Corporate Tax Is Changing in 2022: what should the self-employed should know?

Every year, governments and tax agencies make changes to their tax codes and regulations. Germany is no different and self-employed and freelancers should always be across the changes, because even in the case where the changes do not directly affect you - it may hold indirect impacts, or, potentially influence future decisions about your business. We have reviewed the forthcoming changes coming to taxation in Germany in 2022, and discuss them in this blog.

Due to the federal election in 2021, only a few relevant legislative changes need to be implemented by the end of the year. The old Bundestag has ceased its activities, the new Bundestag has only just been constituted. The legal changes are therefore still largely influenced by the digital VAT package of the European Union that came into force on July 1, 2021, which we spoke about on the blog. But, it is really important especially with so many digitally engaged freelancers and self-employed people who may be impacted - so here is a quick refresher:

Regulations put into effect for the digital package

One-stop shop regulations: The regulations for the 3 different one-stop shops formally came into force on April 1st, 2021. From this point in time, the entrepreneurs concerned could register for the tax return of the reportable sales from the 3rd quarter of 2021. The first reportable sales had to be registered by the end of October 2021.

Distance sales : For all sales executed since 07.01.2021 the rules on distance selling are subject to the requirements of the new version. In particular, the new regulations for intra-community distance sales must be taken into account. Since the national delivery thresholds were no longer applicable for deliveries to customers who do not have to tax intra-Community acquisitions in the country of destination, the place of delivery for the supplying entrepreneur is shifting to the Member State of destination, with the exception of the EU-wide total turnover threshold of 10,000 EUR. Individual taxation in the Member State of destination can only be avoided if registration for the one-stop-shop scheme has been made in good time. Registration as a process is described on our blog here.

Extension of the reduction in the tax rate for catering sales & advance payments

Since July 1st, 2020, due to the (first) Corona Tax Aid Act for restaurant and catering services, the reduced tax rate has been in effect from July 1st, 2020 to June 30th, 2021. However, the delivery of beverages is expressly excluded from this; the standard tax rate continues to apply here.

Due to the effects of the corona pandemic extending beyond June 30, 2021, the 3rd Corona Tax Aid Act extended the application of the reduced tax rate to December 31, 2022. The tax authorities have already implemented their 2020 for flat-rate offers simplifying regulations with regard to the limited application the reduced tax rate for the restaurant and catering services extended. In the case of combination offers that include both food and drinks at a flat rate (e.g. buffet, all-inclusive offers), no complaints will be made if the remuneration for the drinks is set at 30% of the flat rate.

This carries on generally with simplified reduction of current advance payments. Taxpayers who can be shown to have had a direct and not insignificant negative economic impact can submit applications for adjustment of the advance payments to income tax and corporation tax 2021, stating their circumstances, by December 31, 2021. The application is submitted to your responsible tax office via the tax administration's website or online at ELSTER. When it comes to the reduction of business tax prepayments, these can be adapted by your respective municipality.

Tax returns 2021

For the 2021 assessment period, the tax authorities had already presented the return forms for the 2021 annual tax return in December 2020. The content of the annual tax return 2021 has been adapted to the sales that have to be declared since July 1, 2021 due to the VAT digital package and the expansion of the reverse charge procedure for telecommunications services implemented on January 1, 2021.

In spite of the lower sales tax rates in the second half of 2020 , which will also affect the annual tax return for 2021 (e.g. for taxation based on income received or in the case of changes in the assessment basis for sales made in 2020 with taxation according to agreed payments), it does not yet appear there are any explanatory fields for sales at 5% or 16% sales tax.

Corporate tax option

With the - rather dramatic English translation - “Law for the Modernization of Corporate Income Tax Law” (KöMoG) which was released June 25, 2021, an option for corporate taxation was introduced. Commercial and partnership companies are thus given the opportunity to be treated like a corporation for income tax purposes without actually changing their legal form.

