Overview of changes for 2019

In addition to changes in sales tax, employers and employees in particular will have to come to terms with new tax and social security requirements this year.

With each new year, companies and private individuals have to get used to new changes in tax law, social security and many other areas of law. The catalog of changes is also extensive in 2019. Unlike in previous years, however, the new regulations this time are almost entirely limited to two areas: In addition to some changes in sales tax, it is primarily employers and employees who are affected by the changes.

We have compiled a detailed list of what needs to be taken into account this year. In addition, there are still some changes that have already come into force in 2018 but are only now really becoming noticeable because they affect the annual financial statements or tax returns for 2018. You can find out more about these in a separate article.

• Basic allowance: The basic allowance (tax-free subsistence minimum) will increase by 168 euros to 9,168 euros in 2019. The maximum amount for the deduction of maintenance payments will also be increased by 168 euros to 9,168 euros.

• Cold progression: To ensure that wage increases also reach employees' wallets, the effect of "cold progression" is now offset annually. To this end, the key figures of the income tax scale are shifted by the inflation rate of the previous year - i.e. by 1.84 % for 2019.

• Child support: Child benefit will be increased by 10 euros per child per month from July 1, 2019. It will then be 204 euros per month for the first and second child, 210 euros for the third child and 235 euros for each additional child.

• Child allowance: The child allowance will increase by 96 euros to 2,490 euros for each parent in 2019 (i.e. by 192 euros in total to 4,980 euros). The tax relief effect corresponds to the annual amount of the child allowance increase (60 euros).

• Health insurance: Since January 1, 2019, employers and employees must once again each pay half of the health insurance contributions, including the additional contributions. The 2005 reform by the grand coalition, under which employees had to pay the additional contributions alone, has thus been reversed. Self-employed people with low incomes who are voluntary members of the statutory health insurance system will benefit from another new regulation. For them, the minimum monthly contribution is halved to 171 euros.

• Long-term care insurance: The contribution to long-term care insurance has increased by 0.5 % in 2019. Employers and employees thus share a contribution of 3.05 % of gross wages. With the childless supplement of 0.25 %, insured persons without children now even have to shoulder a contribution of 3.3 %. The fact that the significant increase is not painfully noticeable this year is solely due to the simultaneous reduction in the contribution to unemployment insurance. Moreover, according to a study by the Prognos Institute, this increase will not last. While the German government currently assumes that the contribution will remain stable at least until 2022 after this increase, Prognos concludes, according to a report in the Süddeutsche Zeitung, that the contribution will have to be increased again in six years at the latest, rising to as much as 4.25 % between 2025 and 2045. In the year it was introduced, the contribution to long-term care insurance was just 1 % of gross wages.

• Unemployment Insurance: The contribution rate for labor promotion will be reduced from 3.0 % to 2.6 % in 2019, and the social security lump sum that is decisive for the calculation of unemployment benefits and other benefits will be reduced from 21 % to 20 %. Together with a further reduction in the contribution rate of 0.1 %, which is limited until the end of 2022, the contribution rate to unemployment insurance will therefore be reduced by 0.5 %, offsetting the increase in the contribution to long-term care insurance by 0.5 % as well, at least until 2022.

  

• Artists' social security contribution: After the artists' social security levy has been lowered again and again in recent years - most recently a year ago from 4.8 % to 4.2 % - the levy rate will remain unchanged at the historically low level of 4.2 % in 2019. The artists' social security contribution must be paid by companies that exploit artistic and journalistic services.

• Minimum Wage: Since 2015, there has been a statutory minimum hourly wage in Germany, for which an adjustment to the general wage development is provided every two years. From January 1, 2019, the minimum wage will therefore be 0.35 euros higher at 9.19 euros per hour. Next year, the minimum wage is to rise once again, by 0.16 euros to 9.35 euros.

