Overview of changes for 2021

There are numerous changes in 2021, especially in income tax, many of which reduce the tax burden.

At the turn of the year, there are always changes in tax and social security law, and almost every year many of them are not passed by the Bundestag and Bundesrat until shortly before the new year. This year, however, the governing coalition has found a way to step this up a notch by adopting and announcing some changes only in the weeks following the turn of the year. After all, these latecomers among the new regulations in tax law are all measures that benefit taxpayers.

Here we have compiled all the important changes for 2021 for you so that you can get a quick overview. This also includes some regulations that, strictly speaking, are not changes at the turn of the year because, although they were not passed by the Bundestag and Bundesrat until the end of 2020 as part of the Annual Tax Act 2020, they will already apply from 2020 and not just in 2021.

Some changes are also very detailed and are therefore only briefly summarized in this overview. Further information on these points can be found in focus articles, to which we refer you in each case at the corresponding points. Finally, another article covers the changes from the Annual Tax Act 2020, which have no place in this overview, for example because they will not come into force until later.

• Basic allowance: The basic allowance (tax-free subsistence minimum) will increase by 288 euros in 2021 from the previous 9,408 euros to the current 9,696 euros. The maximum amount for the deduction of maintenance payments will also be raised by 288 euros to 9,696 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 1.52 % for 2021.

• Solidarity surcharge: The exemption threshold up to which no solidarity surcharge is payable will be raised to €16,956 (single assessment) or €33,912 (joint assessment) from 2021. If the income tax due for the year does not exceed this exemption limit, no soli will be due at all. As a result, families with two children up to a gross annual salary of 151,990 euros and single parents up to a gross annual salary of 73,874 euros will no longer pay a soli from 2021. If the income tax exceeds the exemption limit, the solidarity surcharge will not be levied immediately at the full rate of 5.5 %. This mitigation zone avoids a jump in the burden and is also significantly expanded. As a result, many of the remaining solidarity tax payers will also be relieved, albeit with a diminishing effect as incomes rise. In the case of the final withholding tax on investment income and corporate income tax, the soli will remain unchanged.

• Child support: Child benefit was increased by 15 euros per child per month as of January 1, 2021. It is now 219 euros per month for the first and second child, 225 euros for the third child and 250 euros for each additional child. In addition, there is a child bonus of 150 euros. In addition, the child benefit for May 2021 will be increased by a one-time amount of 150 euros. All children for whom there is a child benefit claim in at least one month of 2021 will be taken into account. However, if there is no entitlement in May 2021, the child bonus will not necessarily be paid in May 2021. Otherwise, all the same rules apply to the child bonus as to the monthly child benefit. The bonus is therefore offset against the child allowance in the same way as normal child benefit, so it primarily affects families with lower incomes. However, the child bonus is explicitly not offset against advances on maintenance payments and other social benefits.

• Child allowance: In parallel with the increase in child benefit, the child allowance will also be increased in 2021 by 144 euros for each parent to 2,730 euros (i.e. by a total of 288 euros to 5,460 euros). In addition, the care allowance for each parent will rise from 1,320 to 1,464 euros - an increase of 144 euros per parent as well. Overall, these changes result in an increase in the tax-free allowances for the minimum subsistence level for children from the current total of 7,812 euros by 576 euros to 8,388 euros for each eligible child.

• Disability & Long-Term Care Lump Sum: There will be extensive improvements to the lump sums for disabled persons and for the unpaid care of relatives from 2021. In particular, the lump sums for disabled persons, which have remained unchanged for 45 years, will be doubled. Details on this change can be found in the article "Improvements for disabled persons and caregivers from 2021".

• Volunteering, Donations & Associations: Several changes at the turn of the year affect the work of associations and non-profit law. In addition to an increase in the tax-free amounts for honorary offices and exercise leaders, there are above all simplifications and facilitations for non-profit associations and organizations. All changes in this area are summarized in the article "Changes in donations and non-profit law 2021".

• Minimum Wage: The statutory minimum wage is to rise in four stages to 10.45 euros by July 1, 2022. The first increase, initially to 9.50 euros gross per hour worked, came into force on January 1, 2021. Six months later, on July 1, 2021, the second increase to 9.60 euros will follow. Two increases are also planned for 2022, each six months apart - to 9.82 euros on January 1, 2022 and finally to 10.45 euros on July 1, 2022.

• Trainee compensation: A minimum payment for apprentices was introduced as early as 2020 and will increase annually. Apprentices who start their training in 2021 and are not covered by collective wage agreements will receive at least 550 euros per month in their first year of training.

• Health insurance change: From 2021, employees will be able to change their health insurance provider immediately when they change jobs. The new health insurer will then take care of the termination with the old insurer. Without a job change, the commitment period will be reduced from 18 months to just 12 months.

