The Small Attempt to Strengthen the Economy: The Growth Opportunities Act
The Growth Opportunities Act, officially known as the "Act to Strengthen Growth Opportunities, Investments, and Innovation as well as Tax Simplification and Tax Fairness," is intended by the Federal Government to financially support companies and encourage them to invest more in investments and innovative projects. The goal is to transform the economy, enhance competitiveness, and make Germany a more attractive business location.
New Tax Regulations:
Increased Deductibility of Gifts: The threshold fordeductible gifts to external parties has been raised from 35 EUR to 50 EUR, first applicable for fiscal years starting on or after December 31, 2023.Companies can now claim tax deductions for gifts up to a value of 50 EUR.
Tax Benefits for Electric Vehicles: The maximum limit of the gross list price for the private use of company electric vehicles has been raised from 60,000 EUR to 70,000 EUR. This change is intended to boost demand for electric vehicles and better accommodate the increased acquisition costs.
Temporary Reintroduction of Declining Balance Depreciation: In light of the current crisis situation, companies can now also avail themselves of declining balancedepreciation for assets acquired or produced between March 31, 2024, and January 1, 2025. However, the applicable percentage is limited to twice the straight-line annual depreciation rate and must not exceed 20% (prior tomediation committee: two and a half times and 25%).,
Temporary Introduction of Declining Balance Depreciation for Residential Buildings: The Growth Opportunities Act introduces a significant change regarding declining balance depreciation:
For buildings serving residential purposes and located in an EU or EEA member state, a declining balance depreciation of 5% has been introduced. This regulation applies to buildings where construction begins after September30, 2023, and before October 1, 2029, or when the mandatory purchase contractis effectively concluded after September 30, 2023, and before October 1, 2029. During declining balance depreciation, deductions for extraordinary technicalor economic wear and tear are not permitted, but a switch to straight-lined epreciation is allowed if necessary.
Special Depreciation for New Residential Rental Construction: The special depreciation for new residential rental construction remains unchanged. It can be claimed, among other conditions, when new apartments are created through construction measures based on a building application submitted after August 31, 2018, and beforeJanuary 1, 2022, or after December 31, 2022, and before October 1, 2029. The acquisition or production costs must not exceed 5,200 EUR (previously 4,800EUR) per square meter of living space. The basis for calculating the special depreciation is a maximum of 4,000 EUR (previously 2,500 EUR) per square meter of living space.
Increased Special Depreciation for Investments: The special depreciation is expanded: Previously, businesses that did not generate more than 200,000 EUR in profit in the year before the investment could depreciate up to 20% of the investment costs. In the future, up to 40% (prior to mediation committee: 50%)of the investment costs can be depreciated. This regulation applies to acquisitionsof assets after December 31, 2023.
Expanded Loss Carryforward: The loss carryforward has been increased to amaximum of 70% of the total amount of income for the assessment periods from 2024 to 2027, and it also applies to corporate income tax. From 2028 onwards,the percentage limit of 60% will be applied again.
Increase in the Threshold for Tax-Free Capital Gains: The threshold for tax-freegains from private sales transactions is raised from 600 EUR to 1,000 EUR.
Changes in Value Added Tax (VAT) Prepayment: Entrepreneurs are generally exempt from the obligation to submit a VAT prepayment if the tax for the previous calendar year does not exceed 2,000 EUR.
Changes in Cash-Based Taxation: The threshold for applying cash-based taxation is raised from 600,000 EUR to 800,000 EUR.
Thresholds for Mandatory Bookkeeping: Commercial entrepreneurs as well as agricultural and forestry businesses that generate a total turnover of more than 600,000 EUR per calendar year for the individual business were previously required to keep books. This threshold is increased to 800,000 EUR. Similarly,the threshold for mandatory bookkeeping in case of a profit of 60,000 EUR is raised to 80,000 EUR.
Introduction of Suspension Interest for Liability Claims: Suspension interest nowalso applies to liability claims arising after December 31, 2024.
Conclusion:
The German Federal Government aims to continue its course of strengthening the economy, and with the revised Growth Opportunities Act of March 27, 2024, it has taken a small step in that direction. This law aims to financially support businesses and create incentives for investments and innovative projects. The new tax regulations, including the increased deductibility of gifts, tax benefits for electric vehicles, and the temporary reintroduction of declining balance depreciation, are intended to encourage companies to invest and boost the economy. Measures such as the special depreciation for new residential rental construction and increased special depreciation for investments are expected to further drive growth. The expanded provisions for loss carry forward and the raising of the threshold for tax-free capital gains will also reduce the tax burden. Overall, these comprehensive changes are intended to enhance Germany's attractiveness as a business location and strengthen its competitiveness.