On 3.6.2020, the coalition committee had agreed on an extensive economic stimulus and future package with many tax measures. In order to implement it, the Federal Cabinet passed the draft of a second law on the implementation of tax relief measures on 12.6.2020 (Second Corona Tax Relief Act), which was approved by the Bundestag and Bundesrat on 29.6.2020 in the version amended in parts by the Finance Committee. The following tax measures are among those included:
Value added tax
- VAT reduction
A key measure in the package is a temporary reduction in VAT. From 1.7.2020 to 31.12.2020 the VAT rate is to be reduced from 19 % to 16 % and the reduced rate from 7 % to 5 %.
As this measure was already much discussed before it came into force, we have written a separate blog post on this subject.
- Maturity of the import turnover tax
The due date for payment of import turnover tax is to be postponed to the 26th day of the second calendar month following the month in question. This will give companies more liquidity. For companies using the permanent extension, the postponement will generally result in any input tax credit being available to them for payment of import turnover tax. The date of application will be announced separately in a letter from the Federal Ministry of Finance as soon as it is clear by when the IT technical requirements will be met.
Income tax
- Child bonus
A one-off child bonus of € 300 will be introduced for each child who is entitled to child benefit in 2020. It is deemed to be sufficient for this if there is only one month in 2020 for which a claim to child benefit exists. The child bonus will be paid in two instalments of € 200 in September and € 100 in October of this year. However, the child bonus will be offset in the comparative calculation of the child benefit and child benefit (preferential tax assessment), which is carried out after the income tax return has been submitted for tax assessment. As a result, families with lower incomes can benefit from the child bonus, whereas high-income families can offset the child benefit, which means that these families do not benefit from the child bonus in the form of financial relief.
- Relief amount for single parents
Single parents are also benefited in addition to the child bonus by an increase in the allowance for single parents from € 1,908 to € 4,008. The relief amount for single parents increases by € 240 for each additional child. The amount of this increase has remained unchanged from the original wording of the law. The tax allowance can be claimed in the income tax return for the years 2020 and 2021. However, in order not to have to wait until the tax assessment in order to receive tax relief, it is possible to take this tax advantage into account in the form of a tax-free amount already during the wage tax deduction procedure.
- Company car taxation
However, even those who use a company car for private purposes can, under certain conditions, benefit from a tax relief measure, provided that they have to pay tax on the private use portion of a company car that has no carbon dioxide emissions per kilometre driven. For such vehicles purchased between 1.1.2019 and 31.12.2030 and whose gross list price does not exceed € 40,000, only 25 % of the gross list price is used as the assessment basis for determining the private use portion. The limit of € 40,000 for the application of this regulation has now been raised to a maximum amount of € 60,000. This regulation serves not only the user of the vehicle, but also the promotion of the automotive industry, which is also affected by the Corona crisis.
- Extension of reinvestment periods
The reinvestment periods of § 6b EStG (Einkommensteuergesetz - Income Tax Act) are temporarily extended by one year. Hidden reserves that are raised when certain assets (land, buildings, shares in corporations) are sold can be transferred tax-free to reinvestment assets. However, the beneficiary reinvestment must take place within a certain reinvestment period. If a reinvestment reserve is still available at the end of the fiscal year ending after February 29, 2020 and before January 1 2021, and would in itself have to be dissolved due to the expiry of the reinvestment period, it only ends at the end of the following fiscal year. A regulation authorisation allows a further extension of the deadlines until 31.12.2021 at the latest. Companies which cannot carry out investments this year as planned due to the effects of the corona pandemic will not be additionally burdened by the profit-increasing release of the reserve due to the extension of the deadline and can instead maintain their liquidity. If you calculate your profit by means of a revenue-surplus calculation, the extension also applies (§ 6c EStG).
- Temporary reintroduction of the declining-balance deduction for wear and tear (depreciation)
As a tax investment incentive, a declining balance depreciation method is to be introduced with a factor of 2.5 compared to the currently applicable depreciation method and a maximum of 25% per year for movable fixed assets in the fiscal years 2020 and 2021. You can take this into account when determining advance payments during the year and thus secure liquidity advantages. If the conditions for claiming special depreciation are also met for a movable asset, you can claim this in addition to declining balance depreciation.
- Deadlines for investment deduction amounts
The deadlines for the use of investment deductions formed in accordance with § 7g EStG, which would expire in 2020, are extended by one year. This favors companies that, due to the current situation, are refraining from previously intended investments or want to postpone them in order to avoid further burdening liquidity. The decision to create the investment deduction based on an investment intention in the future was ultimately made under completely different premises. The extension of the investment period is therefore to be welcomed. It preserves the liquidity of the companies and avoids an additional burden through the reversal of the investment deduction amount and the retroactive interest. However, whether the extension of the deadline by one year is sufficient or how many companies will no longer make any investment at all, as there is no longer any need for an investment due to the negative effects of the corona crisis on a company (e.g. due to a reduced order situation), will only become apparent with the current developments.
- Extension of the tax loss carryback
The maximum amount limits for loss carry-backs will be raised from € 1 million to € 5 million for individual assessments and from € 2 million to € 10 million for joint assessments for losses in the assessment periods 2020 and 2021. This only applies to losses in the assessment periods 2020 and 2021; thereafter the old values apply again.
The extended carryback for losses from the assessment period 2020 should be available for immediate financial use in the 2019 tax return. Upon application, a provisional loss carryback for 2020 will then be deducted from the total amount of income in 2019. This amounts to a flat rate of 30 % of the total amount of income for the 2019 assessment period and can be claimed in the 2019 prepayment procedure. A higher amount than 30% will be deducted if the taxpayer can prove that he will probably have a loss carryback for 2020 in this amount (max. € 5 million or € 10 million). However, it remains the case that losses can only be carried back for a maximum of one year. A loss in 2021 can therefore only be carried back after 2020. However, this requires corresponding profits, which is unlikely to be the case for companies particularly affected by the pandemic.
- Tax reduction on income from commercial operations
The reduction factor for the crediting of trade tax against income tax will be raised from 3.8 to 4.0. This should result in complete relief from trade tax at a trade tax assessment rate of up to 420%. However, as the assessment rate is often higher than 420 %, full relief is still not achieved for all entrepreneurs.
Trade tax
- Trade tax additions
The trade tax allowance for the addition facts (financing fees etc.) of § 8 GewStG (Gewerbesteuergesetz - trade tax law) is increased from € 100,000 to € 200,000. In order to be able to benefit from this regulation, however, this tax-free amount of € 100,000 must first be exceeded. For many small companies, the total amount of additional charges prior to the Corona crisis will often have been relatively small, so that the tax-free allowance of € 100,000 has not even been exceeded. In this case it would be questionable whether these small companies would benefit at all from the increase in the tax-free allowance. It would also be conceivable, however, that the level of indebtedness of companies increases as a result of the crisis, or that companies prefer renting or leasing to purchasing assets in order not to put further pressure on liquidity, which would lead to an increased addition. In this case, the increase in the tax-free allowance could mean that Corona companies are not burdened additionally with trade tax from the facts of the case.
Research allowance
Tax incentives for research and development will be provided to a greater extent than previously planned for the period from 1.7.2020 to 30.6.2026. The Research Allowance Act announced in 2019 provides for a research allowance of 25 % of a maximum assessment basis of € 2 million for research and development projects started from 1 January 2020. This limit of the assessment base will be raised to € 4 million for eligible expenses in the above-mentioned period. In other words, the maximum amount of the research allowance per year will increase to € 1 million.