An overview of the final amendments to the 2019 Annual Tax Act and the abolition of the solidarity surcharge
On 7.11.2019, the lower house of the German parliament (Bundestag, BT) passed the "Act to provide for further fiscal incentives to promote electromobility and to amend other tax regulations" ("2019 Annual Tax Act") as amended in the "recommended resolution" (BT printed matter 19/14873) and in its Finance Committee's "report" (BT printed matter 19/14909). There are plans for this Act to be passed by the upper house of the German parliament (Bundesrat, BR) on 29.11.2019.
In the following section, we explain the amendments to the Act in relation to the governmental draft from 31.7.2019. On 14.11.2019, one week after the Act was passed, the Bundestag then approved the virtual abolition of the solidarity surcharge – we will briefly report on this, too.
2019 Annual Tax Act – final amendments in relation to the governmental draft
Income and payroll taxes
(1) The Act that was passed no longer includes the tax exemption for benefits in kind to promote alternative housing options (Section 3 no. 49 of the Income Tax Act – Draft (Einkommenssteuergesetz-Entwurf, EStG-E)).
(2) In the context of the implementation of the Climate Package 2030, a reduction in the assessment base for the taxation of the private use of certain company hybrid/electric vehicles will be granted (Section 6(1) no. 4 clause 2 nos. 3-5 EStG-E). For motor vehicles acquired between 1.1.2019 and 31.12.2030, the assessment base will be reduced down to one quarter of the domestic (German) gross list price. A reduction will only be granted for motor vehicles that have no carbon dioxide emissions per km driven and whose gross list price does not exceed € 40,000 (Section 6(1) no. 4 clause 2 no. 3 EStG-E). If these conditions are not satisfied then the following rules will apply.
For motor vehicles acquired between 1.1.2022 and 31.12.2024, only half of the gross list price should be included if their carbon dioxide emissions per km driven are a maximum of 50 grams, or if the range of the vehicle is at least 60 km when the electric drive system is solely used (Section 6(1) no. 4 clause 2 no. 4 EStG-E).
(3) The clarification that the special depreciation under Section 7b EStG for income from letting and leasing will be permitted for the related deductible costs stems from Section 9(1) clause 3 no. 7 clause 1 EStG-E. The special depreciation allowance under Section 7b EStG may already be claimed for the 2018 assessment period.
(4) The scope of application of the new Section 7c EStG has not only been opened up for electric delivery vehicles but has also been extended to include electric commercial vehicles within the meaning of Section 7c(2) EStG-E and electric-powered cargo bikes within the meaning of Section 7c(3) EStG-E. In this connection, in the year of purchase, besides the depreciation allowance under Section 7(1) EStG, it will also be possible to claim special depreciation in the amount of 50% of the cost of acquisition (Section 7c(1) EStG-E). In order to be able to claim special depreciation the taxpayer will have to submit details of the acquisition costs that underlie the special depreciation, together with information on the above-mentioned conditions, to the competent tax authority (Section 7c Abs. 4 EStG-E).
(5) In Section 8(1) EStG, the widening of the definition of a payment in cash as opposed to payments in kind has been included (Section 8(1) clauses 2 and 3 EStG-E and Section 8(2) clause 11 EStG-E). According to this definition, payments for a specific purpose, subsequent reimbursements of costs, monetary surrogates and other benefits that are based on an amount of money will not be allowed as payments in kind. This will not apply to payments in kind in the form of vouchers and cash cards that entitle holders solely to the purchase of goods or services and not for payments in kind that are granted in addition to the remuneration that would in any case be due to employees. Employers will still be able to make these payments in kind, free of tax, to their employees up to an amount of € 44 per month.
(6) The new rules on defaults on investments (Section 20(2) EStG-E) that were originally planned have been omitted.
(7) A mandatory assessment will be introduced for employees who have received investment income for which no tax has been deducted (Section 32d(3) clause 3 EStG-E).
(8) Employers that transfer the ownership of company bicycles free of charge or at a discount to employees in addition to the remuneration that is due will be given the option of taxing such non-cash benefits at a flat rate of 25% of payroll tax (Section 40(2) clause 1 no. 7 EStG-E). The solidarity surcharge and, if applicable, church tax will be added to this.
