Tax plans of the new government coalition

The coalition agreement provides a preview of the measures that the newly formed grand coalition plans to take in tax law.

After a long and tough struggle, the CDU/CSU and SPD have once again come together to form a governing coalition. The coalition agreement explains the consequences of the new grand coalition for tax law. In the coalition negotiations, the SPD wrested the finance ministry from the CDU/CSU. In addition, the governing parties have agreed on many measures, some of which are pleasing, some cosmetic and some painful. Here is an overview of the planned changes.

• Solidarity surcharge: The coalition wants to gradually abolish the solidarity surcharge. This is to begin in 2021 with a first step amounting to 10 billion euros. This will completely relieve around 90 % of all payers of the solidarity surcharge from the solidarity surcharge through an exemption threshold with a sliding zone.

• Flat tax: The final withholding tax on interest income will be abolished with the establishment of the automatic exchange of information. The coalition wants to prevent circumvention and stick to the goal of introducing a financial transaction tax in a European context.

  

• Pre-filled tax return: The coalition is aiming to introduce a pre-filled tax return for all taxpayers by the 2021 assessment period. The coalition is leaving open what other data about taxpayers the tax authorities might collect for this purpose.

• Electronic communication: Electronic communication with the tax authorities is to be expanded. However, the coalition government has not yet named any concrete measures to this end.

• Child support: Child benefit is to be increased by 25 euros per month and child in two stages. A first increase of 10 euros is planned for July 1, 2019, with a second increase of a further 15 euros on January 1, 2021. At the same time, the tax-free child allowance will rise accordingly.

• Electromobility: Several tax measures are planned to promote electromobility. In the flat-rate company car taxation, a reduced rate of 0.5 % of the list price will be introduced for electric and hybrid vehicles instead of the regular rate of 1.0 %. In addition, a special depreciation allowance of 50 % in the year of purchase, limited to five years, is planned for electric vehicles used for commercial purposes.

• Property tax: Following a constitutional review, the coalition wants to enable municipalities to increase taxation of undeveloped building land through a new form of property tax, thereby improving building land mobilization.

• Building subsidies: For the purchase of a residential property, the coalition plans to provide a child construction allowance of 1,200 euros per child per year, which will be paid for ten years. The building child allowance will be granted up to a taxable household income of 75,000 euros per year plus 15,000 euros per child. In addition, the introduction of an allowance for land transfer tax is to be examined.

• Energy refurbishment: To provide tax incentives for energy-efficient building renovation, the government wants to give property owners the right to choose between a grant subsidy and a reduction in taxable income.

  

• Cheap rental apartments: In the last legislative period, the attempt to provide tax incentives for affordable rental housing failed due to differing ideas among the coalition partners. Now the coalition is planning a new attempt to provide tax incentives for privately financed new housing construction in the affordable rental segment. To this end, a special depreciation allowance of 5 % per year over four years, limited until the end of 2021, is to be introduced in addition to straight-line depreciation.

• Factor method: The acceptance of the factor method is to be strengthened. To this end, spouses are to be better informed about the factor procedure and taxpayers with the tax bracket combination III/V are to be regularly informed about the factor procedure and the possibility of changing to the tax bracket combination IV/IV with factor in the tax assessment notices.

• Cold progression: A report on the development of the cold progression is to continue to be prepared every two years, after which the tax rate is to be adjusted accordingly.

• Disability allowance: The coalition wants to examine an adjustment of the flat-rate tax allowances for people with disabilities, but does not yet commit to an increase.

• Start-ups: Companies are to be able to be set up quickly and unbureaucratically with the help of a kind of "one-stop store". In the start-up phase, the bureaucratic burden on new companies is to be reduced to a minimum. In the first two years after establishment, companies are to be exempted from the monthly advance VAT return.

• Innovation: In particular, the coalition wants to introduce a tax incentive for research-based small and medium-sized enterprises, which will be applied to personnel and contract costs for research and development. This does not affect project funding for small and medium-sized enterprises.

• Import sales tax: In the government's view, the import sales tax collection and refund procedure represents a serious competitive disadvantage for the German economy. The procedure is therefore to be optimized in cooperation with the German states.

• E-commerce: To combat sales tax fraud in online trading, the government wants to create legal regulations to make operators of online platforms that do not stop dishonest traders from trading via their marketplace liable for the sales tax they miss out on. In addition, the operators are to be required to provide information about the traders active on their platforms.

• Federal Central Office: The Federal Central Tax Office is to be better equipped and thus play a greater role. It is to become the central point of contact for non-residents for tax-related questions and binding information.

• European tax base: On corporate taxes, the coalition supports common tax bases and minimum tax rates in Europe.

• Franco-German economic area: With France, the new government wants to agree on concrete steps to realize a Franco-German economic area with uniform regulations, especially in the area of corporate and bankruptcy law, and to align the corporate tax base.

• Tax enforcement: All assets obtained from a crime and all unlawful gains should be consistently confiscated.