Corona crisis: Federal government approves second billion-euro economic stimulus package

On 12. June 2020, the German government launched a second billion-euro economic stimulus package to get the economy back on track after the Corona crisis. Important (tax) aspects include

  • The VAT rate is to be reduced from 19 % to 16 % from 1.7.2020 to 31.12.2020. The reduced tax rate (e.g. applies to many foodstuffs and books) will then be 5 % (previously 7 %). Adjustments will have to be made to the accounting and cash register systems. An accompanying letter from the tax authorities is already available in draft form in German (BMF as of 11.6.2020, Ref. III C 2 – S 7030/20/10009 :004).
  • As an investment incentive, a declining balance depreciation method is to be introduced for movable fixed assets in 2020 and 2021. The rate of depreciation may not exceed 2.5 times the linear rate (maximum 25% per year).
  • The tax loss carry-back for 2020 and 2021 is to be limited to a maximum of EUR 5 million (or EUR 10 million in the case of joint taxation of spouses). At present, the following apply
    EUR 1 million or EUR 2 million in the case of a collective investment. In addition, a mechanism is to be introduced to ensure that the carryback has a direct financial impact as early as in the 2019 tax return (e.g. through the creation of a tax corona reserve). The reserve is to be released by the end of 2022 at the latest.
  • In the case of trade tax, the allowance for additions to trade income should be
    (e.g. debt interest) can be increased (by EUR 100,000 to EUR 200,000).
  • The due date for import VAT is to be postponed to the 26th of the following month (liquidity effect).
  • The purchase of electric vehicles is to be (further) stimulated and the federal government’s premiums doubled as a new “innovation premium”. This means, for example, that up to a net list price of the e-vehicle of up to EUR 40,000 the federal government’s subsidy will increase from EUR 3,000 to EUR 6,000. This measure is to be limited until the end of 2021.

Programme for bridging assistance

In order to secure the existence of small and medium-sized enterprises, a programme of bridging aid is set up for a corona-related loss of turnover (volume: maximum EUR 25 billion). Cross-sectoral aid is granted for June to August.

Eligible for application are companies whose sales in April and May 2020 were down by at least 60% in comparison to April and May 2019 due to corona effects and whose sales declines continue in the months June to August 2020 by at least 50%. For companies founded after April 2019, the months November and December 2019 are to be used.

Up to 50% of the fixed operating costs will be reimbursed if there is a decline in sales of at least 50% compared to the same month of the previous year. In case of a decrease in turnover of more than 70 %, up to 80 % of the fixed operating costs can be reimbursed.

The maximum reimbursement amount is EUR 150,000 for three months. For companies with up to five employees, the reimbursement amount should exceed EUR 9,000 and for companies up to
10 employees EUR 15,000 only in exceptional and duly justified cases.

Asserted decreases in turnover and fixed operating costs must be examined and confirmed by a tax consultant or auditor such as Benefitax. Overpayments are to be reimbursed.

The application deadlines end in each case on 31 August 2020 at the latest and the payment deadlines on 30. November 2020.

Further points at a glance

  • With regard to short-time work compensation, the German government intends to present a reliable regulation in September for payment from 1 January 2021.
  • Small and medium-sized enterprises which do not reduce their supply of apprenticeship places in 2020 compared to the three previous years are to receive a one-time premium (EUR 2,000) for each new apprentice contract they conclude which will be paid out after the end of the probationary period. Enterprises that even increase the number of training places on offer are to receive EUR 3,000 for the additional training contracts. For the time being, this is “only” the preliminary result of the coalition committee. Bundestag and Bundesrat (legislating bodies) still have to agree.

First Corona Tax Assistance Act “in dry cloths

The Federal Council approved the first “Corona Tax Assistance Act” on 5.6.2020. The focus is on the following aspects for employers in particular:

  • Employers’ contributions to short-time work benefits and seasonal short-time work benefits will be 80 % of the difference between the planned remuneration and the actual remuneration is tax-exempt.
  • A tax exemption for employer benefits already contained in the letter from the Federal Ministry of Finance dated April 9, 2020 has now been put on a legal footing. According to Section 3 No. 11a of the German Income Tax Act, the following are tax-free: “in addition to the salary already owed by the employer in the period from 1.3 to 31.12.2020 due to the Corona crisis to its employees in the form of subsidies and non-cash benefits.

Our recommendations:

  • The new temporary reduction of VAT rates creates a high risk of making mistakes for many entrepreneurs. Beforehand advice from experts is vital
  • Share you current liquidity, turnover situation and your future plans with us and we will be happy to check for our clients if you can profit from any reliefs or bridging aids
  • Contact us before you make larger investments. If you invest at the right time and meet the conditions you may be able to profit from the economic stimulus package
  • If you still have the money to pay your staff a bonus in 2020, use the corona bonus and pay them up to EURO 1,500 gross for net per person free of taxes and social security contributions.