(9) There are plans to extend the payroll tax return such that details of the payroll tax to be withheld and assumed will have to be provided separately for the calendar years in which the remuneration is drawn or deemed to have been drawn (Section 41a(1) clause 1 no. 1 EStG-E).
(10) The aim of Section 49(1) no. 5a) EStG-E is to introduce restricted tax liability for capital gains in accordance with Section 20(1) no. 1 clause 4 EStG.
(11) Section 50d EStG will be amended to include other payments that are made instead of dividends to foreign-based purchasers of shares in corporations with headquarters or management in Germany (Section 50d(13) EStG-E).
The effect of amending Section 15 clause 1 no. 2 clause 2 of the German Corporation Tax Act (Körperschaftsteuergesetz, KStG) by adding "profits and losses as defined in Section 12(2) of the Reorganisation Tax Act (Umwandlungssteuergesetz, UmwStG)" will be that the blanket ban on business expense deductions under Section 8b(3) clause 1 KStG will now also have to be applied to takeover gains from upstream mergers in consolidated tax group cases (Section 15 clause 1 no. 2 KStG-E).
Trade tax
Section 7 clause 3 of the Trade Tax Act (Gewerbesteuergesetz, GewStG) will be extended to include profits arising from excess amounts in accordance with Section 5a(4) and (4a) EStG. Such a profit was hitherto subject to trade tax in accordance with Section 7 clause 1 GewStG and, consequently, it was possible to reduce this profit pursuant to Section 9 no. 3 clause 2 GewStG. As a result of the extension of Section 7 clause 3 GewStG a reduction will now no longer be possible.
(1) The scope of application of the reduced VAT rate has been extended by the addition of Section 12(2) no. 14 of the VAT Act (Umsatzsteuergesetz, UStG). According to this, the reduced VAT rate will also apply to e-books, e-papers as well as to the provision of access to databases that contain a large number of electronic books, newspapers or periodicals or parts of these.
(2) The Act no longer includes the VAT exemption arrangement for educational services that was originally proposed in the governmental draft (previously Section 4 nos. 21 and 22 UStG-E).
(3) Gas and electricity certificates have been added to Section 13b(2) no. 6 UStG.
The new regulations for the purpose of restricting so-called share deals within the context of real estate transfer tax have now been transferred to their own legislative procedure.
Investment Tax Act
The aim of Section 31 of the Investment Tax Act-Draft (Investmentsteuergesetz-Entwurf, InvStG-E) is to prevent cum/cum transactions with special investment holdings.
Housing Construction Premiums Act
This Act provides for
a rise in the income thresholds from €25,600 to €35,000 and from €51,200 to €70,000 (Section 2a clause 1 of the Housing Construction Premiums Act (Wohnungsbauprämiengesetz, WoPG-E)), moreover, to
an increase in the premium rates from 8.8% to 10% (Section 3(1) clause 2 WoPG-E) and
a rise in the funding limits from €512 to €700 and from €1,024 € to €1,400 € per calendar year (Section 3(2) clause 1 WoPG-E).
The solidarity surcharge will be virtually abolished
On 14.11.2019, the Bundestag passed a resolution to virtually abolish the solidarity surcharge. The Bundesrat still has to give its approval. According to the draft law, the tax would be cancelled for 90% of German citizens as of 2021. A further 6.5% would still have to partially pay the solidarity surcharge and only the richest 3.5% would continue to be charged the full amount. The arrangements for the easing of this tax burden will be as follows.
There will be an increase in the tax exemption limits for the assessment base from €972 to €16,956 and from €1,944 to €33,912 for married couples (Section 3(3) of the Solidarity Surcharge Act (Solidaritätszuschlaggesetz, SolZG).
There will be a corresponding increase in the monthly marginal amounts for the assessment base of payroll tax depending on the tax code.
The mitigation zone linked to the tax exemption limit will be adjusted up to full taxation (Section 4 SolZG).