Overview of the changes resulting from the Growth Opportunities Act

The Growth Opportunities Act was passed and came into force after a delay and with a significantly reduced scope.

The Growth Opportunities Act no longer lives up to its name, as the volume of relief it originally contained has not grown but shrunk considerably in one of the toughest legislative processes in recent history. Nevertheless, the compromise solution agreed by the Mediation Committee with the votes of the governing coalition was confirmed by a large majority in the showdown in the Bundesrat, meaning that the law was promulgated on March 27, 2024 and thus came into force. The Growth Opportunities Act also fulfills the role of an annual tax law for 2023 and contains numerous detailed regulations that only have an impact in very specific cases. The following overview therefore only shows the main changes contained in the final version of the Act.

• Degressive depreciation: The option of declining balance depreciation, which expired at the end of 2022, will be revived for a further nine months. If movable assets are acquired or manufactured after March 31, 2024 and before the end of 2024, they can be depreciated using the declining balance method at a maximum rate of 20 % or twice the straight-line depreciation rate. Originally, a longer term for the investment window and a maximum rate of 25 % or 2.5 times the straight-line depreciation rate were planned, but this was too expensive for the federal states.

• Degressive depreciation for buildings: Due to the sharp decline in construction activity, the declining balance method of depreciation for buildings is still included in the law. Although it is limited to buildings used for residential purposes, it can then be applied in the amount of 5 % (originally 6 % was planned). The declining balance method of depreciation is possible for buildings in an EU/EEA country whose construction begins after September 30, 2023 and before October 1, 2029 or for which the purchase contract is concluded during this period. No additional depreciation for extraordinary technical or economic wear and tear is possible while the declining balance method of depreciation is in effect. However, it is possible to switch to straight-line depreciation at any time, in which case such additional depreciation would then be possible.

  

• Construction of new rental apartments: The current special depreciation for the construction of new rental apartments can be claimed in addition to the declining balance depreciation now introduced for residential buildings. The term of the scheme has therefore been extended by almost three years until October 1, 2029. For building applications submitted after 2022, the upper construction cost limit has also been raised from 4,800 euros/m² to 5,200 euros/m² and the maximum assessment basis from 2,500 euros/m² to 4,000 euros/m².

• 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 a maximum of 40 %. An increase to up to % 50 was originally planned.

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

• Electric company car: With the 1 % rule, purely electric vehicles are currently very favored. Instead of 1 % of the gross list price, only 0.25 % is to be recognized as a non-cash benefit for private use. However, the prerequisite is that the list price does not exceed 60,000 euros. For vehicles purchased from 2024 onwards, this limit will be raised to 70,000 euros.

• Professional driver: The lump sum for professional drivers who spend the night in the vehicle will increase from 8 euros to 9 euros per calendar day from 2024. The actual expenses can still be claimed instead of the lump sum.

  

• Group Accident Insurance: Contributions to group accident insurance can be taxed at a flat rate of % 20 if the average contribution per employee after deduction of insurance tax does not exceed EUR 100 per year. From 2024, the threshold amount will no longer apply, meaning that all group accident insurance policies can be taxed at a flat rate.

• Qualification money: Under certain conditions, employees receive a qualification allowance from the employment agency for further vocational training. This is now a tax-free wage replacement benefit that is subject to progression. At the same time, the further training costs to be borne by the employer have been made tax-free.

• Query by employer: Since 2023, it has been mandatory to state the employee's tax identification number in the wage tax statement. To enable employers to request this from the tax office even if the employee has not provided it or authorized the employer to request it, a legal basis has now been created that allows the employer to request it. However, the amendment only affects existing cases in which the employer has already submitted an income tax statement for the employee for 2022 and thus creates a legal basis for the corresponding administrative instruction of the Federal Ministry of Finance.

• 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 2025. Employees will still be able to claim the reduced tax rate retrospectively by submitting a tax return to the tax office.

• Private sales transactions: Profits from private sales transactions are tax-free if the profit made does not exceed 600 euros per year. This exemption limit will be raised to 1,000 euros from 2024. In the case of jointly taxed spouses, each of the two spouses is entitled to the exemption limit individually as before.

• Pension taxation: In order to implement the avoidance of double taxation of pensions required by the Federal Fiscal Court, the taxable portion of the pension depending on the year in which the pension begins will no longer increase by 1.0 % per year from 2023, but only by 0.5 %. If you retire in 2024, the taxable portion will therefore only be 83 % instead of 84 %. As a result of the change, the pension will not be fully taxed until 2058 instead of 2040.

