COVID-19 and taxes – fiscal measures in Germany

The Corona-crisis, which hit the economy in 2020, is not over – countries worldwide are facing high numbers of infections despite the availability of vaccinations. Especially the highly infectious Omikron variant is causing fears over bottlenecks in medical care in hospitals. Therefore, Germany, among other countries, is trying to enforce contact restriction rules. Those rules, together with supply shortages and other economic disruptions due to the global impact of the pandemic, are leading to negative economic effects.

To reduce the impact on businesses, the German tax authorities have implemented measures that are intended to cushion the economic pressure.

In the following we present the essential actions for businesses in Germany:

Temporary reduction of VAT rates

From July to December 2020 the VAT rates (19 % and 7 %) had been reduced to help minimise the tax burden on businesses and to increase their profits. The measure was especially intended to help restaurants. Therefore, the VAT rate was reduced from 19 % to 7 % for restaurant services. The application of the reduced tax rate of 7 % for restaurant and catering services has been extended to December 31, 2022. However, the supply of beverages is still taxed at 19 % (standard tax rate).

Loss carry-backs

Losses can be carried back to the immediately preceding assessment period. However, upper limits exist. The limits have been increased to MEUR 10 (single assessment) / MEUR 20 (joint assessment) for losses that occurred in 2020 and 2021, however, for losses occurring from the 2022 assessment period onwards, the old maximum amounts apply again (MEUR 1 for single assessment / MEUR 2 for joint assessment).

Provisional loss carry-back

For 2020, there was the possibility of a provisional loss carry-back – the prerequisite was that the advance payments for 2020 were reduced to EUR 0 and an application was made. For 2021 the possibility of a provisional loss carry-back from the 2021 assessment period to the 2020 tax assessment was possible, provided that the advance payments for 2021 were reduced to EUR 0.

Depreciation for digital assets

For financial years ending after December 31, 2020, a residual book value remaining in 2021 for digital assets acquired up to December 31, 2020 can be fully depreciated. Digital assets (tangible and intangible) acquired from January 1, 2021 can be fully depreciated within one year (increase in expenses leading to a minimisation of the tax base).

More flexible design of investment deduction

According to a rule regarding investment deduction 50 % of the planned acquisition costs can be deducted off-balance sheet (normally the year prior to the acquisition) from 2021 (until 2020: 40 %) while, in the year of the acquisition the deduction made in the previous year can be deducted from the acquisition costs. Additionally, the uniform profit limit for the use of the investment deduction is EUR 200.000 from 2021.

Extension of measures already implemented

With letter, dated December 7, 2021 and published by the Federal Ministry of Finance the following, measures regarding simplified procedures, that were already existent, were extended:

  • Deferral under the simplified procedure

Taxes due by January 31, 2022 can be deferred until March 31, 2022 at the latest.

  • Stay of execution

The taxpayer must demonstrate a direct and not insignificant negative economic impact to the tax office by January 31, 2022. Enforcement measures may be deferred until March 31, 2022 for taxes due by January 31, 2022.

  • Adjustment of the advance payments

The measures were adopted by the customs administration; however, the extension of the measures has not yet been adopted.

Other relevant tax measures

The special regulations for home office in cross border cases are systematically extended (currently until March 31, 2022).

Additionally, there are further measures regarding liquidity assistance.

We are happy to assist you with any questions you may have about national measures in Germany in the context of the Corona pandemic.

Please do not hesitate to contact us with questions you may have.

We have collected the information available on our Corona news portal which includes a constantly updated overview regarding the measures to tackle financial impacts of the Corona crisis.

Contributing Advisors