Further changes due to the Annual Tax Act 2022

A tax exemption for many solar systems, changes to accruals and deferrals and other changes resulting from the Annual Tax Act already apply retroactively.

Shortly before the turn of the year, the Bundestag and Bundesrat passed the Annual Tax Act 2022. Many of the changes it contains came into force at the turn of the year. However, there are also a whole series of changes that will come into force retroactively or at a later date. Of particular note is the income tax exemption for smaller photovoltaic systems, which was originally not due to come into force until 2023 and thus together with the reduction in the VAT rate to 0 %. However, shortly before it was passed, an agreement was reached to implement this change from 2022. Here is an overview of the other changes introduced by the Annual Tax Act 2022:

• Photovoltaic systems: Various tax and bureaucratic hurdles for the installation and operation of photovoltaic systems have been abolished. The exemption from income and trade tax originally planned for 2023 has even been brought forward to 2022. It applies to income from the operation of photovoltaic systems up to a gross nominal output of 30 kWp on single-family homes and commercial properties or 15 kWp per residential and commercial unit for apartment buildings, mixed-use properties and other buildings. The originally planned restriction to buildings used primarily for residential purposes was not implemented, meaning that smaller systems on buildings used primarily for commercial purposes are now also eligible.

  

  In total, a maximum of 100 kWp per taxpayer or co-entrepreneur share is covered by the tax exemption. The tax exemption is independent of the use of the electricity generated. If a business only generates tax-free income from tax-privileged photovoltaic systems, it is no longer necessary to calculate a profit and therefore no longer submit an EÜR system. In the case of asset-managing partnerships, the operation of photovoltaic systems that do not exceed the preferential system sizes does not lead to a commercial infection of rental income. This means that asset-managing partnerships can now also install photovoltaic systems of up to 15 kWp per unit (max. 100 kWp) on their rental properties and supply their tenants with electricity without having to fear tax disadvantages. However, the change, as welcome as it may be, raises many questions to which there are still no satisfactory answers from the tax authorities. As soon as the tax authorities have answered these questions, you will of course find out more.

• Prepaid expenses and deferred charges: Income and expenses for which the associated payment falls partially or fully in another financial year are recognized in the balance sheet as deferred income. On the one hand, this is important for accrual accounting, but on the other hand, it can involve a lot of additional work. Deferred income was therefore often not recognized for small amounts, which was also expressly approved by the Baden-Württemberg Fiscal Court. However, the Federal Fiscal Court ruled in 2021 that the law does not provide for any exceptions and that accruals and deferrals are therefore also necessary for small and very small amounts. An amendment now clarifies that deferred income is not necessary for financial years ending after December 31, 2021 if the respective expenditure or income is below the threshold amount for low-value assets of currently 800 euros.

• Basic pension supplement: The basic pension supplement is intended to recognize the lifetime achievements of people who have been compulsorily insured in the statutory pension insurance scheme for many years on a below-average income. This supplement will be tax-free with retroactive effect from 2021.

• Wohn-Riester: If the capital saved from a Riester contract is used for an owner-occupied property (Wohn-Riester), the saved capital can also be used for energy-related measures from 2024. The prerequisite is that no other tax concessions or subsidies are claimed for the construction work.

• Nursing staff: Employees in inpatient care facilities and hospices currently receive a special monthly allowance depending on the size of the facility. The eligibility period for this tax-free special benefit has been extended until May 31, 2023.

• Loss compensation for capital gains: As the Federal Fiscal Court found in 2021, the previous restriction on loss offsetting for income from capital assets did not allow losses to be offset across spouses in tax assessments. This loophole will be closed retroactively so that from 2022, losses from capital investments of one spouse can be offset against the capital income of the other spouse.

• Excess profits tax: For companies that generate at least 75 % of their turnover from the extraction or processing of fossil fuels, an excess profit tax will be introduced for 2022 and 2023. The tax amounts to 33 % on the part of the profit that exceeds the average profit from 2018 to 2021 by more than 20 %.

• Public benefits: A legal basis was created in the Fiscal Code to establish a direct payment channel for public benefits via the tax identification number. This is intended to create a low-bureaucracy and fraud-proof way of paying out public benefits such as climate money directly to citizens. There is now a legal basis for storing the account details (IBAN) of all citizens registered in Germany in the IdNr database. The IBAN stored in the IdNr database is subject to a strict purpose limitation.

• Building deduction tax: The recipient of a construction service must submit the tax return for construction withholding tax electronically from 2025. An exception is only provided for hardship cases.

• Register case taxation: In the case of income with limited tax liability, register taxation, according to which income from the transfer of rights already arises when the right is entered in a domestic public book or register, has been abolished if a double taxation agreement is applicable to the transaction that assigns the right of taxation to the other contracting state. Taxation will be maintained for tax havens that are on the EU's so-called blacklist. The change will largely only apply from 2023, but in certain constellations, old cases that are still open may also be affected.

• Top tax rate 2007: In order to implement the requirements of a ruling by the Federal Constitutional Court, the cap on the top tax rate of 42 % will be lifted retroactively for profit income from 2007. As a result, the "wealth tax" of 45 % also applies to the few outstanding assessment cases from 2007 for income from 250,000 euros (single assessment) or 500,000 euros (joint assessment).

• Payment service provider: From 2024, payment service providers will be obliged to regularly inform the Federal Central Tax Office about cross-border payments if more than 25 payments are made to the same payee in a quarter. This implements an EU requirement.

• Subsidy fraud: Until now, it has been controversial to whom the tax authorities may disclose data subject to tax secrecy. This is particularly important for the various corona aid programs, where the tax authorities previously only had a legally secure basis for communicating protected data to the granting authorities for the purpose of reclaiming unjustified aid. It has therefore been clarified that the relevant data may also be passed on for the purpose of conducting criminal proceedings for wrongfully obtained benefits.