Draft of the Growth Opportunities Act

With a comprehensive tax amendment act, which primarily contains simplifications and simplifications, the German government wants to provide new growth impetus for the German economy.

Politicians have never been at a loss for euphonious names for mundane amendment laws. So it's no wonder that the Federal Ministry of Finance has come up with the promising acronym "Growth Opportunities Act" for a comprehensive tax amendment act. The ministry published the first draft of this "Act to Strengthen Growth Opportunities, Investment and Innovation as well as Tax Simplification and Fairness", as the law is called in full, just in time for the start of the parliamentary summer break.

The law contains many dozens of amendments to various tax laws and is therefore likely to fulfill the function of the annual tax law for this year. The size of the draft bill also speaks in favor of this: at 279 pages, it exceeds the draft of the last annual tax bill by almost 100 pages. Although not all of the changes are entirely in the interests of taxpayers, the law does not bear its name without good reason.

Almost all of the measures planned in the law so far improve or simplify tax law for companies and private individuals. One key point is the reform of depreciation rules for low-value assets. An investment premium for climate-friendly investments will also be introduced. Here is an overview of the most important planned changes:

• Investment premium: An investment premium of 15 % of the investment costs will be introduced for investments that contribute to climate protection through energy savings. The prerequisites for the premium are that the acquisition or production costs per asset amount to at least 10,000 euros, the total investment volume is at least 50,000 euros and the applicant generates business income (trade, self-employed, agriculture and forestry). If these conditions are met, a maximum of two applications for the investment premium for a maximum total investment volume of EUR 200 million can be submitted by the end of 2027. An investment premium of a maximum of EUR 30 million is thus granted per applicant (15 % out of EUR 200 million).

  

• Low-value assets: In 2018, the limit for the immediate write-off of low-value assets, which had remained almost unchanged for decades, was raised to 800 euros. The plans at the time to raise this limit to EUR 1,000 did not receive majority support, but will now be implemented for assets acquired from January 1, 2024. As this change would render the collective item rule in its previous form superfluous, it will also be adjusted.

• Collective item depreciation: Depreciation for assets with a value of between €250 and €1,000 in a collective item will be significantly expanded, making it a real alternative to depreciation of fixed assets for many businesses. From 2024, assets with acquisition or production costs of up to 5,000 euros can be included in the collective item. In addition, the depreciation period for the compound item will be reduced from five to three years.

• Special depreciation: Smaller businesses that made a maximum profit of €200,000 in the previous year can claim special depreciation of up to €20 % in total for movable assets in the first five years. For assets acquired or manufactured from 2024 onwards, the special depreciation allowance will be increased to up to % 50.

• Additional expenses for meals: The lump sums for additional meal expenses in the context of an away-from-home activity are to be increased from 2024. The daily rate for a full day of absence will rise from 28 euros to 30 euros, while the rate for the day of arrival or departure or an absence of less than 24 hours but more than 8 hours will rise from 14 euros to 15 euros.

• Company events: Up to now, a tax-free allowance of 110 euros has applied to employer contributions to employees and their accompanying persons on the occasion of a company event. This allowance is to rise to 150 euros from 2024.

• Gifts: Gifts to non-employees may not be deducted as business expenses if their value exceeds EUR 35 per recipient in a calendar year. For all financial years beginning after 2023, this deduction limit is to be raised to EUR 50 per person per year.

• Rent-free limit: From 2024, a tax-free limit of 1,000 euros will be introduced for income from letting and leasing. If the income before deduction of expenses is below the exemption limit, no further information on the tenancy is required in the tax return. However, if the expenses directly related to the tenancy exceed the income and a loss would therefore have to be taken into account for tax purposes, the income can still be treated as taxable upon application.

• Private sales transactions: Until now, gains from private sales transactions have been tax-free if the total profit generated in the calendar year does not exceed 600 euros. This exemption limit will be raised to 1,000 euros from 2024.

• Pension taxation: In order to implement the Federal Fiscal Court's requirement to avoid double taxation of pensions, the taxable portion of the pension depending on the year in which the pension begins will be adjusted. From 2023, the taxable portion will no longer increase annually by 1.0 % as previously planned, but only by 0.5 %. If you retire in 2023, the taxable portion will therefore only be 82.5 % instead of 83 %. In addition, the change means that it will now take until 2058 for pensions to be fully taxed. Previously, this would have been the case in 2040.

