On 29 June 2020, the German Bundestag and Bundesrat passed the Corona Tax Assistance Act, thereby finalising the first central elements of the Federal Government’s economic stimulus package. From July 1 to December 31, 2020, the value-added tax will thus be reduced from 19% to 16% and the reduced rate from 7% to 5%. Families will receive a child bonus of 300 euros per child. The law also provides for numerous tax relief for all companies and bridging assistance for small and medium-sized enterprises.
The measures are part of an unprecedented, comprehensive economic stimulus package worth around 130 billion euros, which the coalition committee agreed on 3 June. It is designed to ensure that the country emerges from the crisis with full force, to boost the economy and strengthen its future viability. To finance the measures, the Federal Cabinet has launched a second supplementary budget. It is intended to create the financial conditions for a rapid and determined implementation of the economic stimulus package.
In detail, the economic stimulus package includes the following key points:
1. strengthen demand, secure and systematically stabilise the labour market
In particular, the following measures will be taken:
- The turnover tax will be reduced for a limited period from July 1, 2020 to December 31, 2020. The regular tax rate will fall from 19 % to 16 %, the reduced tax rate from 7 % to 5 %. This strengthens purchasing power and will be beneficial in particular to citizens with lower incomes who spend a larger proportion of their income. These and other measures are implemented in the Second Corona Tax Assistance Act.
- Families will receive a one-off child bonus of 300 euros per child. The child benefit will be increased accordingly. This strengthens overall economic demand in a focused manner where it is especially necessary. The child bonus is not credited against the basic provision and is deducted from the child allowance in the case of higher-income households.
- In order to stabilise the incomes of single parents, the amount of relief in income tax will be more than doubled to EUR 4,000 for the years 2020 and 2021.
- The “Social Guarantee 2021” will stabilise social security contributions at a maximum of 40% until 2021. Any financial requirements beyond this will be covered by the federal budget. This relieves the net income of employees and creates reliability for companies.
- Easy access to basic security without an assets audit will be extended until the end of 2020.
- A protective umbrella for trainees ensures that school leavers can start their training and trainees can properly complete their current training. This includes a training bonus for small and medium-sized enterprises.
- An Aid Programme for the Cultural Sector supports cultural projects and the cultural infrastructure in Germany. For more information see “One billion euros for NEW START CULTURE.”
- In order to support the federal states in their measures to stabilise non-profit organisations, the federal government is launching a special loan programme via KfW for 2020 and 2021.
A comprehensive promotional programme will be set up to provide targeted assistance to small and medium-sized enterprises, which have been particularly affected by the corona crisis:
- A bridging aid programme provides support measures for small and medium-sized enterprises that suffer high turnover losses due to corona. It applies across all sectors, but also takes into account the specific situation of particularly affected industries. This applies, for example, to event logistics companies, showmen, clubs or travel agencies and many other companies affected by ongoing closures. A total of 25 billion euros has been set aside for this purpose, with the programme providing eligible companies with a subsidy to the fixed operating costs for the months June to August 2020. The prerequisite for this is an average drop in sales of at least 60 % in the months of April and May 2020 compared to the same period of the previous year. Depending on the extent of the decline in sales in the months June to August, up to 80 % of the fixed costs are covered. The maximum subsidy amount is 150,000 euros for larger companies and 9,000 and 15,000 euros respectively for micro-enterprises and solo self-employed persons with up to five or ten employees.
- Enterprises of all sizes can continue to apply for liquidity support under KfW’s Special Programme 2020. More information on this is also available at corona.kfw.de.
2. encourage investment by businesses and municipalities
Towns and communities must have the financial capacity to act in order to make the necessary investments in the future and enable good living conditions on the ground. To achieve this, the following measures in particular will be taken:
- In future, the Federal Government and the Federal States will permanently assume up to 75% of the costs of accommodation for recipients of social benefits from the municipalities instead of up to 50% as in the past.
- The losses in trade tax expected this year of around 12 billion euros will be covered equally by the Federal Government and the Federal States.
- The Federal Government will support the federal states in financing local public transport for local authorities. To this end, it is increasing the regionalisation funds by 2.5 billion euros on a one-off basis this year.
- To cover costs from the GDR’s supplementary pension schemes, the Federal Government will increase its share from the current 40% to 50% from 1 January 2021.
To support companies in their economic recovery and provide investment incentives, the economic stimulus package includes the following measures:
- For the fiscal years 2020 and 2021, companies will receive temporarily improved depreciation options for movable assets such as machinery. This so-called declining balance depreciation provides investment incentives.
- The possibility of offsetting losses against profits from the previous year for tax purposes is being extended. The tax loss carryback will be extended to a maximum of 5 million euros (or 10 million euros in the case of joint assessment) for 2020 and 2021. In addition, the possibility will be created to make the carryback usable already in the tax return for 2019.
