On September 14, 2022, the German government passed the draft Annual Tax Act 2022 (JStG 2022). According to the explanatory memorandum to the bill, there is a need for technical regulation in various areas of German tax law. This relates in particular to adjustments for further digitization, procedural simplification, legal certainty and tax fairness, and implementation of the coalition agreement. Adjustments to EU law and ECJ case law are also necessary, as are responses to case law of the Federal Constitutional Court and the Federal Fiscal Court.
The government bill provides for numerous amendments to individual laws and regulations, which are briefly summarized below. The changes in VAT (including the creation of an obligation for payment service providers to keep certain records of payments in the case of cross-border payment services) and in the valuation of real estate for inheritance and gift tax purposes (significant adjustments, in particular to the capitalized earnings value and asset value methods in the Valuation Act) are the subject of separate articles, which you will find on our homepage.
The government draft continues to contain the changes affecting private individuals in particular that were already included in the draft bill (see our article dated August 16, 2022). A new addition is the:
Income tax exemption for income from the operation of photovoltaic systems up to a gross nominal output of 30 kW on single-family homes and commercial properties or 15 kW per residential and commercial unit in the case of other buildings used predominantly for residential purposes (e.g. multi-family homes, mixed-use properties) from 2023 (addition of Section 3 No. 72 EStG). The tax exemption shall apply per taxpayer/co-entrepreneur up to a maximum of 100 kW;
Increase in the straight-line depreciation rate for residential buildings from the current 2% to 3% for buildings already completed after June 30, 2023 (addition to Section 7 (4) Sentence 1 EStG);
Unchanged from the draft bill were the:
Abolition of the higher depreciation rate for buildings with an actual shorter useful life of 50 or 33 years due to the significant increase in applications for recognition of a shorter useful life and the resulting sharp increase in bureaucracy from 01.01.2023 (deletion of Sec. 7 (4) Sentence 2 EStG);
Increase in the savers' lump-sum exemption amount from EUR 801 to EUR 1,000, which has remained unchanged since 2008, and from EUR 1,602 to EUR 2,000 in the case of joint tax assessment from 2023 (amendment to Section 20 (9) of the German Income Tax Act (EStG)), with a percentage increase for exemption orders already issued;
Creation of the legal basis for cross-spouse loss offsetting for investment income from 2022 onwards, with the result that unabsorbed losses of one spouse can be offset against positive investment income of the other spouse in the assessment (addition to Sec. 20 (6) Sentence 3 EStG);
Full special expense deduction for pension insurance contributions (pension expenses) from the 2023 assessment period (addition to Section 10 (3) sentence 6 EStG);
Increase in the education allowance for a child of full age who is undergoing vocational training and is accommodated away from home and who is entitled to an allowance under Section 32 (6) of the Income Tax Act or child benefit from EUR 924 to EUR 1,200 (amendment to Section 33a of the Income Tax Act);
Creation of a legal basis for establishing a direct payment channel for public benefits using the tax identification number (e.g. for payment of the planned climate money). For this purpose, the Federal Central Tax Office stores the international bank account number (IBAN) transmitted for natural persons and, in the case of foreign credit institutions, also the business identifier code (BIC) (addition to Section 139b AO).
Of relevance for foreign companies is the abolition of the so-called register link (amendment of Sec. 49 (1) No. 2 (f) EStG). The previously applicable rules on the taxation of limited taxpayers who are only subject to taxation in Germany on the basis of renting and leasing or the sale of a right entered in a domestic public book or register (so-called register cases) are to be withdrawn in accordance with the findings of the Federal Ministry of Finance and thus largely abolished for the future. This means that the regulation, which has only recently been implemented by the tax authorities and which has caused a stir in particular among companies in Germany that were previously not subject to taxation, will be largely abolished again from January 1, 2023. Details on this can be found in a separate article (in English) on our homepage.
New and to be welcomed are the planned changes in the taxation of photovoltaic systems - on the one hand, the exemption from income tax if certain gross performances are met, and on the other hand, the relief of supplies and installations of such systems from sales tax.
The hoped-for curbing of cold progression has now been reflected in the Inflation Compensation Act, the government draft of which was also passed on September 14, 2022. The law provides for two relief steps - from 2023 and from 2024. The aim is to offset inflation-related additional burdens and provide targeted support for families.
According to the plans, the basic tax-free amount will increase from the current EUR 9,984 to EUR 10,347 (new in 2022), EUR 10,632 (2023) and EUR 10,932 in 2024. In addition, the tax rate will be adjusted. The maximum tax rate of 42% currently applies to taxable income of EUR 58,597 (for single taxpayers); in 2023, this rate will only apply to EUR 61,972 and in 2024 to EUR 63,515. There will be no change to the so-called wealth tax: the 45% tax rate will continue to apply to taxable income of EUR 277,826 or higher.
Parents who receive child benefits for their offspring can also rejoice. Child benefit for the first, second and third child will rise to EUR 237 per month in 2023, and to EUR 250 for the fourth and each subsequent child.
Both bills are scheduled to be passed before the end of the year. By then, the Bundesrat (upper house of the German parliament) will have issued its opinion and the Bundestag's Finance Committee will have recommended a resolution. We expect the planned amendments to be adopted; further relief may follow.