• Gleitzone factor: Since January 1, 2019, the new sliding zone factor of 0.7566 (factor F) has applied to employees in the sliding zone from 450.01 euros to 850.00 euros in pay per month. On July 1, the sliding zone will then be replaced by an extended transitional zone of 450.01 euros to 1,300.00 euros to ease the burden on low earners. This will ensure that the reduced pension insurance contributions in the transitional zone do not lead to lower pension benefits. The new sliding zone factor of 0.7566 will then also apply here.

• Electric company car: To promote electromobility, a halving of the assessment basis for the flat-rate determination of the imputed income from the use of a company car will apply from 2019. Instead of 1 % of the list price, only 0.5 % of the list price will be taxable each month for private use of electric and hybrid vehicles purchased or leased between January 1, 2019 and December 31, 2021. Accordingly, for journeys between home and work, only 0.015 % per month and distance kilometer is due instead of 0.03 %. Hybrid vehicles are only eligible if the range of the electric drive is at least 40 km and a certain CO2 value is not exceeded. The preferential treatment is not only financially attractive, but can also make the keeping of logbooks obsolete for electric company cars, because the flat-rate taxation is more favorable. With a logbook, cars with electric drive are also favored, but only as far as depreciation on the purchase price or leasing costs are concerned, not for other expenses for the vehicle. For company cars that are purchased or leased outside the tax-privileged period, there is still the existing disadvantage compensation for the share that the battery system has in the purchase price.

• Company bicycles: The preferential treatment of electric company cars is accompanied by a temporary tax exemption for the use of a company bicycle. Until the end of 2021, benefits granted by the employer for the provision of a company bicycle or - in the case of self-employed persons and entrepreneurs - the private use of a company bicycle are tax-free in addition to the remuneration owed anyway, provided that the bicycle or e-bike is not a motor vehicle under traffic law. In addition, the tax-free benefits for a bicycle are not offset against the commuting allowance in the tax return. If an electric bicycle is considered a motor vehicle under traffic law, however, the regulations on company car taxation must be applied for the valuation of the non-cash benefit.

• Tax-free job tickets: Until now, employer benefits for travel by the employee between home and the first place of work, a wide-ranging area of activity or a collection point specified by the employer were part of the taxable remuneration. Such benefits in kind only remained tax-free if the total monetary benefit per month did not exceed the exemption limit of 44 euros. However, all other non-cash benefits must also be taken into account when examining the 44 euro exemption limit. If the exemption limit is exceeded, all non-cash benefits are then taxable. As of this year, allowances and benefits in kind granted by the employer for the use of public transport in regular service on such journeys are tax-free in addition to the wages owed anyway. Cabs and airlines are thus expressly excluded. The tax concession also applies to private journeys on local public transport. These non-cash benefits are therefore no longer subject to the monthly exemption limit of 44 euros, but are offset against the commuting allowance. This is intended to ensure that employees who receive a tax-free job ticket are not unduly favored compared with employees who pay for the tickets themselves out of their taxed income.

• Vouchers: The transposition of the EU Voucher Directive into German law came into force at the turn of the year and is intended to ensure uniform VAT treatment of vouchers in the European single market. In the case of vouchers, a distinction was previously made between vouchers of value and goods or non-cash vouchers. Whereas vouchers of value can be exchanged for any goods or services, goods and non-cash vouchers relate to a specific good or service. The issuance of a voucher was previously treated merely as an exchange of means of payment and was therefore not itself a service in the VAT sense. Sales tax only arose when the voucher was redeemed. In the case of goods or non-cash vouchers, on the other hand, the service designated in the voucher is deemed to have already been rendered when the voucher is issued. Therefore, the amount paid upon purchase of a goods voucher is a down payment subject to VAT.

