Fiscal measures for flood disaster

Following the flood disaster in July, both those affected and aid workers are being relieved by various tax measures.

The federal and state governments have responded to the devastating floods in several regions of Germany with tax measures already familiar from previous disasters, which can make many things easier for both those affected and the helpers. In addition, there are a number of equity measures in sales tax law that primarily favor donations in kind and support services to those affected.

• Payment facilitation: Affected parties may submit applications for deferral of taxes already due or due to become due by that date by October 31, 2021, setting out their circumstances. Deferral is then possible until January 31, 2022 at the latest. The tax office will also waive enforcement measures and late payment penalties for those affected during this period. In addition, applications for adjustment of advance payments are possible.

• Special Advance Payment: Affected companies can maintain a certain amount of liquidity by reducing the special advance payment of VAT in 2021. The extension of the permanent deadline remains in effect despite the reduction.

• Entrepreneurs, Farmers & Foresters: For traders, freelancers and farmers and foresters, there are many simplifications through regulations on special depreciation, the formation of reserves and possibilities for immediate deduction of operating expenses. The details depend on the type of business and are best clarified individually. Even if accounting documents have been lost as a result of the flood, there are no adverse consequences for the business concerned.

• Donations: Taxpayers do not have to submit a donation receipt to the tax office as proof of donations made to a special account of a non-profit organization until October 31, 2021. Regardless of the amount, the deposit slip or the bank's booking confirmation will suffice as proof.

• Nonprofit Organizations: Funds that charitable associations and foundations collect as part of a special fundraising campaign, as well as funds not required for the realization of their own statutory purposes, may be used by them to support aggrieved persons without jeopardizing their own tax recognition, even if this is not provided for in the articles of association. This applies both to direct support by the organization itself and in the case of a transfer to other tax-privileged organizations to be used for the support of aggrieved persons. Lower proof requirements apply to the examination of the economic need for assistance. For example, in the case of assistance of up to 5,000 euros, the economic need for assistance of an injured person is simply assumed. However, assistance for injured entrepreneurs is excluded insofar as it relates to business losses.

  

• Employees: The employer may grant its employees an assistance payment to support them in an emergency situation up to an amount of 600 euros per calendar year tax-free. Even the amount exceeding 600 euros does not form part of taxable wages if, taking into account income and family circumstances, a special emergency exists. This can be assumed in the case of the victims of the flood disaster. The rule also applies to otherwise taxable interest benefits or interest subsidies. In the case of loans taken out to repair damage, this applies for the entire term of the loan. The prerequisite is that the loan does not exceed the amount of the damage. Also exempt from tax until the end of October 2021 are benefits in kind granted for the first time after the flood disaster in the form of the free provision of a car, an apartment or accommodation or meals to the employee and his or her dependents, as well as other benefits in kind from a transfer of use to mitigate the flood damage. The tax exemption of cash and non-cash benefits applies up to the amount of the damage.

• Labor Donations: Employees can waive part of their wages from the outset. No wage tax is then levied on this and the amount is paid out directly by the company to affected employees as a benefit or donated. Because of the wage tax savings, however, there is no donation certificate for the donation of wages.

• Entrepreneur Aids: Support services provided by companies to those affected by the floods, e.g. the provision of clearing vehicles and personnel for clean-up work, can be deducted as business expenses. This also applies to support services provided to damaged business partners to maintain business relations. In addition, the use of business assets and the provision of other services (provision of personnel) for assistance purposes will not give rise to a free transfer of value for VAT purposes until October 31, 2021.

• Residential transfer: If private companies provide accommodation that was intended for use subject to VAT (hotel rooms, vacation apartments or similar) free of charge to people who have been made homeless by the flood or who are working as helpers in the crisis areas, no tax is payable on the free transfer of value until December 31, 2021 and no input tax adjustment is necessary. If the entrepreneurs intend to accommodate flood victims or helpers free of charge when purchasing electricity, water, etc., input tax deduction will still be granted for the same period. The following free transfer of value is not taxed.

• Donations in kind: In the case of donations in kind for those affected from business assets, no VAT will be due in the period from July 15 to October 31, 2021, if the goods in question are food, animal feed, goods necessary for daily needs (clothing, crockery, hygiene articles, cleaning agents, etc.) or economic goods (e.g. pumps, tools, machinery) that are directly relevant to dealing with the consequences of the flood. If entrepreneurs already intend to make a corresponding donation in kind when purchasing or manufacturing the donated goods, the input tax deduction is granted under the same conditions.

Meanwhile, the federal government and the affected states have also launched an aid program with emergency aid of 400 million euros for the particularly hard-hit regions. For the necessary federal law, the Bundestag is to convene in August for a special session during the summer recess.

In parallel, the German government has already initiated a suspension of the obligation to file for insolvency for companies damaged by the weather. This regulation is also expected to be passed during the special session of the Bundestag. The plan is to suspend the insolvency filing obligation for affected companies retroactively from July 10, 2021, to October 31, 2021. In addition, the draft provides for an ordinance authorization for the Federal Ministry of Justice to extend the suspension of the insolvency filing obligation until March 31, 2022 at the latest.