Second Corona Tax Relief Act

The Federal Government has introduced the so-called Second Corona Tax Relief Act. The Act is due to be passed by the Bundestag and Bundesrat in the course of June. The planned changes in detail:

• VAT rates will be temporarily reduced from 1 July 2020 to 31 December 2020 from 19% to 16% and from 7% to 5%.
• The due date for import VAT will be deferred to the 26th of the second month following the month of importation.
• A child bonus of 300 euros will be granted for each child for whom child benefit is payable in 2020.
• The tax relief for single parents will be temporarily doubled for two years from the current 1,908 euros to 4,008 euros for the years 2020 and 2021.
• The tax loss carry-back will be extended for 2020 and 2021 to 5 million euros (or 10 million euros for jointly assessed couples), and a mechanism will be introduced to make the 2020 loss carry-back immediately effective for cash-flow purposes in the 2019 tax return.
• Introduction of a declining-balance depreciation method at 25%, up to a maximum of 2.5 times the straight-line depreciation rate, for movable fixed assets acquired or manufactured in 2020 and 2021.
• For the taxation of the private use of company cars with zero CO2 emissions per kilometre driven, the maximum gross list price will be raised from 40,000 euros to 60,000 euros.
• Temporary extension of the reinvestment periods under § 6b EStG by one year.
• Extension by one year of the deadlines expiring in 2020 for the use of investment deductions under § 7g EStG.
• The reduction factor in § 35 EStG will be increased from 3.8 to 4.0 (trade tax credit against income tax).
• For trade tax purposes, the exemption threshold for the add-back items under § 8 No. 1 GewStG will be raised to 200,000 euros.
• The maximum assessment basis for the research and development allowance will be increased to 4 million euros for the period 2020 to 2025.

Regarding the Change in VAT Rates

The decisive factor is when the supply is made.

Example 1: A tradesman renovates a bathroom for a customer starting in May 2020. The final work is carried out on 1 July 2020. The supply as a whole is subject to the 16% VAT rate. If an advance payment invoice was already issued in May or June at the 19% rate, this will automatically be corrected to 16% for the whole supply in the final invoice.

Example 2: An IT service provider invoices hours worked in June 2020 with an invoice dated 3 July 2020. The services were provided entirely in June 2020. The applicable VAT rate is 19%.

Example 3: In the case of an office rental where the landlord has opted for VAT. The VAT rate on rents for July to December 2020 is 16%.

Action Required

• Ensure that your till systems and invoicing software can process the new VAT rates and that invoices, receipts, etc. for supplies in the period 1 July to 31 December 2020 do not show an excessive amount of VAT.
• Amend standing invoices - for example in the case of a VAT-taxable tenancy - to 16% with effect from 1 July 2020 and then again to 19% with effect from 1 January 2021.
• When reviewing incoming invoices and standing invoices, check that no excessive amount of VAT is shown, since only the correct amount of VAT may be deducted as input tax.

Regarding Declining-Balance Depreciation

Example: impact where a new car costing 60,000 € is purchased in July 2020:

This represents a timing shift in the depreciation.

Trade Tax Credit Against Income Tax

For sole traders and partners in partnerships subject to trade tax, the trade tax is credited against income tax up to a maximum of 14.03%. This maximum credit will be increased to 14.77%, so that your effective final tax burden decreases by 0.74%.

Example (trade tax multiplier for Munster: 460%):