VAT related measures
Temporary cut in the VAT rates from 19 % to 16 % and 7% to 5%
The VAT rates will be reduced from 19 % to 16 % and 7% to 5% for a limited period from 1.7.2020 until 31.12.2020. You can read more about this in relation to the area of continuous services in our report "Reduced VAT for continuous services" (based on data available on 30.6.2020) and generally in the PKF special “Reduction of the VAT rate“ (based on data available on 15.6.2020).
Please note: For the month of July and in B2B business a no objection rule will apply for a VAT charge that is too high. We recommend availing yourself of this option only if it was not possible to fully implement a system changeover by the 1.7.
Postponement of due date of import VAT to the 26th of the second subsequent month
The due date of import VAT will be postponed until the 26th of the second subsequent month if a deferred payment has already been authorised in accordance with Art. 110 b) or c) of the UCC (Union Customs Code). The effective date of the new provision, which is of indefinite duration, will be made known in a separate Federal Ministry of Finance circular as soon as there is a definite date by which the IT requirements can be met.
Income tax-related measures
Increase in the tax loss carry-back
The maximum amount for loss carry-backs for businesses will be increased from € 1m to € 5m for the assessment periods 2020 and 2021. As a result, it will be possible to carry back losses of up to € 5m from 2020 to 2019 for corporation and income tax purposes. In the case of a joint assessment for tax of the commercial income of natural persons the amount of the loss carry-back has been increased from € 2 m to € 10 m. The loss carry-back will not be applicable to trade tax.
Provisional loss carry-back for 2020
Under the conditions of the new Sections 110 and 111 of the German Income Tax Act (Einkommenssteuergesetz, EStG), a flat rate of 30% of the overall amount of income for the 2019 assessment period can be generally applied as retroactive loss carry-backs to reduce the tax prepayments for 2019 as well as the tax assessment for 2019. A reduction of more than 30% would be possible if a higher anticipated loss carry-back can be demonstrated on the basis of detailed documentation.
Temporary introduction of the declining balance method of depreciation of up to 25%
It will be possible to depreciate non-current movable assets that are acquired or produced in 2020 and 2021 according to the declining balance method of depreciation, instead of the straight-line method, up to a level of 25% with a maximum of 2.5 times the straight-line depreciation amount.
The purchase price limit for the purpose of the taxation of the private usage of electric company cars has been increased to € 60,000
If an electric company motor vehicle is used privately then only 0.25% of the gross list price (if the 1% rule is the basis of assessment) has to be applied, or just 25% of the acquisition costs or comparable expenses (if the driver’s log book rule is the basis of assessment). However, up to now, this was only applicable if the gross list price of that motor vehicle was not more than € 40,000. The purchase price limit has been raised to € 60,000 with a view to increasing the demand. The change will apply from 1.1.2020 for the assessment of the value of the private usage of such motor vehicles acquired, leased or made available for private usage for the first time after 31.12.2018 and before 1.1.2031.
Reinvestment periods under Section 6b EStG have been temporarily extended by one year
Under the new rules, for financial years ending after 29.2.2020 and before 1.1.2021, if at the end of those years any reinvestment reserves are still remaining and would have to be reversed then the reinvestment period would not finish until the end of the subsequent financial year. The aim of this temporary measure is to preserve liquidity by not forcing companies to reinvest this reserve in order to avoid the reversal of the reserve, which would attract tax and an additional charge against profits.
Extension of deadlines ending in 2020 for the use of investment allowances under Section 7g EStG
Investment allowances (Investitionsabzugsbeträge, socalled IAB) generally have to be used by the end of the third financial year after the year in which the allowance was deducted for an investment that benefits from preferential tax treatment. Otherwise they would have to be reversed (which would attract tax plus interest on tax arrears). With a view to avoiding this, the deadline for an IAB where the three-year investment period ends in 2020 will be extended by one year.
The factor for determining the amount of tax relief for income from business activities has gone up from 3.8 to 4.0
Up to now, sole traders and partners in a commercial partnership were able to offset a maximum of 3.8 times their trade tax base values against their income tax with a view to bringing their tax charges closer to a level that would be independent of their legal forms. From the 2020 assessment period this factor will go up to 4.0 for an indefinite period of time. Therefore, trade tax will now be fully credited where the trade tax rate is 14% (previously 13.3%).
Trade Tax – Tax-free amount for add-backs increased to € 200,000
When determining the trade tax add-back amount, the sum of the amounts of the individual trade tax add-back elements (e.g. rent, lease payments and debt interest) should only be taken into consideration if they exceed € 100,000. In order to provide relief and to enhance liquidity, in particular that of SMEs, this tax-free amount will be increased to € 200,000 from the 2020 reporting period for an indefinite period of time.
Temporary increase to € 4m for the maximum level of the assessment base for the tax-exempt research allowance
The new tax-exempt research allowance has been made more attractive by increasing the maximum level of the assessment base for the research allowance from € 2m to € 4m p.a. for each enterprise. The new rules will apply for a limited period to all eligible expenses arising after 30.6.2020 and before 1.7.2026.