Fourth Bureaucracy Relief Act

The Fourth Bureaucracy Relief Act (Bürokratieentlastungsgesetz – BEG IV) was passed by the Bundestag on 26 September 2024. The Bundesrat approved the law on 18 October 2024. It was published in the Federal Law Gazette Part I on 29 October 2024. The Bureaucracy Relief Act IV will now come into force on 1 January 2025, with a few exceptions.

The law aims to relieve the economy of 944 million euros annually and to simplify administrative procedures in Germany. It comprises a total of 74 articles and is part of a broader initiative by the federal government to reduce bureaucracy and promote economic growth. The BEG IV is intended, among other things, to simplify the written form for employment contracts, shorten retention periods, ease VAT obligations and generally make tax assessments available in digital form for retrieval.

The BEG IV combines a number of individual measures that can be assigned to the following main areas:

  • Labour law (1.)
  • Shortening of retention periods for accounting documents under commercial and tax law (2.)
  • Measures to promote digitisation (3.)
  • Reduction of reporting and information obligations (4.)
  • Projects to simplify and accelerate administration (5.)
  • Further simplifications, in particular the deletion of individual redundant regulations.

Some of the most important measures for companies are listed below:

  1. Labour law

Digitisation and transmission of employment contracts

Employment contracts no longer have to be concluded in writing. The BEG IV makes it easier to fulfil the formal requirements of the NachwG (Law about the duty of documentation in labour law). In the future, evidence of essential contractual conditions can be provided in text form, which enables electronic transmission. Specifically, this means that in the future the essential employment conditions within the meaning of § 2 NachwG can be drafted in text form and transmitted electronically to the employee.

However, this only applies if

  • the document is accessible to the employee,
  • stored and printed, and
  • the employer requests the employee to provide proof of receipt when the information is sent.

This means that a medium that the employee has access to must be used to transmit the essential working conditions. It should be noted that the information must be sent individually to each employee.

The new law significantly strengthens the legal basis for the use of electronic signatures in employment contracts. Electronic signatures are now equated with handwritten signatures provided they meet EU standards for qualified electronic signatures. This means that contracts signed digitally have the same legal validity as traditionally signed documents.

Simplification of contract amendments: Amendments to essential contractual terms can also be agreed in text form in the future, which increases flexibility.

Simplified references: Employers are now able to create references in the form of service and employment relationships in text form. However, the employee’s consent is required.

Age limit agreements: In the future, agreements on age limits in employment contracts can be made in text form with legal effect, instead of requiring the written form or a qualified electronic signature, as was previously the case.

What remains the same?

The relaxed formal requirements in § 2 NachwG do not apply without restriction, however: on the one hand, the employee can still demand that the working conditions be handed over to him in writing (§ 2 (1) sentence 3 NachwG as amended). In this case, the employer must make the working conditions available to the employee without undue delay. If the employer fails to provide the written proof of the terms and conditions of employment, or fails to do so in full or in good time, despite the employee’s request, this is considered an administrative offence (section 4 (1) no. 2 of the revised Act on Information on Conditions of Employment).

Fixed terms still in writing: The written form requirement remains in place for fixed-term employment contracts. If an employment contract contains not only the terms and conditions of employment within the meaning of the NachwG but also an agreement to limit the term of the contract, it is essential to ensure that this is in writing.

Restrictions and exceptions: Some sectors/areas of the economy (e.g. construction and catering, freight forwarding) are excluded from certain simplifications in order to avoid possible difficulties of proof. On the other hand, these new formal requirements do not apply to companies that operate in an economic sector or industry that is particularly affected by undeclared work (e.g. the construction and restaurant industries). Here, the working conditions must continue to be provided in written form.

  1. Tax and commercial law: Reduction of retention periods for accounting records

Until now, accounting records have generally had to be kept for 10 years. The BEG IV provides for the retention period for these records to be reduced to 8 years (section 147 (3) AO (German Tax Code), section 257 (4) HGB (German Commercial Code)). The relief applies to all documents whose retention period has not yet expired on the day after the announcement of the BEG IV.

The VAT-related period for the storage of invoices in § 14b, paragraph 1, sentence 1 of the German VAT Act (UStG) will also be adjusted to the new period. The relief is also effective for invoices already issued and received in accordance with § 27, paragraph 40 (new) of the German VAT Act (UStG) – the shortening of the period therefore already applies if the previous 10-year period had not yet expired on the day the law came into force.