• Insolvency Compensation Levy: The insolvency benefit levy will increase from 0.06 % to 0.12 % in 2021. As things stand at present, the levy rate will be 0.15 % from 2022.

• Job Counseling: Employees who are to be dismissed by their employer or who are leaving for other reasons can receive counseling from their employers in order to reorient themselves professionally and thus avoid unemployment. These consulting services, even if they are provided by third parties, will be tax-exempt in the future.

• Distance allowance & mobility premium: With the "Climate Protection Program 2030", the grand coalition has decided to introduce a CO2 levy from 2021. As partial compensation for commuters with long commutes, the commuting allowance will be raised to 35 cents from the 21st kilometer. This also applies to family trips home in the context of double household management for work-related reasons. Low-income earners who do not pay tax and therefore cannot benefit from the higher flat-rate distance allowance have the option of applying for a mobility bonus instead.

• Electric company car: Those who charge their electrically powered company car at home can be reimbursed by their employer for the expense at a flat rate and tax-free. Business owners who charge their company car at a private power connection can also claim a flat rate for the electricity costs. The corresponding flat rates will be raised significantly from 2021. For electric vehicles, 70 euros per month must now be applied (previously 50 euros). If employees or entrepreneurs can also charge the electric vehicle at work, a correspondingly lower flat rate of 30 euros per month applies (previously 20 euros). For hybrid vehicles, 50 % of the flat rate for purely electric vehicles is to be applied in each case, i.e. 35 or 15 euros per month.

• Home Office Allowance: A lump sum of 5 euros per day can be claimed for work at home. The lump sum is only granted for days on which the work is performed exclusively at home. Unlike the deduction of income-related expenses for the home office, there are no further eligibility requirements for this lump sum. The lump sum is limited to a maximum amount of 600 euros per year and applies - at least for the time being - only for the years 2020 and 2021. In addition, the lump sum only has an effect if there are other income-related expenses that exceed the income-related expenses lump sum of 1,000 euros.

  

• Discounted Rental: So far, in the case of renting an apartment at a discount, a split is provided for if the rent is less than 66 % of the local rent. Only the pro rata income-related expenses attributable to the part rented for consideration are tax deductible. This limit is now reduced from 66 % to 50 % of the customary local rent. However, the full consideration limit, above which the intention to generate income is presumed by law, remains unchanged at 66 % of the customary local rent. Therefore, if the rent is at least 50 % but less than 66 % of the comparative rent, a total surplus forecast is necessary, because otherwise only a pro rata deduction of income-related expenses continues to be possible. In addition, the tax authorities have clarified that a temporary loss of rent due to economic difficulties of the tenant in the Corona crisis has no consequences for the deduction of income-related expenses. For more on this decision, please refer to the article "Loss of rental income due to the Corona crisis".

• Housing subsidy: Until 2020, anyone with a maximum taxable income of EUR 25,600 (EUR 51,200 if married couples/life partners were assessed jointly) could apply for a housing construction premium. From 2021, a significantly higher income limit will now apply. Single persons are now entitled to an income of up to 35,000 euros. For spouses and life partners, the limit is double that amount, i.e. 70,000 euros. The amount of the premium is based on the premium-reduced expenses paid in the savings year. It amounts to 10 % (until 2020: 8.8 %) of the expenses. From 2021, expenses up to a maximum amount of EUR 700 (single person; previously EUR 512) or EUR 1,400 (joint tax assessment; previously EUR 1,024) will be subsidized per calendar year. Thus, the maximum annual premium from 2021 will be 70 euros or 140 euros (until 2020: 45.06 euros or 90.11 euros).

• Investment deduction: There is a whole series of changes to the investment deduction amount, whereby the improvements can already be claimed in financial years ending after December 31, 2019, i.e. they apply retroactively from 2020. These include an increase in the preferential investment costs from 40 % to 50 % and a uniform profit limit of 200,000 euros. In addition, two design options will be excluded by law, with these changes only taking effect from 2021. We have summarized the details of the new regulations on the investment deduction amount for you in the article "Changes to the investment deduction amount".

• Depreciation: Back in the summer of 2020, the Corona stimulus package allowed declining-balance depreciation of up to 25 %, but no more than two-and-a-half times straight-line depreciation, for movable assets acquired or manufactured in 2020 and 2021. Now the Federal Ministry of Finance has followed suit and will allow immediate depreciation for commercially available hardware and software starting in 2021. You can find all the details in the article "Immediate depreciation for computers and software".

• Sales tax rate: On January 1, 2021, the reduction of VAT rates, which was limited to six months, ended. Since then, the normal VAT rate has been 19 % instead of 16 %, and the reduced VAT rate has been 7 % instead of 5 %. In the catering industry, on the other hand, the reduced VAT rate continues to apply to restaurant and catering services, with the exception of the supply of beverages. This reduction was originally limited to one year and would have expired on June 30, 2021. However, because the ongoing lockdown has meant that the catering industry has been able to benefit little from the reduction to date, the reduction has now been extended until December 31, 2022.

