Corona tax aid bill passed

The Corona Tax Relief Act is intended to implement other changes to the tax code in addition to temporarily reducing the sales tax rate in the restaurant industry.

The German government is using the implementation of the agreed reduction in the sales tax rate in the catering industry for one year to implement further changes in tax law to mitigate the consequences of the Corona crisis. Of general importance in this context is, in particular, the tax exemption of additional payments by the employer towards short-time working allowances. The Bundestag has already passed the law. Overall, the law provides for four individual measures which are also intended to help local authorities focus on Corona assistance.

• Gastronomy: Until now, the full VAT rate of 19 % applies in the catering industry for meals consumed on site, while the reduced rate applies for meals that the guest picks up or has delivered. This reduced rate of 7 % is now to apply generally in the catering industry from July 1, 2020 and for a limited period of one year. As before, beverages will be exempt from this, for which the full tax rate will continue to apply. The change will also benefit caterers and other companies that previously supplied ready-to-eat meals at the normal VAT rate.

  

• Short-time allowance: Under the current legal situation, employer subsidies for short-time allowances are taxable wages. Under social security law, however, the subsidies are largely exempt from contributions. Due to the current widespread payment of short-time allowance, a top-up by the employer is therefore to be made temporarily tax-free. To this end, a tax exemption regulation will be created for employer supplements to short-time allowance up to an amount of 80 % of the difference between the target and actual remuneration in wage payment periods that begin after February 29, 2020 and end before January 1, 2021, analogous to social insurance law. The regulation promotes the topping up of short-time allowance agreed in collective agreements or granted voluntarily by the employer. However, despite the tax exemption, the top-up is subject to the progression proviso and must therefore be shown by the employer on the wage tax statement.

• Public entities: For a number of years, the German Value Added Tax Act has stipulated that legal entities under public law are not deemed to be entrepreneurs for VAT purposes when carrying out activities for which they are responsible within the scope of public authority. This means that the services provided by these entities are not subject to VAT. The legislature has created a transitional period for adapting to this new regulation, which would expire at the end of this year. In order to allow municipalities to focus their human resources on dealing with the consequences of the Corona crisis rather than on changing the way they handle VAT, this transition period is now being extended by two years to the end of 2022.

• Conversions: For certain conversions, tax retroactive periods of a maximum of eight months are normally provided for. As the corresponding period in the Reorganization Law was temporarily extended to twelve months due to the Corona crisis, the period in the Reorganization Tax Act will now also be extended to twelve months.