June 04, 2020

Coalition adopts multi-billion-Euro economic stimulus package

 

Background

The coalition government has agreed on a multi-billion-Euro economic stimulus package to support the economy. This has met with broad approval from business. It is to enter into force beginning 1 July 2020, but still requires the approval of the Bundestag and Bundesrat. It is therefore subject to change.

We have read the draft bill for you. To provide you a quick overview, it is structured according to the following criteria:

  • Support measures for business enterprises
  • Support measures for private individuals
  • Support measures for the Länder and municipalities
  • Support measures for non-profit organisations (NPOs)
  • Support measures for agriculture and forestry

Support measures for business enterprises

Taxes

  • The VAT rate is to be reduced from 19% to 16% and from 7% to 5% for a limited period from 1 July 2020 to 31 December 2020.
  • Stabilisation of social security contributions at a maximum of 40% (2021 social guarantee)
  • From 2021, in addition to the revenue generated by the Fuel Emissions Trading Act (BEHG), a further subsidy is to be provided from federal budget funds to enable the gradual and reliable reduction of the Renewable Energy Sources levy, so that it will be 6.5 ct/kwh in 2021 and 6.0 ct/kwh in 2022.
  • The due date for import turnover tax is to be postponed to the 26th of the following month.
  • The tax loss carryback is to be extended by law for the years 2020 and 2021 to a maximum of € 5 million and € 10 million (in the case of joint assessment). A mechanism will be introduced to enable this carryback to be used with immediate financial effect on 2019 tax returns, e.g. by creating a tax corona reserve. This reserve is to be released by the end of 2022 at the latest.
  • As a tax investment incentive, digressive depreciation for wear and tear (deduction for wear and tear (AfA)) with a factor of 2.5 compared to the currently applicable deduction for wear and tear and a maximum of 25% per year for movable fixed assets in fiscal years 2020 and 2021 is to be introduced.
  • In order to improve the competitive conditions for companies, corporate tax law is being modernised: among other things, an option model for corporate tax is planned for partnerships and an increase in the reduction factor for income from commercial operations to four times the trade tax base.
  • In the case of trade tax, the allowance for existing additions (e.g. financing fees) is to be increased from € 100,000 to € 200,000.
  • The promotional rate for the tax research allowance is to be granted - retroactively from 1 January 2020 up until 31 December 2025 - on an assessment basis of up to € 4 million per company. This will create an incentive for companies to invest in research and development and thus in the sustainability of their products despite the crisis.
  • The motor vehicle tax for passenger cars will be more strongly linked to CO2 emissions. For new registrations, the basis of assessment as of 1 January 2021 will therefore mainly be based on CO2 emissions per km and above 95 g CO2/km will be increased in stages. In addition, the already-existing ten-year vehicle tax exemption for purely electric vehicles valid until 31 December 2025 is to be extended to 31 December 2030.
  • The purchase of electric vehicles is to continue to be subsidised. This means, for example, that federal subsidies for e-vehicles up to a net list price of up to € 40,000 will increase from € 3,000 to € 6,000. This measure is limited until 31 December 2021. In the case of the 0.25% tax on purely electric company cars, the purchase price limit is to be raised from € 40,000 to € 60,000.
  • More attractive option for employee participation

Insolvency law and avoidance of insolvency

  • Quicker restart after insolvency: The debt relief procedure is being shortened to three years for natural persons, with the law being accompanied by sufficient measures to prevent abuse. The shortening is to be limited in time for consumers and the manner in which debtors deal with applications is to be evaluated after a reasonable period of time, also with regard to possible negative effects on payment and economic behaviour.
  • A pre-insolvency restructuring procedure for companies is to be introduced.

 
Bridging aid for small and medium-scale enterprises (SMEs)

  • For small and medium-scale enterprises, a program of bridging aid for loss of sales due to corona is being set up. The volume of the programme is being set at a maximum of € 25 billion. The bridging aid will be granted for the months June to August. It applies across all sectors, whereby appropriate account is to be taken of specific characteristics of the sectors especially hard hit by the crisis such as the hotel and restaurant industry, caterers, pubs, clubs and bars, accommodation facilities run as social enterprises such as youth hostels, rural school homes, providers of youth facilities for international youth exchange, facilities for the disabled, travel agencies, professional sports clubs in the lower leagues, showmen, event logistics companies and companies operating in the field of trade fair events. Companies whose sales revenues declined by at least 60% in April and May 2020 compared to April and May 2019 due to corona effects and whose sales revenues continue to decline by at least 50% in the months June to August 2020 are eligible. For companies founded after April 2019, the months November and December 2019 are to be used. Up to 50% of fixed operating costs are to be reimbursed in the event of a decline in sales of at least 50% compared to the same month of the previous year. Up to 80% of fixed operating costs can be reimbursed in the event of a decline in turnover of more than 70%. The maximum reimbursement amount is € 150,000 for three months. For companies with up to five employees, the reimbursement amount is only to exceed € 9,000, and for companies with up to ten employees € 15,000, in justified cases of exception. Any reductions in turnover and fixed operating costs claimed must be audited and confirmed by a tax consultant or auditor in a suitable manner. Overpayments are to be paid back. The application deadlines end in each case on 31 August 2020 at the latest and the payment period is to end on 30 November 2020.

