Taxes & business banking for the self-employed


Corona & Taxes for the self-employed: Part One

Kate Bailey

Freelance Editor

Jan 6, 2022

For many experiencing the stress of managing a business day-to-day through this pandemic, it is important to understand that not all relief will be direct payouts or grants, or special access to loans. Germany has demonstrated through the course of the pandemic that they are willing to find ways to support small businesses, freelancers and the self-employed and therefore have adapted the ever-complex tax system to provide relief. Here we detail what this looks like, and what you can expect. No matter if you are expecting restart help or you have applied for digitalisation support, or another form of bridge funding - chances are the government is providing an offer of assistance that will likely apply. And, if you are already wondering what happened heading into 2021, you can read about that on the blog too.

Tax assistance offers for the self-employed, freelancers and companies

The payment period for the tax-free corona allowance for employees has been extended

On June 8, 2021, the "Law to modernize the relief of withholding taxes and the certificate of capital gains tax" of June 2, 2021 included, amond other things, the payment period for tax-free grants and support (already extended to June 30, 2021 with the Annual Tax Act 2020) was extended again to March 31, 2022 . The tax-free total amount (also payable in several installments) of a total of 1,500 EUR does not increase. Only the period for granting the amount is stretched.

Extension of the tax return period and the interest-free waiting period

In view of the exceptional situation caused by the corona pandemic, the declaration deadlines in cases discussed and the interest-free waiting period for the 2019 assessment period have been extended by six months by law of February 15, 2021. In a letter dated April 15, 2021, the Federal Ministry of Finance answered various application questions resulting from this (including the delay surcharge). The extension of the regular 15-month interest-free waiting period for the taxation period 2019 by six months - affects both reimbursement and subsequent payment interest.

The "Law for the Implementation of the Anti-Tax Avoidance Directive" of June 25, 2021 extends the deadlines for tax returns 2020 for advised taxpayers by 3 months to the end of May 2022. Unadvised taxpayers will then have three months more time for their 2020 tax return, i.e. until the end of October 2021. Due to this extension of the deadline for the 2020 tax period, the interest-free waiting period, which is generally 15 months, will also be extended by three months. This applies equally to interest on reimbursement as well as interest on arrears.

Third Corona Tax Assistance Act

The Third Corona Tax Aid Act, published in the Federal Law Gazette on March 17, 2021, initiated tax relief to cope with the corona crisis. For example, the applicable tax loss carryforward for 2020 and 2021 will be doubled to a maximum of 10 million euros (or 20 million euros in the case of joint assessment) as well as the reduced VAT rate (of 7 percent) currently limited to June 30, 2021 for meals in the Gastronomy extended until December 31, 2022. 

More on this later, but first, a look at some of the items already in effect.

Trade tax measures to take into account the effects of the corona have been extended

The tax authorities also considered with regard to the trade tax, the impact of Corona pandemic and the measures taken so far in determining the trade tax amounts for the purpose of advance payments has extended until the end of the 2021st When applying for a deferral or waiver of trade tax, however, it should be noted that the municipalities are generally responsible for this.

Reserve for replacement purchases - Temporary extension of reinvestment periods

As of  January 13, 2021, the deadlines for replacement or repair in the event of damage if the stated deadlines would otherwise expire in a financial year ending after February 29, 2020 and before January 1, 2021.

How can losses in value caused by the "lockdown" be taken into account for tax purposes if seasonal goods are not sold?

Due to the "hard lockdown" and the associated restrictions at the end of 2020, the volume of unsold seasonal goods (e.g. fireworks or Christmas items) may increase. The tax authorities point out that - if the value of these goods on the balance sheet date has permanently fallen below the acquisition or production costs due to the decline in sales - this can be taken into account with a partial value depreciation (value adjustment) to reduce tax profit.

Furthermore, the tax authorities point out the possibility of taking into account losses from partial write-offs during the year in advance tax payments or with regard to a preliminary loss carry-back. For companies that have had liquidity problems due to the Corona crisis, the federal government have introduced various tax reliefs since mid-March 2020. Damaged companies are to be accommodated through tax measures to avoid undue hardship.

