For the period from July 1, 2020 to December 31, 2020, the sales tax in Germany will be reduced from 19% to 16% for the standard tax rate and from 7% to 5% for the reduced tax rate. The application of the tax rate is based on the performance date.
For companies entitled to deduct input tax, it does not matter whether the service was received before or after the time of the tax rate change; it is important that a correct invoice is available. Invoice defects lead to the loss of the input tax deduction. However, if services are rendered to recipients who are not entitled to deduct input tax, they should be carried out during the above-mentioned period if possible.
As part of an insolvency procedure, the insolvency administrator will always check whether he can reclaim debts paid by the company (art. 133 (1) InsO, German Insolvency Code). Often this will relate to bills paid up to 10 years before the application for the opening of insolvency proceedings, and afterwards. However, two conditions must have been met for this:
A. Tax classification of COVID19 grants
The COVID19 emergency grants-in-aid from the German federal and state governments are taxable grants and must, therefore, be treated as operating income. Accordingly, they must be recognized in the determination of income as other operating income; as real subsidies, they are not subject to VAT.
B. Correct use of the COVID19 grants:
I. Check for eligibility:
1) Requirements for ALL grants (from the federal and state governments in Germany):
The new regulation of documentary evidence for intra-Community deliveries is the implementation of an EU directive, can be found in § 17a UStDV (German VAT Implementation Regulation) and now contains a new term: presumption of arrival. The presumption of arrival is only valid if the delivering entrepreneur:
A. sent the item - by themselves or through a third party - AND
B. is in possession of two documents which
From 01.01.2020 onwards, a substantive legal prerequisite for a correct tax-free intra-community (intra-EU) delivery is also a punctual submission of the summary report, which must include the intra-community delivery. In addition, the newly introduced article 6a (1) no. 4 UStG (German VAT Act) requires the customer to use a valid VAT identification number (VAT-ID) towards the entrepreneur.
Recently, a new special depreciation rule was created in Germany pursuant to § 7b EStG (German Income Tax Act) for the purchase and production of new rental apartments. In addition to the annual straight-line depreciation of 2% per annum, the special depreciation amounts to up to 5% per annum over a total period of 4 years. The special depreciation favours new housing developments, which were produced on the basis of a construction application submitted after 31 August 2018 and before 1 January 2022.
In accordance with art. 15 (1) UStG (German Value Added Tax Act), two conditions must be met for a lawful deduction of input tax in Germany:
An immediate payment of the invoice is not required. This also applies if the bill is settled later, according to agreement. This ruling applies to all entrepreneurs, irrespective of the method of determination of profits and the size of the enterprise.
If these two conditions are met, at that time the pre-tax claim must be asserted in the VAT advance declaration. A later deduction of input tax is no longer possible.
The employers involved in a transfer of a company are required under art. 613a (5) BGB (German Civil Code) to inform the employees about the transfer of business. None or incorrect information may have consequences for the exercise of a right of objection by the employees and may lead to claims for damages. Both the previous and the new owner of the enterprise or the division are required to inform the employees affected by the transfer of the business. The obligation to provide information applies regardless of the size of the company. Therefore, business sellers and acquirers should agree on the manner in which they fulfill their joint obligation. In the case of incorrect or omitted information, the employees concerned may choose to assert their rights either against the seller or the acquirer. If there is a works council, it too must be informed. However, informing the works council alone is not sufficient.
Through a federal-and-states decree, which was recently made public by the Tax Authority Hamburg, a tax-saving model for profit determinations under art. 4 sec. 3 EStG (German Income Tax Act) connected with leased company cars is to be prevented. Until now, high special leasing payments for leasing contracts with a term of less than five years have resulted in immediately deductible operating expenses in full. The later, very small leasing rates then resulted in small expenses.
In its most recent judgment of 15 May 2019 (reference number: 7 K 2712/18), the Finance court Baden-Wuerttemberg contradicts the previous administrative view: it ruled that the tax consultancy costs paid by the heir for the preparation of corrected tax returns on the basis of income not yet declared or incompletely declared reduce inheritance tax. A legal obligation for the heirs to correct the tax return arises only in the event of tax-increasing facts.
