Annual Tax Act: What changes should be noted for 2020?

Tax law is subject to regular changes and new court rulings. This results in a high degree of complexity in tax-related regulations. Since 1995, efforts have been made to bring order to the system through the Annual Tax Act. In Germany, changes to tax law generally apply to individual tax statutes. At the end of each year, all tax measures of the year are summarized and presented in a clear and concise manner. The Annual Tax Act includes adjustments to the law and case law, measures to secure tax revenue, and simplifications of tax procedures. With the new decade came a new Annual Tax Act. As tax advisors in Düsseldorf

and Oberhausen,

we are of course familiar with all the changes. For private individuals, however, it is rather impractical to study the Annual Tax Act in its entirety. To ensure you are still informed about the most important changes for 2020, we have summarized the most relevant points for you in this article.

Promotion of E-Mobility

An essential part of the Annual Tax Act consists of measures related to the promotion of electric mobility. Below, we will list and explain the most important changes:

• The tax base for company car taxation in the context of the private use of a company-owned electric vehicle or externally chargeable hybrid electric vehicle has previously been halved. The Annual Tax Act extends this incentive through the end of 2030.
• Benefits provided by the employer for charging an electric vehicle or hybrid electric vehicle at work, as well as company-provided charging stations temporarily made available for private use, are tax-exempt. This incentive is also extended until the end of 2030.
• A new provision is a special depreciation allowance for electric vehicles in the year of purchase. In addition to regular depreciation, 50% of the acquisition costs may be depreciated. The new regulation also covers electric cargo bikes. It is valid from 2020 to 2030.
• Instead of the tax exemption for job tickets introduced in 2019, employers may, starting in 2020, withhold income tax at a flat rate of 25%. However, these payments are not counted toward the commuting allowance.
• The tax exemption for company bicycles provided in addition to wages will be extended until the end of 2030. Employers also have the option, starting in 2020, to tax the monetary benefit derived from the free or discounted transfer of company bicycles to employees at a flat rate of 25% income tax.

The points mentioned are certainly relevant and important for business owners who are already committed to e-mobility or plan to do so in the future. The extension of these incentives is also a positive development for employees who benefit from them.

Changes for Employers and Employees

The Annual Tax Act introduces several new provisions and changes for employers and employees. The following points are likely to be of interest to every business owner and employee:

• There is a meal allowance for out-of-office work. Starting with the 2020 tax assessment period, the allowance will be increased. For days with more than eight hours of absence, as well as for arrival and departure days, the allowance increases from €12 to €14; for travel days involving a full-day absence, it rises from €24 to €28. Meal expenses in this amount can be reimbursed by the employer tax-free or claimed as income-related expenses.
• Employers may continue to provide their employees with non-cash benefits in the form of vouchers and gift cards up to a maximum of €44 tax-free. It is important that these benefits are granted in addition to the wages already owed, are exclusively intended for the purchase of goods or services, and that the cards do not have a cash withdrawal or conversion function into cash. Accordingly, starting in 2020, cash cards that have a cash withdrawal function or their own IBAN—which can be used for transfers (e.g., PayPal) or for purchasing foreign currency (e.g., pounds, U.S. dollars, Swiss francs) and can be used as a general payment instrument, are not to be classified as a benefit in kind but as a cash payment.
• In rare cases, employees are provided with an apartment by their employer. In the future, the tax benefit of the reduced-rate provision may no longer be subject to taxation. As of 2020, such a provision will no longer be considered a taxable benefit in kind if the reduced rent amounts to at least two-thirds of the local market rent. The rent to be paid may not exceed the limit of €25 per square meter (excluding utilities).
• For professional drivers, there is a special change effective in 2020. A new flat rate is being introduced for additional expenses incurred during multi-day business trips involving an overnight stay in the employer’s vehicle. The flat rate is now €8 per calendar day. Of course, it remains possible to provide proof of higher costs.

Basic exemption amount increases in 2020

The German government does not tax every cent you earn. There is a certain minimum amount that is absolutely necessary for living. This, of course, should not be taxed. This is where the basic exemption comes in. Only income that exceeds this amount is taxed. In 2020, the basic exemption has increased. For single taxpayers, the basic exemption amount rises from €9,168 to €9,408. For married couples, the amount doubles to €18,816. This also offsets inflation-related bracket creep for all taxpayers.

Changes to child allowances

Child allowances are being raised from the current €7,620 to €7,812. In addition, the maximum amount for the tax deduction of support payments to other dependents has been increased. The maximum amount corresponds to the basic allowance of €9,408.

Changes for married couples

Spouses and domestic partners, take note. Starting this year, you may change your income tax bracket more than once per calendar year. This allows you to optimize your tax burden during the year. No special reasons are required. For married couples, this change means greater flexibility under tax law.

Annual Tax Act and New Business Owners

Start-up entrepreneurs must now be particularly vigilant and act quickly. After opening a business or commencing freelance work, the so-called tax registration questionnaire must be submitted within one month. The questionnaire must contain information regarding personal circumstances, the business, and expected income or revenue. The questionnaire must be submitted to the tax office within the specified timeframe. The Elster online portal can be used for this purpose. Previously, the tax office issued an individual request. In the future, this request will no longer be sent. The business founder must take it upon themselves to ensure that the information is submitted to the tax authorities on time.

Tax Law Consulting in Düsseldorf and Oberhausen

As you can see—and likely experience on a regular basis—tax law is complex and extensive. New changes do not make things any easier for taxpayers. Fortunately, business owners and individuals do not necessarily have to deal with all these aspects themselves. With a trusted tax advisor, you are always on the safe side. With our tax firms in Düsseldorf and Oberhausen, we are the perfect partner for tax matters. Our team of qualified tax advisors and certified public accountants ensures a smooth relationship between you and the tax authorities. Simply contact us to schedule an initial consultation.