- The due date for import turnover tax will be postponed to the 26th of the following month. This provides companies with additional liquidity.
- Corporate income tax law is being modernised and now allows, among other things, partnerships the option to be taxed as corporations. This improves the competitive conditions for companies.
3. Invest in the modernisation of the country
A comprehensive package for the future with a volume of 50 billion euros is intended to ensure that the country’s modernisation is actively pursued and that Germany emerges from the crisis stronger. This includes numerous measures in various future fields.
In order to promote sustainable mobility, the future package includes numerous measures for the mobility turnaround. It aims to accompany the structural change in the automotive industry and to contribute to the establishment of sustainable value chains. This includes, among other things, the following course-setting measures:
- As an “innovation premium”, the Federal Government doubles its share of the environmental bonus, limited until December 31, 2021, thus increasing the Federal Government’s funding from 3,000 to 6,000 euros for the purchase of an e-vehicle with a list price of up to 40,000 euros.
- An additional 2.5 billion euros will be invested in the expansion of modern and safe charging point infrastructure and the promotion of research and development in the field of electromobility and battery cell production.
- Future investments by manufacturers and suppliers in the automotive industry will be funded with 1 billion euro in the years 2020 and 2021 through a bonus programme.
- From 2021, vehicle tax will be more closely aligned to CO2 emissions, making clean cars cheaper to tax than high-emission models.
Temporary fleet exchange programmes are intended to promote electric mobility. This includes vehicles for social services in urban traffic and electric vehicles for craftsmen and small and medium-sized enterprises.
- The German government is investing in a bus and truck fleet modernisation programme to promote alternative drive systems. Funding for e-buses and their charging infrastructure will be temporarily increased until the end of 2021.
- In order to promote cleaner trucks in heavy goods traffic, the Federal Government is advocating a Europe-wide exchange programme for heavy goods vehicles with subsidies for the replacement of old Euro 3 to Euro 5 vehicles with new Euro VI vehicles.
- Deutsche Bahn will receive additional equity capital of 5 billion euros from the federal government. This will enable it to invest in the modernisation, expansion and electrification of the rail network and in the railway system, even in the face of corona-related revenue shortfalls.
The energy turnaround and the achievement of climate goals are among the major social challenges of the coming decades.
- The German government is entering into the promotion of hydrogen technology with an ambitious investment package. This is also intended to lay the foundation for new export technologies and pave the way for greenhouse gas neutrality in heavy goods transport in the industry.
- The federal government will provide a subsidy to reduce the EEG levy, so that it will be 6.5 cents/kwh in 2021 and 6.0 cents/kwh in 2022.
- The cap on the expansion of photovoltaics will be abolished and the expansion target for offshore wind energy will be raised.
- The CO2 building refurbishment programme will be increased by 1 billion euros to 2.5 billion euros for 2020 and 2021.
The programme for the future will also strengthen investments in the field of digitisation in business and administration:
- The planned investments in artificial intelligence (AI) by 2025 will be increased from €3 billion to €5 billion. This will support a competitive European AI network.
- The Federal Government will provide the necessary funds for the construction of at least two quantum computers by suitable consortiums.
- To build a nationwide 5G network by 2025, the new mobile infrastructure association is to be equipped with 5 billion euros.
- In order to play a leading role as a technology provider in future communication technologies such as 6G, the Federal Government is investing in the testing of new network technologies.
- The digitisation of administration is being promoted, among other things so that administrative services can be made available online.
Strengthening sustainability also includes measures to improve protection against pandemics:
- The Federal Government is striving for a “Pact for the Public Health Service“. Within this framework, the public health offices will be supported in the technical and digital upgrading and outfitting of equipment and will be strengthened in their possibilities for recruiting personnel.
- The Federal Government is setting up a “Future Programme for Hospitals“, which promotes necessary investments by hospitals.
- The Federal Government supports the CEPI initiative and German corona vaccine development. The aim is to ensure that an effective and safe vaccine is available promptly and can also be produced in Germany.
Another focus of the economic stimulus package with great importance for the future of Germany is the promotion of education and research:
- The investment programme for the expansion of all-day schools and all-day childcare will be accelerated. Countries that call on funds for investments in 2020/2021 will receive the corresponding amount additionally in the later years of the period.
- In order to promote the expansion of capacity in the area of kindergartens, daycare centres and crèches, as well as extensions, conversions and new buildings, an additional one billion euros will be made available for expansion measures to be carried out in 2020 and 2021.
- The fiscal research allowance will be improved. The subsidy will be granted retroactively from the beginning of 2020 and limited until the end of 2025 on an assessment basis of up to 4 million euros per company.
- In application-oriented research, the co-financing obligations for companies that are particularly affected by the corona crisis will be reduced.