Annual Tax Act 2024

Annual Tax Act 2024

The German Annual Tax Act 2024 (JStG 2024) was published in the German Federal Law Gazette on 5 December 2024. It is a typical ‘omnibus bill’: with around 130 individual measures across tax law, it amends a large number of laws. It responds to current requirements, implements EU directives and the results of case law, regulates technical issues and corrects editorial errors. It also simplifies tax regulations and thus helps to reduce bureaucratic hurdles. It contains many individual regulations that are not thematically linked and are mostly technical. However, it also contains some tax improvements for citizens.

The most important measures for companies at a glance:

Extension of the small business regulation

From 1 January 2025, the small business regulation in Germany will be significantly extended. It now also applies to entrepreneurs from other EU countries. German entrepreneurs can use it in other EU states. The turnover limits will be increased: €25,000 in the previous year and €100,000 in the current year. A special reporting procedure will be introduced at the Federal Central Tax Office. Small businesses are exempt from the e-invoicing requirement, but must be able to receive e-invoices.

Changes to the input tax deduction

From 1 January 2026, the input tax deduction for recipients of services from invoices issued by companies that pay tax on income (companies that pay their VAT on a cash basis, Section 20 of the German VAT Act) will be linked to the payment of the invoice. Up to now, input tax could be deducted as soon as the service was provided and a proper invoice was presented, regardless of payment. In future, actual tax payers will be obliged to indicate in their outgoing invoices that they are paying actual tax, so that recipients of the services can determine the correct time for their input tax deduction.

Extension of limited tax liability

Limited tax liability is extended in § 49 (1) no. 4 letter A of the German Income Tax Act (EStG). The amendment aims to remove obstacles to the application of double taxation agreements. Non-independent work is now deemed to have been carried out in Germany, even if it was actually carried out abroad. This enables a more comprehensive limited tax liability in Germany. This change will come into force for the first time for the 2024 payroll tax deduction.

Extended data set of the e-balance sheet

The obligation to transmit the so-called e-balance sheet as set out in section 5b of the German Income Tax Act (EStG) is being extended to include, in particular, the underlying non-aggregated account statements, the statement of changes in assets and the list of assets. If an appendix, a management report, an audit report or a directory in accordance with section 5 (1) sentence 2 of the German Income Tax Act (EStG) is available, these must also be transmitted electronically in accordance with the officially prescribed data set. These additions are intended to reduce the need for the tax authorities to ask questions during the assessment process.

The obligation to transmit the unconsolidated account statements applies to financial years beginning after 31 December 2024. The other new transmission obligations only apply to financial years beginning after 31 December 2027.

Adjustment of the reporting standard for dividend income to the EU’s FASTER directive

The German Withholding Tax Relief Modernisation Act (AbzStEntModG) of 2021 aimed to simplify and digitise the procedures for relieving foreign taxpayers of capital gains tax and tax deductions under § 50a of the German Income Tax Act (EStG). It introduced a withholding tax database and tightened the liability for issuers of withholding tax certificates to combat abuse and tax evasion. Section 45b EStG added requirements for tax certificates. The JStG 2024 aligned this reporting standard with the EU FASTER directive to avoid overlapping reporting requirements. The FASTER Directive aims to provide a harmonised framework to relieve withholding taxes on cross-border investments and to reduce tax fraud on dividend payments. The new reporting standard applies to all domestic and foreign dividend payments from 1 January 2027, regardless of the applicability of the FASTER Directive in individual cases. The application of the AbzStEntModG provisions, originally planned for 2025, has thus been postponed by two years.

Transitional or non-objection rule for § 1 (3d) AStG for existing contracts

With the Growth Opportunities Act, (3d) was newly inserted into § 1 AStG. This further specifies the arm’s length principle with regard to cross-border financing relationships (ability to provide the debt service, economic need for the financing received for the purpose of the company and assessment of the interest rate) within a multinational group of companies, which is intended to counteract the excessive deduction of interest expenses as business expenses. According to the application regulation of the Growth Opportunities Act, the standard is to be applied for the first time for the 2024 assessment period, which, however, constitutes a false retroactive effect and thus a disadvantage for old contracts.

According to Section 21(1a) clauses 2 and 3 of the Foreign Tax Act (Außensteuergesetz, AStG), Section 1(3d) AStG will therefore not be applicable to expenses incurred up until 31.12.2024 that are based on financing relationships that were agreed under civil law before 01.01.2024 and whose actual implementation commenced before this date. If such financing relationships are significantly modified after 31 December 2023 and before 1 January 2025, section 1(3d) AStG does not apply to expenses incurred before the significant modification.

Conversion tax law

The deadline for filing the tax closing balance sheet has been revised. It must now be submitted electronically at the latest by the deadline for filing the corporate income tax return. This also applies to financial years that deviate from the calendar year and conversions during the fiscal year.

When a merger is treated by the shareholder, the book value approach remains application-linked. The application must be submitted to the responsible tax office at the latest with the first tax return.

The trade tax liability in the case of indirect transfers has been specified. In the future, capital gains or losses from the sale or termination of an interest in an interposed partnership held by an individual will also be subject to trade tax.

A legal amendment corrects the case law on withdrawals during the retroactive period. Withdrawals and deposits during the retroactive period must now be taken into account when determining the contributed business assets. This new regulation applies to contributions from 1 January 2024.

Further tax changes

• The transfer of book values between partnerships with identical holdings is being facilitated.
• Special expenses deduction of pension expenses for EU/EEA/Swiss income is possible under certain conditions.
• Tax incentives for employee asset participation schemes now also apply to group companies (retroactively from 2024).
• Lump-sum options for wage tax can be exercised by means of a wage tax registration or declaration.
• For electronic communication with the tax authorities, only communication via the German communication systems ELSTER and ERiC is now permitted.
• Advance tax payments are not only payments on taxes that may arise at a later date, but are themselves to be qualified as tax liabilities. The evasion of advance tax payments can be established in incorrect information in both an application for a reduction in advance tax payments and in the previous year’s tax return.