Corona crisis stimulus package includes many tax changes

The grand coalition has put together a comprehensive economic stimulus package with many changes to tax law.

As expected, the grand coalition has passed a comprehensive economic stimulus package to get the economy moving again after the Corona crisis. The big surprise in this stimulus package, and by far the most expensive item, is the temporary reduction in sales tax rates. There are also many other tweaks in the tax code to provide incentives to buy and invest. All the tax changes are summarized in the "Second Corona Tax Assistance Act". This law was passed by the Bundestag and Bundesrat in June. A special session of the Bundesrat was convened for this purpose so that the law could be promulgated before July.

• Sales tax: VAT rates will be reduced from 19 to 16 % and from 7 to 5 % from July 1, 2020 to December 31, 2020. The Federal Ministry of Finance has announced that the tax authorities will do everything in their power to make the application of the new regulations as flexible and practicable as possible for companies. For example, a non-objection rule is planned under which invoices for services in July 2020 that still show the old tax rate do not necessarily have to be corrected as long as the higher tax amount is also paid to the tax office.

• Child bonus: Child benefit will be increased by a one-off amount of 300 euros. Payment will be made in two equal installments of 150 euros each in September and October 2020. All children for whom there is a child benefit claim in at least one month of 2020 will be taken into account. However, if there is no entitlement in September 2020, the child bonus will not necessarily be paid in September and October 2020 and not necessarily in installments. Otherwise, all the rules that also apply to the monthly child benefit apply in principle to the one-off amounts. Since the tax-free child allowance remains unchanged, the child bonus for higher earners is offset against the tax-free allowance. However, the child bonus is expressly not offset against advances on maintenance payments and other social benefits.

  

• Single parents: Due to the limited care options for children in the Corona crisis and the particular challenges this poses for single parents, the relief amount for single parents will be increased by 2,100 euros from the current 1,908 euros to 4,008 euros for a limited period until 2020 and 2021. The increased amount of 240 euros per additional child will remain unchanged. When deducting income tax, the temporary supplement is taken into account via an allowance. The employee must apply for the allowance at his or her tax office of residence. In 2020, the supplement will then be distributed over the remaining wage payment periods. If a corresponding application is made in 2020, no further application needs to be made for 2021. The tax office can also enter the supplement of 2,100 euros in the ELStAM without the employee's application if the technical requirements are met. In case of doubt, a call to the tax office will help clarify whether a separate application is necessary in the individual case. If no tax allowance was taken into account when deducting income tax, the tax burden is relieved via the income tax assessment.

• Loss carryback: The maximum amount of loss carryback for losses in the assessment periods 2020 and 2021 will be increased from EUR 1 million to EUR 5 million for single assessment and from EUR 2 million to EUR 10 million for joint assessment. In addition, the rule introduced in April to take into account the loss carryback already in the advance payments for 2019 will be enshrined in law and extended. The provisional loss carryback for 2020 amounts to a flat rate of 30 % of the total amount of income on which the advance payments for 2019 were based. It replaces the previous lump-sum loss carryback of 15 %. However, the taxpayer may also apply for a reduction of more than 30 % if it can prove this anticipated loss carryback on the basis of detailed documentation.

• Depreciation: For movable fixed assets acquired or manufactured in 2020 and 2021, instead of straight-line depreciation, declining-balance depreciation of up to 25 %, but no more than two and a half times the straight-line depreciation, is also possible. It is true that, in principle, depreciation does not have an effect until the tax assessment. However, the fact that declining-balance depreciation may be used for an investment instead of straight-line depreciation may already be taken into account during the year when determining advance payments. Insofar as the conditions for claiming special depreciation are also met for a movable asset, these can be claimed in addition to declining balance depreciation.

  

• Investment deduction: Investment deduction amounts claimed must generally be used for investments by the end of the third fiscal year following the deduction. Otherwise, they must be reversed and interest will be charged on the resulting tax arrears. For amounts deducted in 2017, many companies face the problem that, as a result of the Corona crisis, investments cannot be made in 2020 as planned. To avoid the resulting negative effects, the deadline for investment deductions, whose three-year investment period expires in 2020, will therefore be extended by one year to four years. Entrepreneurs will therefore be able to make up for the investment in 2021 without any negative tax consequences.

• Reinvestment Reserve: If a reinvestment reserve still exists at the end of the fiscal year ending after February 28, 2020 and before January 1, 2021 and would have to be released, the reinvestment period now ends only at the end of the following fiscal year. This is intended to preserve the liquidity of companies during the Corona pandemic by not forcing reinvestments during this period to avoid the reserve release with profit surcharge.

• Import sales tax: For several years, the collection procedure for import VAT practiced in Germany has been criticized by the business community. As a result, the due date for import VAT will now be postponed to the 26th day of the second month following importation. The postponement of the due date by around six weeks will result in a liquidity effect from which all importing companies will initially benefit. In addition, the postponement will also allow the large number of companies that use a standing deadline extension for submitting their advance VAT return to offset import VAT and input tax credits directly in the future. This will level the playing field with other EU countries, where direct offsetting has already been possible for some time. The tax authorities will announce the exact date from which the new due date regulation will apply in a separate decree as soon as it is clear by when the IT requirements can be met. The German government is aiming for application of the new regulation in January 2021.

  

• Company car: For company cars that have no CO2 emissions, only a quarter of the gross list price is to be recognized for private use under the 1 % rule and only a quarter of the acquisition costs or comparable expenses under the logbook rule. However, this only applies if the gross list price of the company car does not exceed 40,000 euros. This maximum amount will now be raised to 60,000 euros. The change will apply retroactively from January 1, 2020 for vehicles purchased, leased or provided for private use for the first time after December 31, 2018.

• Research allowance: The tax allowance for research and development will be expanded. Previously, it was planned to grant a research allowance of 25 % from a maximum tax base of EUR 2 million for research and development projects started on or after January 1, 2020. This maximum amount will be increased to €4 million for eligible expenses incurred after December 31, 2019 and before January 1, 2026. This doubles the maximum amount of the research allowance to EUR 1 million per year during this period.

• Trade tax imputation: Up to now, the addition amounts have to be taken into account for trade tax purposes in the amount in which they exceed an allowance of 100,000 euros. This allowance will now be doubled to 200,000 euros from the 2020 assessment period.

• Trade tax credit: The reduction factor used to offset trade tax on commercial income against income tax will rise from 3.8 to 4.0 from 2020 onwards. This increase to four times the trade tax assessment amount takes account of the higher trade tax rates in recent years.