Economic stimulus package brings sales tax reduction and additional tax relief

As already informed in our last news article, the coalition committee of the ruling parties of Germany agreed on a wideranging economic and crisis management package on 3rd June 2020. Besides the reduction of the VAT rate, many other measures are planned, in order to strengthen domestic demand and cushion economic and social hardship. In the following we provide you with an overview of the most important tax measures from our point of view. We would like to point out that the measures described below were first included in a draft legislation on 12th June 2020 and remains subject to reservations until the corresponding package will be adopted in the the appropriate form.

Reduction of the VAT rate
In order to provide an impulse to support growth in consumption, the ruling parties intend to reduce the regular VAT rate from 19% to 16% and the reduced VAT rate from 7% to 5% respectively. For further details we refer to our last info sheet about the reduction of VAT rates. This regulation shall apply only for a limited period from 1st July 2020 to 31 December 2020.

Deadline for Payment of Import-Turnover Tax
In order to improve liquidity, the due date of the import-turnover tax will be postponed by about 6 weeks. It is therefore due on the 26th of the second month following the import. A time limit for this measure is not apparent from the draft law.

Tax loss carryback
The maximum amount of the tax loss carryback from the previous EUR 1 Mio is to be increased to EUR 5 Mio (or EUR 10 Mio in the case of joint taxation). In addition, the following mechanism is to be introduced in order to use the loss carryback from 2020 already with the 2019 tax return („premature/preliminary loss carryback“): Provided that the advance payments in 2020 have been reduced to EUR 0,- a premature loss carryback can be applied for at a flat rate of up to 30% of the total amount of income of the 2019 assessment period. However, income from employment must be deducted from the total amount of income for this lump sum. Furthermore, a higher premature loss carryback can only be taken into account if it can be proven. The regulations explained above are to apply temporarily to losses from the assessment periods 2020 and 2021.

Degressive Depreciation
In order to encourage investment, the possibility of degressive depreciation has been invented. This amounts to 25%, up to a maximum of 2.5 times of the straight-line depreciation. It applies to movable fixed assets purchased or produced in 2020 and 2021 and can be used until the end of the depreciation period.

Trade Tax Measures
The possibility of crediting trade tax against income tax in accordance with Se. 35 Income Tax Act will be increased by raising the reduction factor from the previous 3.8 to 4.0. In addition, the allowance for the addition facts of Sec. 8 Nr. 1 Trade Tax Act will be doubled from EUR 100,000 to EUR 200,000. A time limit for this measure is not apparent from the draft law.

Other (temporary) measures

• Introduction of a child bonus
• Increase in the relief amount for single parents
• Promotion of carbon dioxide emission-free company cars in the taxation of private use by increasing the maximum amount of the gross list price
• Extension of the deadlines for reinvestments under Sec. 6b Income Tax Act and for the use of investment deduction under Sec. 7g Income Tax Act
• Increase in the maximum assessment basis of the tax research allowance 

In addition, many other measures are planned, but are not included in the draft law of 12 June 2020. Among them, the introduction of an option model, which should allow partnerships/transparent companies to be taxed like corporations/intransparent companies, can be mentioned in particular. We will of course inform you as soon as more specific details are announced. We are well aware that the above-mentioned list, as well as the draft law of the Federal Government itself, contains many uncertainties.

We are of course at your disposal for any further questions and support.