• 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 estimated annual VAT payment burden does not exceed EUR 7,500, the advance return will therefore only have to be submitted quarterly from 2021.

• VAT Digital Package: From July 1, 2021, the second stage of the EU's VAT digital package will be implemented. For this purpose, among other things, the previous special taxation procedure for entrepreneurs established in the EU (so-called mini-one-stop store) will be extended to supplies within a Member State via an electronic interface, intra-Community distance sales and all services performed at the place of consumption to non-entrepreneurs established or resident in the EU (so-called one-stop store). A new Import One-Stop Shop (IOSS) will be introduced for mail order sales of goods with a value of up to 150 euros from a third country. Traders supporting the supply of an item whose transport or dispatch begins and ends in the EU territory through the use of an electronic interface will be allowed, in order to reduce administrative burdens, to use the One-Stop-Shop procedure to declare and pay VAT on domestic supplies where the transport or dispatch of the supplied goods begins and ends in the same Member State.

• Tax liability: From 2021, the recipient of telecommunications services will be liable for VAT if he or she is a reseller of such services.

• Import sales tax: With the Corona stimulus package, the due date for import VAT was postponed to the 26th day of the second month following importation. This allows companies that use a permanent extension of the deadline for filing the advance VAT return to immediately offset import VAT and input tax credits. This change will apply from the period beginning on December 1, 2020, and will therefore have an effect for the first time in 2021, because it shifts the due date for imports in December from January 16, 2021, to February 26, 2021. The due dates for subsequent periods will be shifted accordingly.

• Brexit: On January 1, 2021, the transition period during which the United Kingdom was still treated as a member state of the EU expired. Because various tax and financial market regulations provide for more favorable legal consequences for situations in EU/EEA states than for third-country situations, the transition from EU state to third country would also have negative tax consequences for entrepreneurs and private individuals with economic interests in the United Kingdom. In order to reduce or rule out these as far as possible, the Brexit Tax Accompanying Act was already passed in 2019, granting grandfathering to affected taxpayers in certain cases. In many cases, on the other hand, changes have inevitably occurred at the turn of the year. This relates in particular to the VAT treatment of transactions with customers or suppliers in the United Kingdom, which was already discussed in the last issue. Companies in the legal form of a Limited, which have their administrative headquarters in Germany, are also affected, as they are now considered to be GbRs, OHGs or sole proprietorships, depending on the shareholder structure. With the turn of the year, therefore, the liability privilege has finally ceased to apply if there is no conversion into a German legal form.

• Utilities: From 2021, the tax identification number of the recipient will be a mandatory requirement for the deduction of special expenses for lifelong and recurring pension benefits. Since the recipient must pay tax on such pension benefits, which are deductible as special expenses, the tax authorities want to be able to check and ensure correct taxation more easily in this way.

• Loss carryback: Last summer, the Corona stimulus package also raised the maximum amount of loss carryback for losses in the assessment periods 2020 and 2021 from EUR 1 million to EUR 5 million for single assessment and from EUR 2 million to EUR 10 million for joint assessment. These limits have now been doubled again. In 2020 and 2021, a maximum of EUR 10 million (EUR 20 million in the case of joint assessment) can therefore be carried back to previous years. This also applies to the amount limits for the provisional loss carryback for 2020. In addition, from 2021 onwards, the interest rules will be the same for both the original deduction of the provisional loss carryback and its subsequent addition.

  

• Losses from investments: A year ago, a loss offset restriction was introduced for certain losses from investments. In doing so, the tax authorities wanted to limit the impact of some unwelcome rulings by the Federal Fiscal Court. The latter had allowed the loss deduction for certain losses in the first place. Since 2020, therefore, there has been an offsetting restriction for losses from the full or partial uncollectibility of a capital claim, from the derecognition of worthless assets, from the transfer of worthless assets to a third party or from any other loss of assets. Such losses can only be offset against other income from capital assets up to a certain amount. Losses that have not been offset can be carried forward to subsequent years and then offset again up to the limit amount. For losses from options and other forward transactions, the offsetting restriction does not apply until one year later, i.e. for losses incurred after December 31, 2020. For this purpose, they can also only be offset against gains from other forward transactions or against option writer premiums, but not against other investment income or other income. Originally, an annual limit of EUR 10,000 was envisaged for both loss offset groups. However, this was doubled to 20,000 euros in both cases with the Annual Tax Act 2020. In the case of the offsetting limit for losses from worthless receivables and assets, which will already apply from 2020, the increase will apply retroactively from 2020.