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An overview of planned tax changes, which in some cases will be applicable retroactively

On 23.2.2022, Germany’s governing coalition intro­duced a ‘relief package’ in view of rising energy costs, inflation and the Russia­-Ukraine conflict. Moreover, the German government’s draft of the Fourth Coro­navirus Tax-­Related Assistance Act was passed on 16.2.2022. In the following section we present the most important changes.

Tax changes in the relief package

  • Elimination of the renewable energy levy – The charge levied on electricity prices will be abolished as of 1.7.2022. 
  • Higher standard deduction amount – Retroactively increased as of 1.1.2022 by €200 to €1200.
  • Higher basic tax­free allowance – The subsistence level for income tax purposes will be retroactively raised as of 1.1.2022 by €363 to €10,347.
  • Higher commuters’ tax allowance – From the 21st km of the commute to work it will now be possible to deduct €0.38 per km (instead of €0.35 per km previously) retroactively as of 1.1.2022.
  • One­-off subsidies – Recipients of ‘unemployment benefit II’, basic benefits and income support will receive a one-off payment of €100.
  • Direct child supplement – Children affected by poverty will receive a direct monthly supplement of €20 as of 1.7.2022. 
  • One-­off heating cost subsidy – Those who receive housing benefit and who live alone will receive a €135 subsidy in the summer (two-person households will receive €175); for each additional household member the subsidy will be increased by €35 in each case. Those in receipt of BAföG [a federal education assistance loan] such as students and apprentices will receive a €115 subsidy.
  • Increase in the minimum wage – On 1.6.2022, the minimum wage will go up from currently €9.82 to €10.45. In a second step, the aim is to increase it to €12.00 as of 1.10.2022.

Planned changes to the Coronavirus Tax­-Related Assistance Act

The Third Coronavirus Tax-Related Assistance Act already provided for an increase in the tax loss carry-backs for 2020 and 2021 to an amount of up to €10m or, in the case of a joint assessment for spouses, €20m. As a result, it became possible to carry back losses to 2019 and offset them there against positive income. Contrary to the expectation that the previous legal text relating to tax loss carry-backs would once again be applicable from 2022, the extended loss offsetting is now going to be prolonged until the end of 2023.

In the past, prior to the amendments of the previous Coronavirus Tax-Related Assistance Acts, it had only ever been possible to carry back losses to the year preceding the loss making year (one year loss carry-back). As of 2022, loss carry-backs will be permanently extended to two years and this will thus make it possible to carry back losses to the two immediately preceding years. 

In addition, a number of provisions that were introduced for a time limited period will now be prolonged:

  • The tax break for tax-exempt payments to top-up the short-time working allowance will be extended for three months and will thus apply to remuneration periods that started after 29.2.2020 and that end prior to 1.7.2022.
  • The current provision on the home office blanket deduction will be extended by one year until 31.12.2022.
  • The investment periods for reinvestments under Section 6b of the Income Tax Act (Einkommenssteuergesetz, EStG) and investment tax allowances under Section 7g EStG that expire in 2022 will be extended for another year.
  • The option to depreciate non-current movable assets according to the declining balance method will be extended by one year, i.e., this would also be applicable for assets that were purchased or produced in 2022.
  • The deadline for submission of tax returns for 2020 (in cases where tax consultants are engaged) will be extended by another three months up until 31.8.2022. For the returns in respect of 2021 and 2022, in cases where tax consultants are engaged, the deadlines will be extended by four months and two months respectively, whereby the deadline for submitting returns in respect of 2021 will be 30.6.2023.

Please note: Furthermore, the legislative package also includes the following new provision, namely, that employers who have made special payments in the amount of up to € 3,000 to employees who work at certain institutions, in particular hospitals, in recognition of their outstanding achievements in response to the federal or state provisions during the coronavirus crisis will obtain a tax exemption for these amounts.

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