• Utility allowance: Corresponding to the adjustment in pension taxation, the pension allowance will also be adjusted. Starting in 2023, the percentage value to be applied for calculating the pension allowance will no longer be reduced in annual steps of 0.8 %, but only by 0.4 %. From 2023, the maximum amount will decrease by EUR 30 per year and the supplement to the pension allowance by EUR 9 per year.

• Age relief amount: The age relief amount has also been adjusted. This will now only be reduced by 0.4 % per year instead of the previous 0.8 %. Accordingly, the maximum amount will fall by EUR 19 per year from 2023 instead of the previous EUR 38.

• Small amount pensions: If the monthly pension from a tax-privileged contract would be below a certain limit (EUR 33.95 in 2023), it can also be paid out by the provider in the form of a one-off lump-sum settlement without any negative tax consequences. In future, it will also be possible to settle a small-amount pension during the payout phase without incurring tax liability if the pension reaches or falls below the limit amount due to a pension equalization settlement.

• Group Accident Insurance: Employers can pay tax on contributions to group accident insurance at a flat rate of % 20 if the average contribution per employee after deduction of insurance tax does not exceed €100 per year. From 2024, this limit is to be abolished without replacement, so that all group accident insurance policies can then be taxed at a flat rate.

• Reduced taxation: Until now, reduced taxation for certain compensation and remuneration for multi-year activities could already be taken into account when deducting income tax. However, as this is quite complicated for employers and involves tax risks, the procedure will be abolished from 2024. However, employees will still be able to claim reduced taxation retrospectively by submitting a tax return to the tax office.

• Loss carryback: With the Fourth Corona Tax Assistance Act, the possibility of loss carry-back was extended from one to two years and the maximum amount for loss carry-back was increased from EUR 1 million to EUR 10 million (EUR 20 million for jointly taxed spouses) for a limited period until the end of 2023. These higher limits are now to remain in place permanently. In addition, the loss carryback will be extended to three years from 2024. Losses from 2024 can therefore be carried back to 2021.

• Loss carried forward: Under the current law, losses can be carried forward without restriction up to a base amount of EUR 1 million (EUR 2 million for jointly assessed spouses). For the portion exceeding the base amount, however, the loss carryforward is limited to 60 % of the income generated in the year to which the loss is carried forward. This minimum profit taxation will be suspended up to and including 2027, meaning that unlimited loss carryforwards are possible until then. From 2028, the minimum profit tax will apply again, but with a higher base amount of EUR 10 million (EUR 20 million for spouses).

• Interest barrier: The interest barrier is being reformed and adapted to EU requirements. This will lead to a partial tightening, which is why the previous exemption limit of EUR 3 million will be converted into an allowance of the same amount to compensate for this.

• Accumulation Benefit: Several measures are intended to open up the tax relief on retained earnings to entrepreneurs who do not pay the top tax rate. To this end, from 2024, the profit eligible for preferential treatment will be increased by the trade tax paid and the amounts withdrawn to pay income tax. This means that a higher retention volume will be available in future. In addition, the order of use will be improved so that tax-free and taxed profits that have been left in the company can be withdrawn with priority in future.

• December aid 2022: The December emergency aid, which was granted in 2022 to relieve the high natural gas prices, is now not to be taxed after all, which is why the regulations are being scrapped without replacement.

• Electronic invoices: From 2025, electronic invoices must be issued for deliveries and services to other entrepreneurs. This is the first step towards the introduction of a national reporting system for all sales, with which the tax authorities want to combat VAT fraud. Only an invoice in a structured electronic format that can be processed automatically is considered an electronic invoice. Paper invoices and other electronic invoices, such as pure PDF documents, are considered other invoices. During a transitional period until the end of 2025, other invoices can also be issued instead of electronic invoices.

  

• Actual taxation: The option for actual taxation can be used from 2024 up to a previous year's turnover of 800,000 euros instead of the previous 600,000 euros.

• Flat-rate farmers: Due to EU requirements, the average rate for flat-rate farmers is now adjusted annually. For 2024, the average rate and the input tax flat rate will fall from 9.0 % to 8.4 %. In 2021, the average rate was still 10.7 %. For a farmer who is planning large investments with a correspondingly high input tax deduction potential, it may therefore be worthwhile not to apply average rate taxation.