, in the future, this limit will be lowered to 50%. At the same time, the plan is to increase the IAB from 40% to 50% of the anticipated acquisition/production costs and to determine the value limit up to which a business can claim the IAB uniformly and solely with reference to profit calculated in accordance with Section 4 or Section 5 of the Income Tax Act (Einkommenssteuergesetz, EStG) up to a maximum of €125k. However, tightening is envisaged in two areas:
- Once an initial tax assessment or initial separate assessment has become non-appealable an application for an IAB will be permitted only if, at the time the IAB is claimed, the asset that is to receive the tax credit has not yet been acquired or produced.
- The Federal Fiscal Court [Bundesfinanzhof, BFH] had ruled that an IAB that has been set up in the joint ownership sphere of a business partnership could also “be used“ for an investment by a co-partner in special business assets. In the future, as a reflection of the intention of “non-application legislation, an IAB at the level of joint ownership would only be used for jointly owned investments and an IAB in special business assets only for investments made by a co-partner or his/her legal successor.
The above-mentioned amendments would apply for the first time to an IAB in a financial year starting after 31.12.2019; however, the tighter rules would be taken into account for financial years starting after 31.12.2020.
Benefits provided by employers “in addition to the remuneration due in any case to employees“
Various benefits offered by employers, such as subsidies for travelling on scheduled public transport services, for the transfer of ownership of company bicycles, childcare allowances, etc., enjoy income tax breaks if they are provided “in addition to the remuneration due in any case to employees“. In the view of the BFH, it is also possible for cases of salary waiver/conversion to satisfy this requirement; nevertheless, the fiscal authority does not apply the underlying ruling. Now, the aim is to introduce a legal definition, which would take effect for the first time for remuneration payment periods ending after 31.12.2019, where in cases of salary waiver/conversion it would no longer be assumed that these are benefits provided in addition to the remuneration due in any case to employees.
Making available housing at a reduced price
Up to now, in cases where a rent level is less than 66% of the average market rent for the local area the rental has been divided up into remunerated and non-remunerated portions and, as result, it was only possible to deduct the allowable expenses from the remunerated portion. However, as of 2021, a tiered system will (once again) apply:
- In the case of rent that is below 50% of the average level for comparable dwellings in the area then the provision for use has to be divided up into remunerated and non-remunerated portions.
- In the case of rent that is at least 50%, but below 66% of the average level for comparable dwellings in the area then a total surplus forecast has to be made. If this turns out to be positive then it would be possible to deduct the full amount of allowable expenses, by contrast, in the event of a negative result the deduction could only be made only in relation to the remunerated portion.
- In the case of rent that is at least 66% of the average level for comparable dwellings in the area, under the EStG, as previously, the full amount of allowable expenses will be deductible.
Recommendation: The envisaged changes to both the IAB as well as the benefits provided by employers “in addition to the remuneration due in any case to employees“ will (at least to a certain degree) already have an effect in 2020. Therefore, you should consider the extent to which, by being proactive, you could potentially benefit from the planned adjustments or avoid any detrimental effects. The same can be said of the period starting from 2021 as regards making available housing at a reduced price.