(Extended) tax deferrals

(Simplified) interest-free deferral of income tax, corporation tax and sales tax: Possible on request, provided that these are due by June 30, 2021 and cannot be paid due to the economic consequences of the Corona crisis. Affected companies can submit a (simplified) application for initial or continued deferral to the responsible tax office by June 30, 2021. The deferrals run no longer than until 30 September 2021. Any additional connection deferrals are in the simplified procedure in connection with a reasonable, until no later than 31 December 2021 permanent installment contract granted.

In principle, deferral interest is not charged in these cases. About the September 30, 2021 beyond classic deferrals - without payment plans - as in the usual application process the required documentation under provision is possible. As for deferral of business tax payments requests are always to be directed to the appropriate cities and towns to defer the trade tax and to waive the usual deferred interest.

(Extended) suspension of enforcement measures, late payment penalty

If they are directly affected, the tax authorities generally want to refrain from enforcement measures by September 30, 2021 for taxes due by June 31, 2021 and also waive statutory late payment surcharges during this time.

Income tax relief, employee taxation (for those of you balancing employment or employing people)

The deadline to submit monthly or quarterly payroll tax registrations can be extended on request during the corona crisis in individual cases. The extension of the deadline may amount to a maximum of 2 months. Under certain conditions, employers can grant their employees aids and support in the form of grants or benefits in kind of up to 1,500 euros tax-free due to the Corona crisis. The payout period for this tax-free Corona bonus has been extended to June 30, 2021 through an amendment to the Annual Tax Act 2020.

This payment period was extended again to March 31, 2022 by the "Law to modernize the relief of withholding taxes and the certificate of capital gains tax" of June 2, 2021. . The tax-free total amount (also payable in several installments) of max. 1,500 EUR does not increase in each case. So no additional (new) allowance will be introduced. Only the period for granting the amount is prolonged.

Subsidies from the employer for short-time work allowance and seasonal short-time work allowance are tax-free under certain conditions.

Tax measures to promote aid for those affected by the Corona crisis

The Federal Ministry of Finance regulates how aid for those affected by the corona pandemic can be subsidized by tax. The letter deals, among other things, with donations, contributions from company assets, wage donations, supervisory board remuneration and gift tax issues. Contact your local authority for more detailed information as to how this effects you directly.

Now, onto more recent changes.

Second Corona Tax Aid Act

The Second Corona Tax Aid Act was announced in the Federal Law Gazette on June 30, 2020 and contains the following major new tax regulations:

  • The sales tax rates were reduced from July 1, 2020 to December 31, 2020 from 19 to 16 percent and from 7 to 5 percent. .
  • The due date of the import sales tax has been postponed to the 26th of the second month following the importation.
  • For every child entitled to child benefit in 2020, a child bonus of 300 euros was granted (generally payment of 200 euros in September and 100 euros in October)
  • The relief amount for single parents has been increased for a limited period of two years (ie for 2020 and 2021) from the current EUR 1,908 to EUR 4,008.
  • The tax loss carryforward was extended - for a limited period - for the years 2020 and 2021 to 5 million euros or 10 million euros (in the case of joint assessment) and a mechanism was introduced to make the loss carryforward for 2020 immediately financially usable with the 2019 tax return.
  • Introduction of a declining balance depreciation of up to 25 percent, at most 2.5 times the straight-line depreciation, for movable assets that were acquired or manufactured in 2020 and 2021.
  • When taxing the private use of company cars that have no carbon dioxide emissions per kilometer driven, the maximum amount of the gross list price has been increased from 40,000 euros to 60,000 euros.
  • In the case of trade tax, the exemption for the additional facts has been increased to 200,000 euros.
  • Increase in the maximum assessment basis for the tax research allowance to 4 million euros for the period from mid-2020 to mid-2026.
  • Extension of collection periods as well as clarification or extension of limitation periods in the case of certain tax evasion facts.

This was a very nuanced an in-depth look at the finer details of the Corona taxation measures. Finding this information in English can be difficult, and it ultimately can have big impacts on how your business recovers and thrives from the Corona crisis - so, hopefully, it fills in some of the gaps and sets you up to tackle the problem head on as we close out yet another difficult year in small business.