The Financial Court of Baden-Württemberg has ruled in a new judgement (02.03.2019, 5 K 548/17) that there is no obligation for the recording of non-substantial amounts as prepaid expenses and deferred charges. As non-substantiality limit is considered the amount for the immediate depreciation of fixed assets. Background to the lawsuit were non-substantial or annually recurring amounts such as vehicle tax, motor insurance, etc.
According to the German Federal Leave Act, there is a vacation entitlement for the period of parental leave. However, the employer may, in accordance with art. 17 (1) sentence 1 BEEG (German Parental Allowance and Parental Leave Act), reduce this holiday entitlement, in accordance with EU law as well.
Liability of all managing directors of German GmbHs (CEO, COO, CFO, CTO, CREATIVE, HR) in cases of over-indebtedness and insolvency
When an entrepreneurial company (UG) has built sufficient legal reserves - art. 5a sec. 3 GmbHG (German Companies Act) - in order to be able to establish the minimum share capital of a German GmbH, it may issue a shareholder resolution - art. 57c GmbHG - for the legal reserve to be converted into share capital.
However, a mandatory requirement for the conversion is the examination of the last year-end report of the UG - art. 57e GmbHG - by a certified auditor or a sworn accountant.
Postponement of priority declaration and ban on recognising provisions for anticipated losses for German corporations
The financial debt overload of a corporation can constitute a reason for filing a bankruptcy petition (art. 19 Insolvency Act). There is a financial debt overload when the liabilities exceed the assets, as for example in the case of a loss not covered by equity. In order to avoid having to file for bankruptcy, the shareholders often issue a postponement of priority declaration for their own claims against the company.
Emergency management is set up when
a) no other manager exists AND
b) the managing director can not assume the management (e.g. by death or serious illness, coma).
In such a case, the shareholders as well as the creditors can submit an application for the appointment of an emergency manager to the local district court and propose a person. It is recommended that a clear regulation for such an emergency be included in the statutes / articles of incorporation at the time of incorporation and that any existing statutes and articles of incorporation be amended as appropriate.
On the 1. January 2019, a new obligation for all German employers emerges:
They must ensure that their employees carry a valid A1 employer's certificate on all business trips to other EU countries or Iceland, Norway, Lichtenstein, Switzerland. The employer receives this certificate online from the responsible social insurance institution (health insurance, German pension insurance, etc.). This legal regulation also applies to very short stays of the employees in one of the above-mentioned countries, for example, when they drive across the border to refuel their vehicle. Customs officials of the countries concerned are authorized to stop passengers at any time and to request the presentation of the A1 employer's certificate.
If you marry in a civil registry office in Germany, after the marriage the registry office will send the details of the marriage to the relevant residents' registration office. The registration office, in turn, transmits this data to the tax authorities. According to the law, the tax authority first assigns to both spouses the tax class IV. These information details are then stored in the ELSTAM database, from which the employers obtain the data for the correct payroll tax calculation.
If you marry abroad, you have to inform the registration office and the tax office after the marriage by yourself.
However, if the tax class IV is not the best option for both spouses, then you must use a form to apply to the tax office to change the tax class to tax classes III and V OR to use the work-factor method.
Extra sustenance costs are tax-deductible costs incurred on a business trip for eating and drinking of the business traveler. Tax deductible are not the actual expenditures, but only the legally fixed allowances for additional meals.
For the travel expense reporting, a travel expenses statement is required which includes travel times and travel locations next to the travel receipts, not just individual records and documents. The level of the legal allowances depends on country and city. These allowances are regularly adjusted by the German Federal Ministry of Finance to reflect the cost of living of the individual countries.
Consequences of non-compliance with the legal limits:
If the employer pays his employees more than the statutory allowances, then the excess amount is converted into wages subject to tax and social security contributions.