However, there is a special regulation for persons or companies that are subject to the supervision of the Federal Financial Supervisory Authority. In this case, the reduction of the retention periods will only apply with a delay of one year.

  1. Measures to promote digitisation

Disclosure of tax assessment notices

The legal framework for the disclosure of tax assessment notices by making them available for data retrieval is being thoroughly modernised. According to the new version of section 122a (1) sentence 1 AO, administrative acts can be notified to the party concerned (or the person authorised by him) by making them available for retrieval in accordance with section 87a (8) AO. The new regulation, which will apply from 1 January 2026, will no longer require the consent of the recipient of the administrative act and will be replaced by the possibility of contradiction.

Amendments to the German Civil Code (BGB)

The BEG IV also contains numerous amendments that either take account of the digitalisation of facts that has already been implemented or are intended to advance digitalisation projects. In particular, the digital transformation is to be implemented by removing written form requirements or downgrading them to text form in accordance with Section 126b of the German Civil Code. This is because written form requires a handwritten signature on paper and thus causes media discontinuities in digitalised processes.

Amendments to the Tax Advisory Act

In addition, as is already the case with notifications pursuant to Section 3a (2) sentence 1 of the Tax Advisory Act (StBerG) for temporary and occasional assistance in tax matters, the public-law written form requirement for change notifications pursuant to Section 3a (4) of the Tax Advisory Act (StBerG) will also be supplemented in the future by the option of electronic notification (from the first day of the quarter following the promulgation of the law).

From 1 January 2028, a central power of attorney database (“Vollmachtsdatenbank”) will enable employers to no longer have to issue numerous written powers of attorney to their tax advisors for the respective social security institutions. In future, a general power of attorney will suffice, which can be entered electronically in the power of attorney database and accessed by all social security institutions (Section 85a (2) Nos. 12, 13 Tax Advisory Act (StBerG), Section 105a Social Security Code (SGB) IV).

Text form in other laws

The changes also affect, among other things, the German Public Auditors‘ Code (WPO), the German Commercial Code (HGB), the Federal Lawyers’ Act (BRAO), the Reorganisation of Companies Act (UmwG), the German Stock Corporation Act (AktG) and the Act on Limited Liability Companies (GmbHG).

  1. Reduction of reporting and information obligations

Amendments to the VAT Act (UStG)

The increase in the threshold in section 18 (2), (2a) of the VAT Act from EUR 7,500 to EUR 9,000 of turnover in a calendar year, which will take effect on 1 January 2025, is intended to reduce the number of advance VAT returns that have to be submitted. If the threshold is not exceeded, the advance VAT return only has to be submitted quarterly.

The increase in the de minimis limit for the margin scheme from €500 to €750 in Section 25a (4) of the German VAT Act (from 1 January 2025) is intended to simplify the process of determining the VAT base. According to this regulation, a reseller can, in a simplified manner, calculate the tax base according to the total difference between all purchases and sales made within a taxation period, provided that the purchase price does not exceed the de minimis limit.

  1. Projects to simplify and accelerate administration

Transfer pricing documentation and transaction matrix

The new regulation of the recording obligations for transfer prices in Section 90 (3) and (4) AO is intended to ease the burden on businesses, since after the announcement of the audit order, not all transfer price documents have to be created and automatically submitted. Section 90 (3) AO will be restructured from 1 January 2025 and the individual record-keeping obligations (transaction matrix, factual documentation and appropriateness documentation) will be subdivided numerically. A key new component of the records in Section 90 (3) sentence 2 no. 1 AO is a transaction matrix, which is to be specified in more detail in the Profit Allocation Records Ordinance (“Gewinnabgrenzungsaufzeichnungsverordnung“) and is already being used in parts in tax audit practice.

Exemption certificates

The period of validity of exemption certificates for capital gains tax and for the withholding of tax from persons with limited tax will be extended from three to five years (from the 2024 tax year).

Authority of notaries in the case of company formations

The BEG IV clarifies that notaries who notarise or certify declarations in connection with a company formation are authorised to file notifications, make announcements and submit applications for the parties involved that are related to the formation.