  

  From 2019, a distinction will instead be made between single-purpose vouchers and multi-purpose vouchers. In the case of a single-purpose voucher, all the information required to determine with certainty the VAT treatment of the sales is already available when it is issued. Accordingly, such vouchers are taxed as soon as they are issued. All other vouchers are multi-purpose vouchers, where only the redemption is subject to VAT. The regulation expressly does not apply to coupons that only entitle the holder to a discount. In many cases, the new regulation will not have any changes in the sales tax treatment of coupons. In certain cases, however, the issuance of a voucher will no longer be considered a down payment for which the reported sales tax can be adjusted if the voucher is not redeemed. Instead, there is a single-purpose voucher where the very issuance of the voucher triggers a final taxation that can no longer be adjusted even if the voucher is not redeemed.

• Electronic marketplaces: In the future, operators of electronic marketplaces will have to record certain data on sellers to enable an audit of sales by the tax office. Companies from non-EU countries in particular frequently violate their tax obligations on online marketplaces and do not pay sales tax on their sales. The data that operators must record includes the name, full address and tax number of the seller, shipping and delivery address, and the time and amount of the turnover. The record-keeping requirement will apply to non-EU vendors starting March 1, 2019, and to all other vendors starting Oct. 1, 2019. In addition, operators can be held liable for unpaid VAT from trading via their platform. Operators can be exempt from liability if they comply with record-keeping requirements, provide a certificate of tax registration of the trader or exclude tax-dishonest traders from the trading platform. You can find out more about this in the article "Details on the record-keeping obligation on electronic marketplaces".

• Electronic services: Since 2015, services provided electronically to non-entrepreneurs must be taxed by the provider where the service recipient is located. For start-ups and small businesses, this means a considerable amount of bureaucracy. This is now changing, as from 2019 this obligation will no longer apply if the net turnover from such services to foreign service recipients did not exceed 10,000 euros in the previous calendar year and will not exceed this amount in the current calendar year. Small businesses with their sole place of business in Germany will therefore once again be able to pay tax on all services provided in Germany, regardless of whether the service recipient is also domiciled in Germany or not. It is possible to waive this sales threshold, but the waiver binds the company for at least two calendar years.

• Billing: To ease the burden on small companies in particular, the rules on invoicing for cross-border sales have been supplemented. If the company uses the Mini-One-Stop-Shop (MOSS) for its sales subject to VAT in other member states, only the law of the EU state in which the MOSS registration took place applies to invoicing. Previously, invoices had to be issued in accordance with the law of the recipient country.

• Continuing Education Funding: The Qualification Opportunities Act, which was passed shortly before Christmas, means that the employment agency's continuing education programs will also be open to employees in the future, in order to prevent unemployment in advance. In addition, the benefits will be improved in that, in addition to the costs of further training, subsidies can also be paid to the employer for wages continued to be paid by the employer during further training. The assumption of further training costs and the payment of subsidies for wages are generally subject to co-financing by the employer, which is based on the number of employees. In companies with 10 to 250 employees, the employer should bear at least 50 % of the training costs, and in even larger companies at least 75 %. For companies with fewer than 10 employees, no cost sharing is envisaged. Exemptions are also provided for older or severely disabled employees.

• Wage subsidies: State-subsidized jobs are to make it easier for the long-term unemployed to re-enter the workforce starting this year. The subsidy for people who have received Hartz IV for at least six years in the past seven years and are at least 25 years old will be granted for five years. It amounts to 100 % of the statutory minimum wage in the first two years. If the employer is bound by or subject to collective agreements, the subsidy is based instead on the wage to be paid. After the first two years, the subsidy decreases by 10 % per year. In addition, Hartz IV recipients who have been unemployed for at least two years can claim wage subsidies. They receive as a state subsidy 75 % of the wage paid in the first year and 50 % in the second year.

• Company pensions: In the case of a pure defined contribution plan, the employer must pass on the saved social security contributions to the employee in the form of a contribution subsidy. Specifically, the employer must additionally pass on at least 15 % of the converted remuneration to the pension institution as an employer's allowance, but only if social security contributions were actually saved in this amount. If the savings are less than this, only this contribution must be passed on, even if the employer is free to pay 15 % of the subsidy for the sake of simplicity. This subsidy obligation will apply to new agreements from 2019 and to all existing agreements from 2022.