With the Annual Tax Act 2018, the German Federal Ministry of Finance has rewritten Art. 8c (1) sentence 1 KStG (German Corporation Tax Act) after the decision of the Federal Constitutional Court. It is now stipulated by law that in cases of share transfers of German corporations between 25% and 50% existing loss carryforwards will not be proportionally shortened if the shares were transferred in the period from 1 January 2008 to 31 December 2015. For transfers of shares after 31 December 2015, however, the loss deduction limit shall apply again. The latter has nevertheless to be checked for constitutionality.
Since November 1, 2008, according to Art. 16 of the German Private Limited Companies Act (GmbHG), the list of shareholders in the Trade Register has been upvalued. Since then, it has been regarded as the basis of legitimacy for the exercise of shareholder rights and as a starting point for the good faith acquisition of shares.
However, incorrect or old shareholders lists are still to be found in the Trade Register. As a result, shareholders' resolutions may become void, profit-sharing rights may be disputed, or even share transfers may be declared invalid. These inaccurate lists, therefore, represent a considerable potential for liability risks for the company, the shareholders, and the managing director(s).
NEW: the duty to report foreign investments is extended to naming the commercial activity of the investee.
Until recently, according to Art. 138 of the German Fiscal Code the taxpayer had to report investments in non-German corporations or private companies to the tax office only if the investment – a direct or an indirect one –
a) reaches 10% or more AND
b) amounts to at least 150.000 EUR.
Now, the COMMERCIAL ACTIVITY OF THE INVESTEE must ALSO be reported to the tax office, that is – it has to be included in the tax declarations (income tax and corporation tax). This must be disclosed to the tax office within 14 months after the investment had been realised or after the participation limit had been reached. This deadline is not prolongable. A failure to comply with this reporting regulation constitutes an administrative offence, which can be fined up to 25.000 EUR.
Change of mind: the German Federal Fiscal Court doubts correctness of debit taxation, VAT, Sollbesteuerung
In the case of debit taxation, the entrepreneurs in Germany have to pay VAT to the tax office as soon as they have written the invoice – even if the customer pays later – what is, until now, an unconditional obligation for the entrepreneurs to pre–finance the VAT.
The German Federal Fiscal Court has now expressed doubts about the continuation of the existence of this obligation without any restriction, since it might be contrary to binding requirements of the law of the European Union. For topical reasons, the German Federal Fiscal Court has sent a preliminary ruling request to the European Court of Justice (Bundesfinanzhof, ruling of 21.06.2017 – V R 51/16, published on 20.09.2017).
Launched: the automatic exchange of financial account information between Germany and 49 other countries (CRS, Common Reporting Standard)
In September 2017, for the first time, Germany carried out the automatic exchange of financial account information with 49 other countries from all over the world. In the fight against cross-border tax fraud and tax evasion, closer cooperation between the national tax authorities is indeed essential. More than 100 countries and territories have currently registered for the automatic exchange of financial account information. The next data exchange, which is expected to involve additional countries and territories, is scheduled for September 2018.
The automatic exchange of financial account information is the systematic and regular transfer of strictly defined tax information – Common Reporting Standard – on certain types of income at a fixed time between states and territories.
As a result, the German tax authorities are now most extensively informed about foreign income generated by most taxpayers.
New and extremely important for corporations:
the current limitation of the loss deduction after a change of a shareholder – of more than 50% of the company shares – is now as well subject to review on grounds of possible unconstitutionality.
At the end of March this year, the German Federal Constitutional Court already ruled (step 1) that the regulation of the loss deduction after a change of shareholder(s)(1) - of more than 25% and up to 50% of the company shares - violates the Constitution.(2) Under the old regulation, the loss carryforward of a corporation ceased partially to apply if within 5 years there had been a transfer of 25% to 50% of company shares (harmful acquisition of shares). At the same time, the German Federal Constitutional Court ruled that the correction of this regulation should come into effect by the end of 2018. Simply put this means that shortened loss carryforwards made since January 2008 are now being reviewed by the tax office and will possibly be changed.