Overview of changes for 2020

In addition to stricter requirements for electronic cash registers, employers and employees in particular will have to get used to many changes in tax and social security in 2020.

At the turn of the year, there are always changes in tax and social law, but this time they are particularly numerous. In the weeks leading up to the turn of the year, the Bundestag and Bundesrat completed a veritable legislative marathon in the area of tax law and, in addition to the changes that have long been in place, passed numerous other amendments that will come into force as early as 2020.

Here we have compiled the most important changes for 2020 for you so that you can get a quick overview. You can find more information in the focus articles, which address changes in specific areas of tax law.

• Basic allowance: The basic allowance (tax-free subsistence minimum) will increase by 240 euros to 9,408 euros in 2020. The maximum amount for the deduction of maintenance payments will also be raised by 240 euros to 9,408 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 benchmarks of the income tax scale are shifted by the inflation rate of the previous year - i.e. by 1.95 % for 2020.

  

• Child allowance: Because the last child allowance increase was implemented in mid-2019, the corresponding increase in the child allowance will take place in two equally large steps. In 2020, the child allowance will therefore also increase for each parent by 96 euros to 2,586 euros (i.e. by a total of 192 euros to 5,172 euros). The tax relief effect thus continues to correspond to the annual amount of the child allowance increase.

• Minimum Wage: Germany has had a statutory minimum hourly wage since 2015, for which an adjustment to the general wage trend is planned every two years. But the Minimum Wage Commission had decided in 2018 that the minimum wage should increase by a partial amount in both 2019 and 2020. From 2020, therefore, a new minimum wage of 9.35 euros per hour will apply instead of the previous 9.19 euros. Some sectors have higher minimum wages, most of which also increased with the turn of the year.

• Unemployment Insurance: Limited until the end of 2022, the contribution rate for unemployment insurance will fall by 0.1 % from 2020 to the current level of 2.4 %. This is a further reduction, as the contribution rate was already reduced by 0.5 % to 2.5 % at the beginning of 2019.

• Health insurance: Since 2015, employers and employees have each paid half of a fixed contribution rate of 14.6 % in the statutory health insurance system. In addition, there is an additional contribution, which initially only employees had to shoulder, but which has also been borne equally by employers and employees since January 1, 2019. For most members, the individual additional contribution of the respective health insurance fund applies. In addition, there is a nationwide average additional contribution rate for certain groups of people, which will rise from 0.9 % to 1.1 % in 2020.

• Artists' social security contribution: After the artists' social security levy has been lowered again and again in recent years - most recently in 2018 from 4.8 % to 4.2 % - the levy rate will remain unchanged at the historically low level of 4.2 % in 2020. The artists' social security contribution must be paid by companies that exploit artistic and journalistic services.

• Additional expenses for meals: The flat rates for additional meal expenses have been increased. For a full calendar day of absence, 28 euros can now be claimed instead of the previous 24 euros, and for the day of arrival and departure or an absence of more than eight hours, half the amount, i.e. 14 euros instead of the previous 12 euros.

• Cash Management: From 2020, significantly stricter requirements will apply to the use of electronic cash registers or cash register systems. These must now be equipped with a certified technical security device (tSE) so that cash management is recognized by the tax office. However, the tax authorities are granting a grace period until September 30, 2020 for the conversion of cash registers. in addition, the use of such cash registers and security devices must be reported to the tax office, and a receipt must always be produced for customers (receipt requirement). The receipt can be provided electronically or in paper form. For the reporting obligation, the tax authorities are still working on an electronic procedure and will waive the reports that are actually required from January 1, 2020 until it is introduced.

• Accounting rules: In 2014, the German Federal Ministry of Finance set out in the "Principles for the proper keeping and storage of books, records and documents in electronic form as well as for data access (GoBD)" the requirements that must be met in bookkeeping in order for accounting to be recognized by the tax office. For 2020, the ministry subjected these rules to a selective revision, which was published in the summer of 2019 but withdrawn shortly thereafter. The final version, which will apply from 2020, has now been published by the Ministry shortly before the turn of the year. You can read more about the changes in an upcoming issue.

• Remuneration in kind: There is now a legal definition for non-cash benefits that is not only intended to provide greater clarity on a permanent basis, but also to simultaneously eliminate certain pay optimization models. From 2020, therefore, earmarked cash benefits, subsequent cost reimbursements and other benefits denominated in a monetary amount will generally not be non-cash remuneration (more on this in the article for employers and employees).

• E-mobility: The 2019 Annual Tax Act is officially called the "Act on the Further Tax Promotion of Electromobility and on the Amendment of Other Tax Regulations". Accordingly, the changes it contains to tax concessions for vehicles with electric drives are numerous. These are mainly extensions or expansions of already existing tax benefits, but a new special depreciation for purely electrically powered commercial vehicles will also be introduced. Details on these changes can be found in the article "Promotion of electromobility".

• Energy refurbishment: The tax incentive for energy-efficient renovation measures on owner-occupied residential property will create an incentive to make one's own property more climate-friendly for a limited period until 2030. Eligible for funding are renovation measures that are also classified as eligible for funding in existing building subsidy programs. Costs for energy consultants are also considered eligible expenses. 20 % of the expenses spread over three years can be deducted from the tax liability (7 % in the first and second year, 6 % in the third year). Expenses up to 200,000 euros per property are eligible, which corresponds to a tax bonus of up to 40,000 euros.

  

• Sales tax: A number of changes have also been made to VAT at the turn of the year. In addition to the reduction of the tax rate on certain products and services, these are primarily changes for cross-border trade due to the implementation of the EU emergency measures to combat VAT fraud and improve legal certainty in cross-border transactions. We have compiled details of all the VAT-related changes for you in a separate article.

• Research allowance: The aim is to encourage small and medium-sized enterprises to invest more in their own research and development activities by means of a tax research allowance from 2020. The research allowance is independent of the respective profit situation because it is not based on the assessment basis for determining income and also not on the tax to be assessed. Instead, the personnel expenses for research activities are subsidized by 25 %. This also applies to the activities of business owners or sole proprietors. More on the research allowance will follow in a future issue.

• Administrative automation: Until now, the German Fiscal Code only allowed the fully automated issuance of tax assessments and equivalent notices. For this reason, the legal basis required under the General Data Protection Regulation has now been created to allow certain other administrative acts to be issued with full automation support. This relates to the granting of an extension of the deadline in certain cases, the assessment of a late payment surcharge specified by law in terms of reason and amount, and the request for late payment surcharges that are not collected with the main taxes.