Above all, this is intended to strengthen the international competitiveness of medium-sized family businesses in the legal form of a limited partnership or a general partnership. The background to this is that partnerships are treated as independent tax subjects under trade tax law. For the purposes of income taxation, however, these are exclusively those directly or indirectly involved in it. In individual cases, this could lead to sometimes considerable deviations in the tax burden and bureaucratic effort compared to corporations, according to the explanatory memorandum. 

This topic will have very strong implications for freelancers and the self-employed whose circumstances could or may apply. It will be the topic of a more in depth blog article.

10% limit for allocation to company assets

Objects that an entrepreneur uses for both his business and his private purposes can only be assigned to the company if at least 10% of the object is to be used for business purposes. This regulation, which is included in the German tax code for an unlimited period, is dependent on an authorization under European Union law. The last authorization granted to the Federal Republic of Germany is limited to December 31, 2021. If no connection permit is published by December 31, 2021, entrepreneurs who acquire objects from January 1, 2022 and who will not use at least 10% of them for business purposes can invoke Union law and use these objects in contravention of Section 15 (1) sentence 2 UStG assign to the company.

Coupons

Since January 1, 2019, uniform EU regulations on the so-called single-purpose and multi-purpose vouchers have been in effect. The financial administration took a comprehensive position on the new regulations for the first time in November 2020. This resulted in application principles that are not apparent from the law. The tax authorities do not object if these regulations are not yet applied to all vouchers issued before February 2, 2021.

Operator of electronic interfaces

Since 1.7.2021, in addition to the new regulations governing the place of supply and the tax consequences of the VAT Digital package of the EU are also the recording rules and liability rules for providers of electronic interfaces have been newly regulated. In particular, the operators of electronic interfaces no longer have to complete the national registration of the entrepreneurs acting through them with the VAT 1 TI certificate, but with the German VAT ID number. to lead. However, the tax authorities had granted a non-objection period until August 15, 2021.

Subcontractors

Cross-border goods transports are tax-free. However, this can only apply if the carrier performs its service directly to the sender or recipient of the consignment of goods. So-called "subcontractors" can not carry out any tax-free transport services. The tax authorities had implemented this in principle and extended a transition period originally granted until June 30, 2020 several times to December 31, 2021.

The tax authorities have issued a supplementary position on the delimitation of the content of the involvement of subcontractors and, in particular, specified simplification regulations for the so-called mixed broadcasts. The non-objection regulation granted until December 31, 2021 has not been changed as a result.

Extended deadlines for the investment deduction amount

The legislature changed the investment deduction amounts in the Annual Tax Act 2020. They are among the most important tax breaks for small and medium-sized businesses - with the aim of increasing their willingness to invest.

For investment deductions that companies made use of in fiscal years ending after December 31, 2016 and before January 1, 2018, the investment period has already been extended to four years, i.e. companies would also have to make investments by the end of the fiscal year ending 2021 or dissolve the investment deductions increasing the profit. As a result of the KöMoG, the investment period has now been extended to five years, so that an investment that is only made in the financial year that ends before January 1, 2023 still remains on time.

The corresponding deadlines for investment allowances have also been set if the companies made use of this in financial years ending after December 31, 2017 and before January 1, 2019 , extended to four years so that such investments are still possible in the financial years ending before January 1, 2023.

Extension of the reinvestment period

The reinvestment period was extended by two years through the KöMOG . This allows companies to post profits from the sale of certain assets tax-free as reserves. If the reinvestment reserve is still available at the end of the financial year ending after February 28, 2020 and before January 1, 2021 and should be dissolved, the reinvestment period and thus the obligation to dissolve the reserve will be postponed to the end of the second subsequent financial year. Great for those of you who have been navigating Corona by making changes and adjustments.

That concludes our overview of the 2022 changes for the taxation and financial year, that freelancers and the self-employed should be aware of. We are going to delve into some of the more impactful changes over the coming months to ensure you are fully aware of how these changes will impact you.