Changes for entrepreneurs as a result of the German government’s fiscal package of 3 June 2020

On 3 June 2020, the German government announced a fiscal package. The aim is to help families, companies and local authorities to better manage the economic consequences emerging from the Covid-19 pandemic.

In the following article, the most important points for entrepreneurs are highlighted. A paper drafted by the Federal Government, which constitutes key issues, can be found here (in german).

  1. reduction of the VAT rate from 19% to 16% and from 7% to 5%, temporarily from 1 July 2020 to 31 December 2020 (no. 1 key issues paper)
  2. stabilization of social security contributions at a maximum of 40% by 2021 (no. 2 key issues paper)
  3. postponing of the due date regarding the import VAT to the 26th of the following month (no. 4 key issues paper)
  4. extension of the tax loss carryback for the years 2020 and 2021 to a maximum of EUR 5m (no. 5 key issues paper)
  5. degressive depreciation for wear and tear (Abschreibung für Abnutzung, AfA) with a factor of 2.5 compared to the currently applicable AfA, and a maximum of 25% per year for moveable economic assets in the fiscal years 2020 and 2021 (no. 6 key issues paper)
  6. modernization of corporate tax law: option model (Optionsmodell) for corporate tax for partnerships, increase of the reduction factor for income from commercial activities to four times of the trade tax base (Gewerbesteuermessbetrag) (no. 7 key issues paper)
  7. improving opportunities for employees to participate in their companies, to exploit the potential of a well-regulated, modern and efficient capital market and strengthen Germany as a location for investment in future and growth companies (no. 8 key issues paper)
  8. The debt relief procedure after insolvency is shortened to three years for natural persons. Introduction of a pre-insolvency restructuring process for companies (no. 9 key issues paper)
  9. simplification of public procurement law: shortening of award deadlines in EU procurement procedures, adjustment of thresholds for restricted invitations to tender and direct awards in Germany (no. 11 key issues paper)
  10. bridging aid for small and medium-sized companies, whose sales have fallen by at least 60% in April and May 2020 compared to April and May 2019 due to the Covid-19 pandemic, and whose sales declines continue to fall in June to August 2020 by at least 50% (no. 13 key issues paper)
  11. research tax allowance is granted retroactively as of 1 January 2020 and limited until 31 December 2025 on an assessment basis of up to EUR 4m per company (no. 32 key issues paper)
  12. co-financing obligations in application-oriented research are reduced (no. 33 key issues paper)
  13. the purchase price limit for the taxation of purely electric company cars is increased from EUR 40,000 to  EUR 60,000 (no. 35 b key issues paper)
  14. bonus programme for future investments by vehicle manufacturers and the supply industry for the years 2020 and 2021 (no. 35 c key issues paper)

If you have any further questions or need assistance in this regard, feel free to reach out to us!

Abolition of real estate acquisition tax and statutory pre-emptive right

We would like to inform you that the Government of the Czech Republic (the “Government”) has decided, not only in connection with the COVID-19 pandemic, to abolish certain legal institutes related to the real estate transfer.

It particularly concerns an abolition of:
(i) Real estate acquisition tax; and
(ii) Statutory pre-emptive right between co-owners.

While the Government has decided to abolish the real estate acquisition tax mainly in order to stimulate the real estate market, the reason for abolishing the statutory pre-emptive right is not so clearly detectable.

Abolition of real estate acquisition tax
As of 30 April 2020, the Government approved a draft law to abolish the real estate acquisition tax. The draft law is obliged to go through the standard legislative process. However, regarding the fact that it is a government law proposal, its relatively fast approval and adoption can be expected.

The abolition of this tax shall be effective retrospectively and shall apply (i) to all real estate acquisition for which registration in cadastre of real estate (completion of the registration proceedings) was made in December 2019 and later, and (ii) to all real estate not registered in the real estate cadastre if the agreement on their transfer entered into force in December 2019 and later. The tax due date has been already postponed by government measures. Those, who have already paid the tax, shall be entitled to claim a refund.

The related tax deductions of interest on housing loans shall be abolished with the effect from the beginning of January 2022. Thus, persons who acquire ownership of real estate in the meantime (from December 2019 to the end of the year 2021) shall not be obliged to pay the acquisition tax, but at the same time the possibility to reduce the tax base through respective deductions shall be maintained for them.

Abolition of the legal pre-emptive right between co-owners
The statutory pre-emptive right in case of a transfer of co-ownership share on the real estate has been returned into Czech legal order in 2018. However, with the effect from 1 July 2020, the current form of this institute will be abolished and the respective provisions of the Civil Code will be restored to their original form.

In practice it above all entails that the statutory pre-emptive right applies only in situations where the so-called undivided co-ownership has been established by a disposition mortis causa (typically testament, inheritance contract) or by another legal fact in a way that made it impossible for the co-owners to affect their rights and obligations from the very beginning. Furthermore, the statutory pre-emptive right to a co-ownership share shall only last 6 months from the establishment of the undivided co-ownership and will not apply to transfers to certain family members or other co-owners.

If you have any questions about real estate transfers, please, do not hesitate to contact us.