Welcome to the high-level summary of Covid-19 related actions by the German Federal Government. The details and links below have been split between “Tax Filings Affected”, “Government Employee Wages Benefits Programs” and “Government Loan Programs”; and are extracts from the more detailed information available on the websites of the German Praxity Participant firms’ websites, links to which are available at the bottom of this page. Praxity Participant Firms in Germany are FALK GmbH & Co. KG, FIDES Treuhand GmbH & Co. KG, Flick Gocke Schaumburg GmbH, H/W/S GmbH & Co. KG, and Mazars
Tax Filing Affected
- Taxpayers who are demonstrably directly and not insignificantly affected by the Corona crisis can submit applications for a tax deferral according to Section 222 sentence 2 AO at the local tax office. This applies to taxes that were already due or still due by that time. In general, deferral interest should not be charged.
Adjustments of Advanced Payments
- Taxpayers who are economically affected by the Corona crisis can also request an adjustment to their advance payments for income tax and corporate income tax until December 31, 2020. On the basis of the simultaneously published, identical state decree of March 19, 2020, this applies equally to trade tax.
Suspension of Enforcement during the Corona Epidemic
- Enforcement debtors can inform their competent tax office that they are directly and economically affected by the Corona crisis. As a result, enforcement measures for all arrears or taxes due up to this point will be waived until December 30th, 2020
- Default surcharges for these taxes will be imposed from March 19, 2020 to December 31, 2020
Extension of deadline for registration of income tax
- In addition to the tax deferral options above, Bavaria and North Rhine-Westphalia grant deadlines for submitting income tax declarations for the first quarter by up to 2 months. In agreement with the highest financial authorities of the federal states, the BMF has now followed suit and stipulated in a letter dated April 23, 2020 that the deadlines for submitting monthly or quarterly wage tax registrations can be extended by a maximum of 2 months in individual cases and at the request of the employer. This applies insofar as the employer can prove that the Corona crisis prevented him from making the tax returns on time due to no fault of his own.
Temporary reduction in sales tax rates / postponement of the due date of import sales tax
- For the period from July 1 to December 31, 2020, the standard tax rate is to be reduced from the current 19 to 16 percent and the current reduced tax rate from 7 to 5 percent.
- VAT and Indirect Tax Measures- Additional options for ensuring liquidity are: -"Phased" accrual taxation through direct application of Art. 64 of the EU VAT Directive -With the direct application of Art. 64 of the VAT Directive, there is the possibility of taxation by instalments, provided this is agreed between the parties. This converts the accrual taxation principle into a "phased" accrual taxation principle and only the agreed monthly instalments are taxable. -Transition to the cash accounting method through interpretation of Sec. 17 German VAT Act / Art. 90 of the EU VAT Directive -In addition, there is also the possibility of referring to the German Federal Court of Finance case law on "temporary" irrecoverability. According to the German Federal Court of Finance understanding, agreements according to which payments are only made at a later point in time or the non-payment of agreed fees could regularly be regarded as irrecoverable from the outset, so that the VAT must be corrected immediately in accordance with Sec. 17 UStG / Art. 90 VAT Directive. A fee is irrecoverable if, on objective consideration, it can be expected that the entrepreneur providing the service will not be able to enforce the fee claim against his customer (in whole or in part) in law or in fact for the foreseeable future. There is currently no uniform rule as to the period of time which can be considered as late payment or non-payment which entitles to apply the legal institution of "temporary" irrecoverability. However, there are court decisions available which might be useful in arguing that this institute can be applied.
- PRACTICE NOTICE: The application of the above-mentioned legal institutions of "phased accrual taxation" and "temporary irrecoverability" must be disclosed to the tax office on the occasion of filing the VAT returns or annual VAT returns. This information can be added to the tax form as “additional information regarding the facts” (see field 23 of the preliminary VAT return and field 123 of the annual VAT return). Furthermore, it should be noted that the "phased accrual taxation" in connection with the "new" agreed instalment payment between the parties justifies the payment of VAT in the month in which the payment is due, regardless of whether the payment is then also made. In this respect, the legal institution of temporary irrecoverability can be used if necessary as a result of the non-payment of the instalment payment.
Government Employee Wages Benefits Programs
The Employment Agency provides allowances for short-term work shortages
- The amount of short-time work benefit is 67% (employees with at least 1 child entitled to child benefit) or 60% (other employees) of the net wage difference in the entitlement period, i.e. the difference between the net wage from the target wage (gross wage without short-time work) and the net wage from the Actual salary (actual gross salary with short-time work).