Social law and short-time work

  • A reliable arrangement for the receipt of short-hour work compensation beginning 1 January 2021 onwards is to be found in September.
  • Premiums for SMEs that do not reduce their supply of training places in 2020 compared to the three previous years will receive a one-off premium of € 2,000 for each newly concluded training contract, which is to be paid out after the end of the probationary period. Those companies that even increase the number of training places they offer will receive € 3,000 for the additional training contracts. Companies that take on additional trainees who are unable to continue their training due to the insolvency of their training company will receive a placement bonus in accordance with the joint declaration issued by the Alliance for Training and Further Education on 26 May 2020.

Other (innovation)

  • The temporary fleet exchange programme for craftsmen and SMEs for electric vehicles up to 7.5 t is to be implemented in the near future.
  • The German government will lobby the EU Commission for the establishment of a limited-term, Europe-wide fleet renewal programme in 2020/21 for heavy commercial vehicles to encourage the purchase of lorries that meet the latest Euro 6 emissions standard. A grant of € 15,000 is to be provided for the replacement of Euro 5 trucks and € 10,000 for the replacement of Euro 3 or Euro 4 vehicles.
  • The digitisation of the economy is to be given an additional boost through expanded depreciation possibilities for digital assets, the development of a sovereign infrastructure, as well as a funding programme to support the establishment and expansion of platforms and to enable SMEs to accelerate the digital transformation.

Support measures for private individuals

  • The VAT rate is to be reduced from 19% to 16% and from 7% to 5% for a limited period from 1 July 2020 to 31 December 2020.
  • Stabilisation of social security contributions at a maximum of 40% (2021 social guarantee)
  • The tax loss carryback is to be extended by law for the years 2020 and 2021 to a maximum of € 5 million and € 10 million (in the case of joint assessment). A mechanism is to be introduced to enable this carryback to be used with immediate financial effect on 2019 tax returns.
  • Quick restart following insolvency - the debt relief procedure for natural persons is to be shortened to three years, with the law being accompanied by sufficient measures to prevent abuse. The shortening of this period is to be limited in time for consumers and the manner in which debtors deal with applications is to be evaluated after a reasonable period of time, including with regard to possible negative effects on payment and economic behaviour.
  • A reliable arrangement for the receipt of short-hour working compensation from 1 January 2021 onwards is expected to be found in September.
  • Simplified access to basic income for jobseekers (German Social Code Book II) is to be extended beyond the current period of validity until 30 September 2020.
  • A one-off child bonus of € 300 per child for each child entitled to child benefits is to provide support to families particularly affected by the restrictions. This bonus is to be offset against the tax-free child allowance - comparable to child benefits. It is not to be credited against basic income.
  • In order to promote the expansion of capacity in the area of nursery schools, day-care centres and crèches, and to promote extensions, conversions and new buildings, an additional €1 billion is to be provided for expansion measures to be carried out in 2020 and 2021. The funds can also be used for conversion measures to improve the hygienic situation.
  • The investment programme for the expansion of all-day schools and all-day childcare is to be accelerated. Länder that call up funds for investments in 2020 and 2021 are to receive commensurate amounts in addition in the later years of the term. At the same time, the crisis has shown the importance of digitisation and digital learning in education. All schools must be enabled to combine face-to-face teaching at school and e-learning at home. For this reason, the list of eligible investments is being expanded in the Digital Pact for Schools. In addition, the Federal Government will in future make a lump-sum contribution to the training and financing of administrators if the Länder in return step up the further digital training of teachers.
  • Due to greater expenditures on care, especially for single parents in times of Corona, and the expenses caused by this, the relief contribution for single parents will be increased from € 1,908 at present to € 4,000 for the years 2020 and 2021, thus more than doubling it.
  • The motor vehicle tax for passenger cars is be more strongly linked to CO2 emissions. For new registrations, the basis of assessment as of 1 January 2021 will therefore mainly be based on CO2 emissions per km and above 95 g CO2/km will be increased in stages. In addition, the existing ten-year vehicle tax exemption for purely electric vehicles valid until 31 December 2025 is to be granted and extended to 31 December 2030.
  • The purchase of electric vehicles is to be further promoted. This means, for example, that federal subsidies for e-vehicles up to a net list price of up to € 40,000 will increase from € 3,000 to € 6,000. This measure is limited until 31 December 2021. In the case of the 0.25% taxation of purely electric company cars, the purchase price limit is to be raised from € 40,000 to € 60,000.

