LegalNov 18, 2020

An Overview of Germany's Tax Measures During the Pandemic

Adam Ghazalin

Tax measures that are provided by the German government to help companies during the pandemic.

In March 2020 COVID19 pretty much paralyzed the national and international economies. This is accompanied by several consequences for economies as a whole, but also for individual companies, the self-employed and freelancers. In response to the crisis, the German government implemented numerous aid packages, such as stimulus packages. These different packages are all intended to soften the economic consequences of the pandemic.

On November 5th, Peter Altmeier, the Federal Minister of Economic Affairs, stated: "Cohesion and solidarity are the order of the day. In this serious situation, we are not leaving our companies and their employees alone, but are once again expanding our offers of assistance for the self-employed, companies, and institutions that are particularly affected by the coronavirus regulations"

The latest measures known as the November Aid came into force on November 1st. Aside from all the available assistance and aid measures available, the tax relief measures, that were implemented due to the pandemic, are relevant to entrepreneurs in 2020. This article provides an overview of the most important tax relief measures of the corona crisis in 2020.

Overview of Tax Relief Measures

The Federal Ministry of Finance and the highest tax authorities of the federal states decided on various tax relief measures to help those taxpayers affected by the pandemic directly. The aim is to achieve a sustainable stabilization of economic development and improve companies's liquidity abilities. On May 28th, the German Bundestag passed the Corona Tax Assistance Act and thus launching another assistance package. Among other things, the purpose of this was to temporarily reduce the sales tax rate of food to 7% in order to help out catering services. Nonetheless, these aid measures aren't supposed to help catering services only. Those that are self-employed, companies, and freelancers are also entitled to tax relief measures. The Federal Ministry of finance and the highest state financial authorities came up with a series of concrete tax relief measures in the form of a corona protection shield.

Refund of Advance Payments Made

Companies can now apply for a refund of tax payments that were already prepaid for 2020 along with payments made in 2019 at their respective tax office.

Adjustments of Prepaid Tax Fees

Companies, self-employed, and freelancers can have the amount of already made payments adjusted. This is concerning the reduction of income and corporate tax, including the solidarity surcharge and, when applicable, the church tax. Additionally, companies now have the option to get the tax office to reduce the required payments if they notice that their sales and profits are decreasing significantly and will be lower than forecasted. If those payments have already been made, i.e. for income or corporate tax, the reduction may come in the form of refunds. This depends on the expected taxavle income in 2020.

Tax Reductions for Restaurants

The VAT rate will be reduced from 19% to 7% for restaurants and catering services for the period between June 30th, 2020 and July 1st, 2021, with the exception of the supply of beverages.

Additionally, starting July 1st, 2020 the VAT on meals in restaurants and catering services has been reduced to the new VAT rate until June 30th 2021. This is intended to provide quick assistance to restaurants, cafés and other catering services.

Tax Exemptions for Short-time (Kurzarbeit) Workers

Companies that have reduced their working hours by more than 10% as a result of the pandemic can now apply for short-time work compensation- The applications are available starting March 1st, 2020. Employers will be reimbursed in full for their social security contributions.

The main purpose of the simplified rules on short-time working compensation is to preserve and save jobs. Many employers increased the amount of short-time working allowance of the employees; some on the basis of a collective agreement, other have done so voluntarily. At the moment no social security contributions have to be paid on top of the new regulated wage limit. The rules for taxation will be adjusted to match these new regulations. This measure is, however, limited and will go on until December 31st, 2020.

Deferral of Tax Payments

Companies that are unable to meet specific tax payments this year due to the economic consequences of the pandemic can, upon request, have these payments deferred for a specific period of time without interest. This measures applies to different types of taxes, i.e. income, corporate, church, sales and solidarity surcharge tax. The idea behind this is to support the liquidity of taxpayers by deferring the date of the required tax payments.

Companies can submit the required application and documents to their tax office until December 31st, 2020. It should be noted that there are not strict requirements for approving this deferral. Companies should only demonstrate that they are affected directly by the pandemic and their losses are related to the pandemic.

These applications aren't rejected if the taxpayers can't prove the value of the incurred losses.

Tax-free Allowances and Employee Benefits

According to the new §3 number 11a of the Income Tax Act, recently introduced by the Corona Tax Assistance Act of June 19th, 2020, employers can pay their employees tax-free allowances and support them with an amount of up to 1500€ in the period between March 1st and December 31st of 2020. A prerequisite of the mentioned regulation is that allowances are provided to mitigate problems and consequences of the pandemic. These are given in addition to the employees' salaries.

Utilization of Tax Reliefs

For the concrete use of the described tax relief, entrepreneurs should contact their respective tax office directly. If you're interested in deferring the trade tax, the responsible contact person is the municipal city administration. Please contact the Federal Central Tax Office (BZSt) for issues related to insurance taxes or VAT on e-service procedures (special sales tax procedure).

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