Germany’s Federal Cabinet has approved a draft finance law that would increase tax incentives for small and medium-size enterprises, employers, and affordable housing and take steps to counter tax evasion and promote digitalization.
According to a September 2 release from the Ministry of Finance, the 2020 Annual Tax Act will aid SMEs through increased investment deductions and special depreciation designed to create liquidity. The draft law simplifies eligibility requirements for deductions, raises the business profit threshold for deductions and special depreciation to €150,000, and raises deduction amounts by 50 percent.
To promote affordable housing, the draft law would allow landlords who provide discounted and affordable housing to fully deduct advertising expenses if they charge at least 50 percent of local rent (previously 66 percent).
The law also extends the tax exemption for employer subsidies for short-time work allowance — supplemental payments for companies to pay workers who have had their hours reduced because of the COVID-19 pandemic — until December 31, 2021.
Efforts to combat tax evasion in the draft law include limitation of offsetting of losses from capital assets and expanding the use of the VAT reverse charge procedure. Under the loss offsetting limitation, income of a creditor of capital gains is not subject to the withholding tax if the payments are already taxed by the debtor, the release says. The expansion of the reverse charge procedure aims to prevent losses in the telecom sector by including resellers, according to the release.
Germany also plans to implement the second phase of the EU's e-commerce VAT package, which centralizes VAT contact and retailer registration. The package includes an upgrade of the electronic one-stop shop, which allows companies operating in the EU to declare and pay VAT in a single member state. The changes will “contribute to a significant simplification and a reduction in bureaucracy for companies that carry out corresponding services in several EU member states,” the release says.
The European Commission in May proposed delaying implementation of the VAT e-commerce package until July 2021 in light of the coronavirus pandemic.
The German draft law also introduces financial data exchange between private health and long-term care insurance companies, the national financial administration, and employers. This information exchange replaces paper certificates in the existing wage tax deduction system, thereby reducing time and effort for tax authorities, says the release.
The draft law also includes provisions to prevent excessive taxation of domestic income and to tax authorized "free journeys" taken by soldiers under the Soldiers Act at a flat rate of 25 percent of employer's expenses.