Bureaucracy Relief Act III passed

In just two months, the Bundestag and Bundesrat have passed the third package of measures to reduce bureaucracy.

For the third time, the German government has launched a law that bundles various measures designed to relieve the economy of bureaucratic requirements. While the last Bureaucracy Relief Act had to clear a few hurdles before it could come into force, the Bundestag and Bundesrat completed the legislative process for the Bureaucracy Relief Act III quickly and quietly: In September, the German government had presented the draft law, and by the beginning of November, both parliaments had already given their approval.

Like the last two laws, this law primarily contains changes in tax law in addition to a reduction or digitalization of reporting obligations. Most of these changes are to apply as early as January 1, 2020. Only measures that still require technical preparatory work will not come into force until 2021 or 2022.

• Retention requirements: During a tax audit, the auditor may inspect the tax-relevant data created by EDP and demand the use of the EDP system used. In addition, the auditor can demand the machine evaluation of this data or request a data carrier with the stored tax documents. These data access rights of the tax authorities mean that companies must maintain the EDP systems used in accounting and invoicing beyond the ten-year retention period, even after a change in the software or hardware used or outsourcing of part of the data. In the future, it will be sufficient for the company to retain only one data carrier with the tax-relevant data five years after a system change or data outsourcing from the productive system. The technology itself (software and hardware) can therefore be decommissioned after five instead of ten years in the future. However, if an external audit was started before five years have elapsed and has not yet been completed, it will not be possible to transfer the data to a data carrier until the external audit has been completed. In addition to easing the burden on companies, this also creates incentives for the tax authorities to tackle tax audits in a timely manner. The amendment applies to all data whose retention period has not already expired by January 1, 2020.

• Small business limit: An increase in the small business threshold for sales tax purposes was already under discussion in the previous Bureaucracy Relief Act, but was ultimately not implemented. Since 2003, the application of the small business rule has therefore been subject to the condition that sales in the previous calendar year did not exceed 17,500 euros and are not expected to exceed 50,000 euros in the current calendar year. From 2020, the first limit will now be raised to 22,000 euros, which corresponds to the inflation rate since the last adjustment of the small business limit. The second limit remains unchanged at 50,000 euros.

• Advance sales tax return: For many years, start-ups have been required to submit their advance VAT return on a monthly basis in the year of incorporation and the following year. This requirement was intended to combat sales tax fraud. The requirement will now be relaxed from 2021 onwards, initially for a limited period until 2026. If the annual sales tax payable does not exceed EUR 7,500, the advance return will only have to be submitted quarterly from 2021.

• Opening of operations: As a rule, the tax office wants various pieces of information from start-ups and companies that open a new place of business about the circumstances that are relevant for taxation. Until now, this information has had to be submitted on an official form. In future, an electronic procedure will also be introduced for this notification, although the law does not yet contain a binding date for this. This is to be determined by the Federal Ministry of Finance once the technical requirements for the new reporting procedure have been met. In addition, the obligation to register for accident insurance will no longer apply to entrepreneurs who have submitted a trade notification.

• Workplace Health Promotion: Employers can provide their employees with benefits that serve to improve the general health of employees or workplace health promotion and meet certain specifications, up to an amount of 500 euros per employee per year tax-free. The employer can either offer the benefit as an in-house measure or provide cash subsidies for such benefits through external providers, for example for nutritional counseling, stress management or health-oriented exercise programs. This allowance will be increased to 600 euros from 2020.

• Group Accident Insurance: Contributions by the employer to a group accident insurance policy for its employees are not taxable wages if the employer alone can assert the rights under the insurance contract. If, on the other hand, the employee is directly entitled to benefits from the insurance, the contributions are taxable wages. However, the wage tax can be lumped at a rate of 20 % if the average insurance contribution per employee does not exceed 62 euros per year. This flat-rate limit will increase to 100 euros per employee per year from 2020.

• Short-term employment: For short-term activities, where the activity performed in the country does not exceed 18 consecutive working days, a lump-sum payment of wage tax at the rate of 25 % of the salary is possible. However, the lump-sum payment is subject to certain conditions. In particular, the average wage per working day may not exceed 72 euros and the average hourly wage may not exceed 12 euros. These maximum amounts will be raised to 120 euros per day and 15 euros per hour from 2020. Without this increase, it would no longer have been possible to comply with the daily limit for an eight-hour working day, even with the statutory minimum wage. In addition, from 2021 onwards, a regulation will be created on flat-rate wage tax for short-term activities carried out in Germany by employees with limited tax liability who are assigned to a foreign permanent establishment of the domestic employer.

• AU certificate: Another law that has already come into force will introduce a uniform and mandatory electronic procedure for the transmission of incapacity for work data by doctors to health insurance funds from January 1, 2021, replacing the previous paper-based incapacity for work certificate intended for the health insurance fund. However, the electronic transmission of a notice of incapacity to work to the employer was not part of this change in the law. Now the electronic procedure is being expanded so that the submission of the "yellow slip" by the employee can be omitted. From 2021, employers will therefore electronically retrieve the data on the start and duration of incapacity for work and the date on which continued payment of remuneration expires from the health insurance funds after notification of incapacity for work by the employee.

  

• Reporting form: Until now, hotels and guesthouses have had to have their guests fill out paper registration forms, sign them in person and keep them for a year. In the future, this will also be optionally possible digitally - for example in conjunction with the electronic ID card. However, the paper-based procedure will remain as an alternative.

• Retirement contracts: Providers of retirement pension contracts must inform the customer in writing each year about the use of the contributions paid in and the amount of capital accumulated, as well as about the form and amount of the planned payouts before the start of the payout phase. From 2020, these notifications may also be provided electronically with the customer's consent.

• Part-time work: In companies with more than 15 employees, employees are entitled to part-time work if they so wish. If an employee submits a request for part-time work, the employer may in future give its decision in text form instead of in writing. This means that the employer's response can also be sent by e-mail instead of on paper, for example.

• Statistics: The Act reduces individual statistical obligations. This applies to the law on statistics in the manufacturing sector (monthly report in the main construction trade, quarterly survey in the finishing trade and among property developers, and statistics on incoming materials and goods) and the Insolvency Statistics Act.

According to the explanatory memorandum, the majority of the relief is attributable to the introduction of electronic AU certificates and reporting slips as well as the shortened retention obligation for IT systems. The key issues paper for the law from the spring included further measures in tax law. These would have contributed to noticeable relief across all sectors, but were ultimately not included in the law:

• General reduction of the retention periods in commercial and tax law from 10 to 8 years.

• Shorter amortization period for digital innovation assets.

• Harmonization of the turnover limit for actual taxation with the accounting limit of the Tax Code, which would correspond to an increase of 100,000 euros to 600,000 euros.

• Raising the GWG limit to EUR 1,000 and, in return, abolishing the collective item rule. This proposal was already circulating when the GWG limit was raised to EUR 800.

• Introduction of a clearing model in the collection of import VAT.

• Introduction of an object/property-related exemption limit for business gift expenses.

• Harmonization of the reporting deadlines of the recapitulative statement and the advance VAT return.

• Increase and dynamization of the mini-job limit.

Both the Bundestag and the Bundesrat therefore complained during the passage of the law that the current law fell far short of its potential. The Bundesrat explicitly states that the law misses the opportunity for clearly noticeable simplifications. Both parliaments have therefore called on the government to tackle a Bureaucracy Relief Act IV as soon as possible.