Support measures for Länder and municipalities

  • In order to strengthen municipalities in view of the tax shortfalls that they are also suffering from, the federal government will permanently assume an additional 25% and a total of up to 75% of the costs of accommodation under the existing system. The municipalities know the local housing market best and therefore to continue to be responsible for these services. For this reason, the Constitution provides by way of deviation that the federal government may bear up to 75% of the costs of accommodation and heating in the basic provision for jobseekers before federal assistance is granted.
  • A 2020 municipal solidarity pact is to compensate for the current crisis-related shortfall in trade tax revenues. To this end, the federal government, together with the Länder in charge, are to grant municipalities a lump-sum compensation for 2020, funded in equal parts by the Länder. In the case of trade tax, an allowance for existing additions will be increased to € 200,000.
  • The national climate protection initiative provides for support programmes in the order of € 300 million annually, which are also being co-funded by a municipal contribution. In order to accelerate the outflow of funds, especially for financially weak municipalities, the German government is to reduce the municipal contribution in individual programmes and provide € 50 million in both 2020 and 2021.
  • The federal government is to draft a federal framework arrangement that will allow the Länder to grant subsidies to local public transport companies to compensate for the sharp drop in fare revenues. This requires notification with the EU Commission.
  • In 2020, the federal government will support the Länder in financing local public transport, as the Corona pandemic has greatly reduced ticket revenues. This is to be achieved through a one-off increase in regionalisation funds in the amount of € 2.5 billion in 2020.
  • The federal government is investing in a "Bus and Truck Fleet Modernisation Program", which is open to private and municipal operators alike to promote alternative drive systems. In order to increase the demand for e-buses and make urban transport more environmentally friendly, funding for e-buses and their power-charging infrastructure is also to be increased for a limited period until the end of 2021.
  • For the years 2020 and 2021, an additional €150 million will be made available for sports facilities. To this end, the investment plan for sports facilities is being increased from € 110 million to € 260 million.
  • In order to enable municipal enterprises to make even better use of the KfW promotional loan "IKU - Investment Loan for Municipal and Social Enterprises", which has already been supplemented by the possibility to receive financing of working capital, the previous ceiling of € 50 million on the respective loan amount is being lifted.
  • The federal government will again comply with the request of the new Länder for a greater share of the rising costs from the supplementary pension schemes of the former German Democratic Republic (AAÜG) and increase its share from 40% at present to 50% from 1 January 2021. This will provide significant relief for the budgets of the new Länder. They are to use the resulting financial leeway for municipal investments.
  • The CO2 building refurbishment programme is to be increased by € 1 billion to € 2.5 billion for 2020 and 2021. The federal government's funding programmes for the energy-related refurbishment of municipal buildings is also to be increased and a programme to promote climate adaptation measures in social institutions will be launched.
  • The "Smart City" programme is to be continued and increased by € 500 million so that projects in cities and municipalities that have not yet been given the chance to be funded will also be given a further opportunity to receive support.

Support measures for non-profit organisations (NPOs)

  • In order to effectively support the Länder in their measures to stabilise non-profit organisations (social enterprises, youth hostels, youth education facilities, family holiday homes, rural school homes and other non-profit children's and youth accommodations), the federal government is setting up a special loan programme through KfW for the years 2020 and 2021 and is earmarking € 1 billion for this purpose. The federal funds alone are to allow for an 80% release from liability for the measures to be supported by Länder-owned development institutes (LFI). This will enable the Länder with a modest amount of funds of their own to provide a total release from liability of up to 100% for programmes benefitting non-profit organisations.
  • Art and culture are to be empowered to reopen their buildings and programmes. A programme to mitigate the effects of the Corona pandemic in the cultural sector is therefore to be set up, which will in particular support the maintenance and strengthening of cultural infrastructure, emergency aid, increased demand for facilities and projects and the promotion of alternative, including digital, services.
  • For social services, a "Social & Mobile" fleet exchange programme limited to the years 2020 and 2021 is being established to promote electric mobility in urban traffic and to support non-profit organisations in converting their fleets.

Support measures for agriculture and forestry

  • The federal government is providing € 700 million for the conservation and sustainable management of forests, including support for digitisation in forestry and support for investment in modern operating machinery and equipment. In addition, the promotion of a modern timber industry, including the increased use of wood as a building material, is also to be promoted.
  • In the interest of animal welfare, an investment support programme for the conversion of livestock buildings for the rapid implementation of better husbandry conditions in 2020 and 2021 is being set up. Therefore, only investments in those areas that are not linked to capacity expansions and, for example, also help to implement the so-called "Box-Stall Court Ruling" in a timely manner will be eligible for support. To promote appropriate conversions of barns, differentiated minimum requirements for respective livestock holdings are to be considered a reliable basis for investment decisions.

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