- The max benefit period is 12 months. And application must be submitted to the Employment Agency within three months for which the allowance is applied.
- The employer must qualify. The criterion includes: - Short-time work must have been effectively introduced under labor law - 1/3 of the employees of a company must be affected by a loss of earnings of at least 10% (since 15.3.2020 the Federal Government has been allowed to lower the threshold from 1/3 to 10% of the employees - the Federal Minister of Labor has already issued the relevant decree retrospectively on 1.3 .2020 announced, but it is still pending (as of March 19, 2020))
- Loss of work must be temporary (that is, the probability of returning to full-time in the foreseeable future) and unavoidable (especially if it is not typical for the industry or the season, or can only be attributed to operational reasons).
- Employees who have already been given notice of termination or who have signed a termination agreement are not entitled to short-time benefits
- Employers must take the necessary measures to avoid short-time work, for example granting open vacation entitlements and reducing working time accounts
Social protection package II: increase in short-time work benefits On May 15, 2020, the legislature increased the short-time allowance with the Law on Social Measures to Combat the Corona Pandemic (Social Protection Package II). The short-time work allowance for those who receive short-time work allowance for their working hours reduced by at least 50 percent increases to 70 percent from the fourth month (previously this was 60 percent). Workers with children continue to receive an additional 7 percent. From the seventh month, the short-time allowance increases to 80 percent (or 87 percent for households with children). March is the first reference month for the calculation of the reference months. Thus, the increase to 70 percent (or 77 percent) will take effect from June at the earliest. This applies regardless of whether or not the employee's working time was reduced before March. The increase to 80/87 percent will take effect in September at the earliest. The higher rates apply until December 31, 2020. Social protection package II: changes in additional earnings In addition, from May 1, 2020, employees in all occupations can earn up to the full amount of their previous monthly income through a part-time job, without affecting the amount of short-time work benefits. The restriction to systemically relevant professions is lifted. The regulations are initially limited until the end of the year. Draft of the Corona Tax Assistance Act: (partial) tax exemption for the employer's allowance for short-time work benefits The draft law provides for voluntary employer subsidies for short-time working benefits to be exempt from tax up to 80 percent of the lost wages - in accordance with the treatment under social security law. The unpaid wage is calculated as the difference between the target wage and the actual wage. The tax exemption should be introduced retrospectively from March 2020 and apply until December 31, 2020. The draft law also stipulates that the employer must correct the wage tax deduction on corresponding grants made until March 2020 as a matter of principle.
Tax-free special payment to employees
- The BMF letter of 9 April 2020 exempted special payments to employees up to an amount of EUR 1,500 from tax and social security obligations. This presupposes that the special payments recorded in the wages account are made in addition to the wages owed anyway. The special regulation also only includes those bonus payments that are paid in the period from 1.3.2020 to 31.12.2020.
- You can find the application form here .
Government Loan and Support Programs
- The fund has been allocated €600 billion to help alleviate economic effects of Covid-19 on larger companies. The fund can provide guarantees, recapitalization measures, or KfW loans. - Guarantees: The fund should be able to provide guarantees for corporate liabilities - especially debt financing - of up to EUR 400 billion. The guaranteed liabilities must have been established after the law came into force. The term of the guarantees and the liabilities to be hedged may not exceed 60 months. A fair consideration (guarantee interest) is to be charged for the takeover. - Recapitalization measures: In addition, the WSF can participate in the recapitalization of companies up to a total volume of up to 100 billion euros on market-oriented terms. Market conditions mean that a fair market value has been determined. This includes the acquisition of subordinated debt, hybrid bonds, profit participation rights, silent participations, convertible bonds and company shares. According to the draft law, participations of this type are only considered if there is an important federal interest in stabilizing the company and the purpose pursued by the federal government cannot be achieved better and more economically in any other way (subsidiarity). - KfW loans: Finally, the WSF cangrantthe Kreditanstalt für Wiederaufbau (KfW) loans to refinance the special programs that were assigned to it in response to the corona pandemic. This includes, in particular, aid loans to smaller companies and the self-employed.
- Companies in qualified industries (not financial sector [FMStG] or bridge institutions [FMStBG]) and of a certain size are eligible. In the last two financial years before January 1, 2020, you must have total assets of more than 43 million euros, sales of more than 50 million euros and an average of more than 249 employees. It is sufficient if two of these three criteria are met. But smaller companies can aid be granted on the basis of the so-called individual decision by Economic Stabilization Fund Committee.
- The company must not have already met the EU definition of “companies in difficulty” as of December 31, 2019.