• Utility allowance: Corresponding to the change 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 by 0.8 % per year, but only by 0.4 %. The maximum amount will fall by EUR 30 per year from 2023 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 35.35 in 2024), 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, the settlement of a small-amount pension during the payout phase will also be possible without tax consequences if the pension reaches or falls below the limit amount as a result of a pension equalization.

• Interest barrier: Various changes to the interest barrier, most of which are based on new EU requirements, were originally also part of the Growth Opportunities Act. However, as these had to come into force before the turn of the year, they were transplanted into the Secondary Credit Market Promotion Act at short notice.

• 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, the loss carryforward is limited to 60 % of the income generated in the year to which the loss is carried forward. Instead of the planned suspension of this minimum profit taxation, the limit will merely be raised to 70 % from 2024 to the end of 2027.

• Deduction of donations: From 2025, donations to a charitable organization outside Germany may only be deducted for tax purposes if the recipient of the donation issues a donation receipt in accordance with the official model. In order to be authorized to do so, the organization must be registered in the donor register at the Federal Central Tax Office, which is being set up this year.

• Accounting obligation: For financial years beginning after 2023, the accounting thresholds will be raised. The bookkeeping obligation now applies from an annual turnover of 800,000 euros (previously 600,000 euros) or an annual profit of 80,000 euros (previously 60,000 euros). Due to the late entry into force of the Growth Opportunities Act, it is possible that the tax office has already issued a request for bookkeeping obligations even though the new thresholds have not been exceeded. If the request was issued before the higher limits came into force, it is possible to apply to the tax office to have the request revoked.

• Retention requirement: Anyone who generates surplus income (wages, pensions, capital gains, rents and leases) of more than 500,000 euros per year must keep records of income and income-related expenses from surplus income for six years. This limit will be raised to 750,000 euros from 2027. Even if the limit is no longer exceeded from 2027, the documents created up to the end of 2026 must continue to be archived until the end of the respective retention period.

• Accumulation Benefit: Several measures are intended to make the tax relief on retained earnings attractive for entrepreneurs who do not pay the top tax rate. In particular, the profit eligible for preferential treatment will be increased by the trade tax paid and the amounts withdrawn to pay income tax. In contrast to the government draft, according to which the changes would not apply until 2025, they will take effect from 2024.

• Corporate tax option: With immediate effect, registered civil law companies can also make use of the corporation tax option. The option now applies to all commercial partnerships, partnerships and a registered GbR. Some regulations on the option have also been amended.

• Electricity deliveries: In order to promote tenant electricity models and solar installations, the corporation tax exemption for housing cooperatives and associations has been adjusted and now applies if income from electricity supplies does not exceed 30 % of total income (previously 20 %). In addition, the extended reduction in trade tax for property management companies now applies if income from solar installations and charging stations for electric vehicles does not exceed 20 % of total income (previously 10 %). Both changes will apply from 2023.

• Electronic invoices: Electronic invoices must be issued for deliveries and services to other entrepreneurs from 2025. 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 2026, other invoices can also be issued instead of an electronic invoice with the consent of the recipient. For companies whose total turnover in the previous year did not exceed 800,000 euros, this transitional period even applies until the end of 2027. In addition, all companies - regardless of turnover limits - can agree the format used among themselves under certain conditions, which means that the EDI procedure in particular can be used until the end of 2027. You can find out more about electronic invoicing and the associated obligations in the next issues.

  

• Actual taxation: The option of actual taxation will be available from 2024 up to a previous year's turnover of EUR 800,000 instead of the previous EUR 600,000.

• Advance sales tax return: From 2025, exemption from submitting an advance VAT return is possible if the tax in the previous year did not exceed EUR 2,000. Up to and including 2024, the threshold value is still 1,000 euros.

• Small business: As early as 2024, small VAT entrepreneurs will no longer have to submit an annual VAT return in most cases.

• Research allowance: The regulations on the research allowance will be improved in several areas so that sole proprietorships and small businesses in particular can benefit more from the research allowance. For example, the eligible value of a working hour of the sole proprietor or partner will be increased from EUR 40 to EUR 70. In addition, SME companies can apply for an increase in the research allowance of 10 %, which means that 35 % of the assessment basis will be granted as a research allowance instead of 25 %. The maximum limit of the assessment basis will be raised from the previous EUR 4 million to EUR 10 million. However, these and other improvements will only apply once the law comes into force, i.e. from March 28, 2024.