Federal Council approves Growth Opportunities Act on 22 March 2024

Overview of the new regulations for companies and self-employed persons regarding tax and bureaucracy reduction

Frankfurt am Main

March 22, 2024

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The Federal Council approved the Growth Opportunities Act on March 22, 2024. With the "Act to Strengthen Growth Opportunities, Investments and Innovation as well as Tax Simplification and Tax Fairness" – in short: the Growth Opportunities Act – the federal government aims to reduce tax and bureaucratic burdens for companies.

The total volume of relief amounts to 3.2 billion euros. The traffic light coalition had originally planned around seven billion euros. However, the draft legislation met with resistance, particularly from the CDU/CSU parties, who argued that the federal government wanted to finance about a third of the costs of the package by eliminating the tax break for agricultural diesel. After negotiations in the mediation committee, the conflicting parties reached a minimal consensus.

A large portion of the planned relief measures has been eliminated. What remains of the Growth Opportunities Act is summarized below:

Deduct gifts from taxes

The maximum amount increases from 35 euros to 50 euros. Valid from January 1, 2024.

Electric vehicles and private use

The maximum amount for tax credit increases from 60,000 euros to 70,000 euros. Applies to electric vehicles purchased from January 1, 2024.

Declining-balance depreciation

Declining-balance depreciation for movable fixed assets is returning. It applies to all acquisitions between April 1, 2024, and December 31, 2024. However, the maximum depreciation rate will be 20 percent instead of the planned 25 percent.

Depreciation for residential buildings

The declining-balance depreciation for residential buildings will be 5 percent instead of the planned 6 percent. Acquisition or construction must take place between October 1, 2024, and September 30, 2029.

Special depreciation for new rental housing

The special depreciation allowance for new rental housing construction is coming as planned. The building application or building notification must be submitted by September 30, 2029. The acquisition or construction costs may not exceed €5,200 per square meter of living space. The assessment basis for the special depreciation is a maximum of €4,000 per square meter of living space. The new regulation applies from the 2023 tax year.

Special depreciation for small and medium-sized businesses

The special depreciation allowance for small and medium-sized businesses increases from 20 percent to 40 percent (instead of the planned 50 percent). This allows businesses whose profit in the year prior to the investment is no more than €200,000 to depreciate 40 percent of the investment costs. Applies to acquisitions made from January 1, 2024.

professional driver

The flat-rate allowance for professional drivers increases from €8 to €9. This applies from the 2024 tax year.

Extended loss carryforward

The loss carryforward increases from 60 percent to 70 percent for losses exceeding €1 million (€2 million for married couples). This applies to both income tax and corporate tax. Applies for the assessment periods 2024 to 2027.

Pension taxation

The tax rate for each new retirement cohort will decrease to half a percentage point annually. This reduces the tax rate applicable to the cohort from 83 percent to 82.5 percent. This applies from the 2023 tax year.

Private sales transactions

The tax-free allowance increases from €600 to €1,000 per year. This applies from the 2024 tax year.

Retained earnings benefit

The eligible profit is increased by the trade tax paid and the amounts withdrawn to pay income tax (Section 34a Paragraph 1 of the Income Tax Act). The new law counteracts contrary tax structuring models. It applies from the 2024 assessment period.

Compensation and severance payments

The fifths rule for income tax is being abolished. This tax reduction applies to compensation and severance payments. The process is considered too complicated for employers. Employees can continue to claim the tax reduction in their tax returns. It will apply for the first time to the 2025 income tax deduction.

Group accident insurance

Employers can levy group accident insurance contributions at a flat tax rate of 20 percent if the average taxable amount, excluding insurance tax, does not exceed €100 per calendar year. This limit will be waived. This applies from the 2024 wage tax deduction period.

Exemption limit for withholding tax

The exemption limit for withholding tax increases from €5,000 to €10,000. This primarily applies to remuneration debtors with changing, low-remuneration creditors, such as payments from publishers or broadcasters for image rights. Applies to remuneration received from January 1, 2024.

Electronic donation receipt

Anyone registered in the Federal Central Tax Office's Register of Donor Recipients may issue donation receipts electronically. This applies to donations received from January 1, 2025.

Corporate tax

All partnerships may opt for corporate income tax, not just commercial partnerships and partnerships. For controlling partners of an opting partnership, the capital gains taxable inflow only applies upon actual withdrawal – analogous to the distribution resolution for a GmbH. The above changes apply from the date of promulgation of the new law.

The non-harmful threshold for housing cooperatives and associations increases from 20 percent to 30 percent. This change also applies to trade tax. Effective from the 2023 assessment period.

trade tax

For real estate companies, the harmlessness threshold increases from 10 percent to 20 percent. This is intended to promote the expansion of solar power generation and the operation of charging stations. This applies from the 2023 survey period.

VAT

All guardians ad litem and legal representatives for minors in detention and custody measures are exempt from VAT. Both apply from April 1, 2024.

The e-invoice for the B2B sector will apply from 2025. During the transition period until December 31, 2027, companies with a maximum total turnover of EUR 800,000 in 2026 may continue to issue their invoices on paper.

Small businesses are exempt from VAT advance returns if the VAT for the previous year was no more than €2,000 (previously: €1,000). This applies from the 2025 tax period.

The option for actual taxation increases from €600,000 to €800,000. This applies from the 2024 tax period.

Accounting obligation

The accounting requirement applies from a total turnover of €800,000 instead of €600,000, and from an annual profit of €80,000 instead of €60,000. Applies to financial years beginning after December 31, 2023.

Deleted measures

The following tax relief measures, which were planned in the original draft law, fell victim to the compromise:

• No exemption limit of 1,000 euros for income from renting and leasing

• No increase in the GWG limit (expenses for low-value assets) to 1,000 euros

• No increase in meal allowances for domestic travel

• No extended loss carryback

• No increase in the tax allowance for company events to 150 euros

• No increase in the tax incentive rate for energy-saving renovation measures

• No investment premium for climate protection

Conclusion

The Growth Opportunities Act, in its recently passed version, contains a host of further changes to tax law. We will report on these in detail in the TaxPro newsletter shortly.