- Applicant companies must guarantee a " sound and prudent business policy ". This means that they must meet the legal standards with regard to their organization and staffing. The Corporate Governance Code can also be used as a guide.
- The company must have no other financing options available.
- Small and medium-sized enterprises (SMEs), including freelancers affected by the Corona crisis, are able to submit a simplified application for business advice to the Federal Office of Economics and Export Control (BAFA). Up to December 31, 2020, up to EUR 4,000 will be funded by BAFA without your own contribution. Application Link See KfW site for information regarding loans of companies more than 10 employees in response to the Corona Virus. Additional links to state ministry’s can be found for additional grant and emergency aid information. See BMWi information for small businesses and solo self-employed individuals.
Corona Tax Assistance Act The Bundestag dealt with the draft law on May 15, 2020 at first reading, but then referred it to the Finance Committee according to customary practice. It remains to be seen how quickly the legislative process will be completed. The law essentially provides for four tax changes:
- Lowering the sales tax rate from 19% to 7% for the delivery of food in the catering trade
- Extension of the transition regulation to § 2b UStG until December 31, 2022
- Tax exemption from employer grants for short-time work benefits (up to 80% of the difference between target and actual remuneration)
- Extension of the tax retroactive periods for various restructuring measures Certain state banks will also offer guarantees for medium-sized investment companies.
Second Corona Tax Assistance Act Subsequent adjustment of advance payments for the assessment period 2019
- Upon request, a flat-rate reduction of the total amount of income, which was used as the basis for the calculation of the advance payments for the assessment period 2019, is made. The total amount is therefore reduced by an amount of 30 percent. This does not apply to income from employment. A reduction of more than 30 percent is granted if a corresponding expected loss carryforward for 2020 can be proven.
- It is also a prerequisite that the advance payments for the 2020 assessment period have been reduced to 0 euros. The reduction is limited to a total of EUR 5 million for individual investments or EUR 10 million for joint investments. Loss carry back
- When determining the tax for the assessment period 2019, a flat-rate amount of 30 percent of the total amount of income (excluding income from employment) of the assessment period 2019 will be deducted as loss carryforward from 2020 (provisional loss carryforward for 2020); a reduction of more than 30 percent is granted if a corresponding expected loss carryforward for 2020 can be proven.
- The provisional loss carry-back is granted provided that the advance payments for the assessment period 2020 have been reduced to 0 euros, and is limited to a total of 5 million euros for individual investments or 10 million euros for joint investments. An additional payment, which may result from the provisional loss carry-back in the course of the assessment in 2019, will be deferred without interest until the end of one month after the tax assessment for the assessment period 2020 has been announced.
- The tax loss carryforward for losses in the assessment periods 2020 and 2021 will be expanded to a maximum of EUR 5 million for individual assessments (previously maximum EUR 1 million) or EUR 10 million for joint assessments (previously maximum EUR 2 million).
Third Corona Tax Assistance Act Extension of the tax return deadline and third Corona tax aid law passed, withholding tax relief modernization law planned The legislature is reacting to the ongoing Corona crisis with an extension of the tax return period for advised taxpayers and the now third Corona Tax Assistance Act. In addition to an improvement in the possibility of utilizing losses, the latter also includes an extension of the reduction in sales tax in the catering sector. In addition, the legislative process for the so-called Withholding Tax Relief Modernization Act is progressing, through which the refund process for withholding taxes is to be digitized and made more efficient. Extension of the tax return deadline As expected, after the Bundestag, the Bundesrat on February 12, 2021 also approved the law to extend the deadline for filing tax returns for the 2019 assessment period. The first tax legislative procedure in 2021 has thus been completed. Due to the change in the law, advised taxpayers do not have to submit their 2019 tax returns until August 31, 2021. The start of the interest run for back payment and reimbursement interest on tax claims from the 2019 assessment period has been postponed by 6 months, i.e. until October 1, 2021. Extended application of the reduced tax rate for restaurant services With the Third Corona Tax Aid Act, another legislative process is about to be completed. After approval by the Bundestag (February 26th, 2021) and the Bundesrat (March 5th, 3021), only the promulgation in the Federal Tax Gazette is missing - just one month after the publication of the first draft law. This should take place in the coming days. On the one hand, the law stipulates the application of the reduced sales tax rate i. H. v. 7% on restaurant services in the catering sector, which were introduced as part of the first Corona Tax Aid Act on July 1st, 2020 (see FALK Journal 02 | 2020), extended beyond June 30th, 2021 to December 31st, 2021. Beverages are still excluded from the application of the reduced tax rate. Improvement of the possibility of using losses On the other hand, the law provides for an improvement in the possibility of using losses. The limit on the amount of the loss carryforward for the assessment periods 2020 and 2021, which has already been increased by the Second Corona Tax Aid Act (see FALK Journal 05 | 2020) to EUR 5 million for individually assessed and EUR 10 million for jointly assessed, will be increased again doubled to EUR 10 million or EUR 20 million. The new maximum amounts also apply to the reduction in advance payments for the 2019 assessment period (Section 110 EStG) and the preliminary loss carry-back for losses in the 2020 assessment period (Section 111 EStG). The latter regulation will be extended to losses in the 2021 assessment period, so that these can already be taken into account in the 2020 assessment. Withholding tax relief modernization law Finally, another legislative process is in full swing apart from Corona. Behind the cumbersome legal title “Withholding Tax Relief Modernization Act” hides a more efficient design of the reimbursement procedure for German withholding taxes. This is used by persons with limited tax liability insofar as they are entitled to reimbursement of German withholding taxes under the double taxation agreement (DBA) or other legal regulations. Previously, any reimbursement applications had to be submitted in writing, but the draft law of January 11, 2021 stipulates that applications must be submitted electronically. To simplify the procedure and in particular to reduce the number of reimbursement applications, the following useful addition: A de minimis limit (EUR 5,000) is to be introduced, up to which the debtor can easily deduct the tax in the amount of the reduced tax rate (if applicable, also null). However, as soon as the gross remuneration paid by a debtor to a taxpayer, which is subject to withholding tax, exceeds the amount of EUR 5,000 within a calendar year, the (full) withholding tax provided for in the German Income Tax Act remains.
- A degressive depreciation for wear and tear (AfA) will be introduced for the tax years 2020 and 2021. It applies to movable assets of fixed assets that were acquired or manufactured after December 31, 2019 and before January 1, 2022 with a factor of a maximum of 2.5 of the currently applicable linear depreciation and a maximum of 25 percent per year.
Credit factor for trade tax
- From the assessment period 2020, the credit factor for trade tax for co-entrepreneurs will be increased to 4 times the trade tax measurement amount (previously 3.8 times).
- The reinvestment periods in Section 6b of the Income Tax Act are temporarily extended by one year, provided that a reinvestment reserve is available at the end of the financial year ending after February 29, 2020 and before January 1, 2021.
- The investment period regarding investment deduction amounts according to § 7g EStG, for which the investment period would normally end in the assessment period 2020, is extended by one year.
Private use of a company car (1 percent rule)
- From January 1, 2020, the gross list price limit for electric vehicles and externally rechargeable hybrid electric vehicles will be raised from 40,000 euros to 60,000 euros.
- A one-off child bonus of EUR 300 for every child entitled to child benefit will be granted in 2020.
- The relief amount for single parents will be increased by 2 100 euros for the first child for the calendar years 2020 and 2021. Lowering the tax rate
- The regular sales tax rate will be reduced from 19 percent to 16 percent and the reduced sales tax rate from 7 percent to 5 percent for deliveries and services between July 1, 2020 and December 31, 2020. Maturity of import sales tax
- The due date of the import sales tax is postponed to the 26th day of the following month. A BMF letter should be issued for the first-time application of the changed due date.
Additions acc. § 8 No. 1 GewStG
- The exemption limit for additions according to § 8 No. 1 GewStG will be increased from 100,000 euros to 200,000 euros from the 2020 survey period. Assessment basis for in-house research
- For expenses related to in-house research that were incurred after June 30, 2020 and before July 1, 2026, the assessment basis for the research allowance is increased from EUR 2 million to EUR 4 million.
Corona Aid Grants Small and medium-sized companies whose turnover in April and May 2020 was reduced by at least 60 % as compared to April and May 2019 due to corona effects and whose turnover is expected to continue to fall by at least 50 % in the months June to August 2020 are eligible to apply. Declining revenues and fixed operating costs must be audited and confirmed by tax advisors or auditors. Within the scope of grants, up to 50 % of fixed operating costs are reimbursed in the event of a decline in sales of at least 50 % compared to the same month of the previous year. Up to 80 % of the fixed operating costs can be reimbursed in the event of a decline in sales of more than 70 %. The maximum reimbursement amount is EUR 150,000.00 for three months.
Links to Our Member Firms
Further Covid-19 advice
The information contained herein on Covid-19 government measures within the G8, consists solely of information that can be found on the websites of one or more Praxity Participant firms, and has not been written, modified or verified by Praxity, it’s staff, officers or directors.