Incorrectly Stated VAT Is Also Owed

The rule on unauthorised tax statement is being supplemented.

What changes

The new rule provides that a person owes the incorrectly stated VAT even where the tax is stated in a (previously agreed) credit note.

This closes a regulatory gap created by case law. The Bundesfinanzhof (BFH) had ruled that a credit note not issued in respect of a service supplied by an entrepreneur is not equivalent to an invoice and cannot give rise to a tax liability.

As a result, the recipient of the document would not owe the openly stated tax amount due to the missing statement "in an invoice". At the same time, there would be a risk that the issuer of the credit note would claim an input VAT deduction.

Entry into force

Applies from the day after the promulgation.

Evasion interest: seamless levy

Thanks to a legislative amendment, evasion interest can now be levied without gaps.

What changes

The new rule is intended to ensure continuous interest of 0.5% per month on evaded advance payments.

To this end, the end of the interest period is expressly defined. The various conceivable case constellations are explicitly regulated. No special rule is needed for cases in which the interest period for evasion interest on evaded advance payments ends before the expiry of the grace period, since no double interest can arise here. Any double interest that may arise in other cases is resolved by a modified offsetting rule.

Entry into force

Applies in all cases in which interest on evaded advance payments is assessed after the day after promulgation.

Streaming: where is the VAT place of supply?

The place of supply for other services in the case of cultural, artistic, scientific, educational, sporting, entertainment or similar services is normally the venue. The rules for streaming offers have now been revised.

What changes

The amendments to the place of supply rules are intended in particular to ensure that services transmitted via streaming or otherwise made available virtually are taxed where the non-business recipient is established or has their domicile or habitual residence.

A new (exception) rule has been added: where admission rights to cultural, artistic, scientific, educational, sporting, entertainment or similar events such as trade fairs and exhibitions are granted to entrepreneurs for their business, the place of supply is the place from which the recipient operates their business, provided that the admission right enables virtual participation. Previously, the venue was decisive.

Entry into force

Applies from 1 January 2025.

E-balance sheet: extended transmission obligations

An amendment is intended to close the gap in the previously incomplete electronic transmission obligation, which now also covers account statements and the schedule of fixed assets.

What changes

The transmission obligation for the schedule of fixed assets, which previously derived in part from commercial law rules, is now expressly regulated.

The scope of transmission also applies to a tax balance sheet. Every balance sheet to be prepared for tax purposes is also covered by the transmission obligation. This also applies to the notes, management report, audit report and the schedules.

Entry into force

The transmission obligation for account statements applies to financial years beginning after 31 December 2024.

The other new transmission obligations apply only to financial years beginning after 31 December 2027.

Problem with transition to the half-income method resolved

The Federal Constitutional Court (BVerfG) had identified a problem with the transition to the half-income method. This is now being resolved.

What changes

Under the decision of the Federal Constitutional Court (BVerfG), the previous rules were unconstitutional insofar as they led to a loss of corporate tax reduction potential because they did not include the partial amount of usable equity referred to in § 30 Abs. 2 Nr. 4 KStG 1999 – EK 04 – in the offsetting of unencumbered partial amounts.

This problem is being resolved by a new rule.

Entry into force

The rule applies in all cases in which the closing balances have not yet been finally determined.

Trade earnings: which income is included?

Clarifications are being made regarding trade earnings.

What changes

The new version of § 7 Satz 8 GewStG clarifies that all passive foreign income of permanent establishments is deemed to be earned at a domestic permanent establishment.

This also applies to income for which Germany already has the right of taxation under a double taxation treaty (DTT). Persons with limited tax liability are now also covered.

Entry into force

Applies in all open cases.

Closing balance sheet on conversion

For the first time, a deadline regulates the submission of the closing tax balance sheet.

What changes

The deadline for submitting the closing tax balance sheet is linked to the relevant deadline for submitting the corporate tax return for the assessment period in which the tax transfer date falls.

In addition, it is expressly provided that § 5b EStG, which is decisive for the electronic transmission of balance sheets, applies accordingly.

Entry into force

Applies in all cases in which the application for registration is filed after the day after promulgation.

Taxation of the shareholders of the transferring corporation

Two statutory changes must be observed with regard to the taxation of the shareholders of the transferring corporation.

What changes

Shares in the transferring corporation that on the tax transfer date do not belong to the business assets of a partner of the receiving partnership or of a natural person are deemed, for the purpose of determining the profit, to have been contributed on that date to the business assets of the receiving entity at acquisition cost.

Other shares held as private assets were not previously covered.

Under the statutory amendment, all shares in the transferring entity that are subject to tax and held as private assets are deemed to have been contributed to the business assets of the receiving entity.

The application deadline for the recognition at book value or at acquisition cost under the current rule is now based on the initial submission of the tax return.

Entry into force

Applies for the first time to conversions whose tax transfer date is after the promulgation of the Annual Tax Act 2024 (Jahressteuergesetz 2024).

Trade tax consequences of a conversion

Certain cases of disposals have not previously been subject to trade tax. This is now being remedied.

What changes

The newly worded § 18 Abs. 3 Satz 3 UmwStG therefore expressly provides that a gain on disposal or cessation is also subject to trade tax to the extent that

• an interest in a partnership that mediates the interest in the receiving partnership is disposed of or given up by a natural person and
• to the extent that this disposal or cessation gain is attributable to the interest in the receiving partnership.

Entry into force

Applies to conversions whose tax transfer date is after 17 May 2024.

Tax exemption for educational services reformed – but only slightly

The reform of the tax exemption for educational services is now significantly smaller than originally planned.

What changes

The planned reform of the tax exemption for educational services has turned out smaller than originally intended.

The tax exemption now applies to services that directly serve the school and educational purpose, namely those of

• public institutions,
• private schools, and
• other educational institutions.

The previous certification procedure remains in place. The state authority must confirm that these institutions offer instruction or training. Instruction by private teachers also remains tax-free, with private teachers being only natural persons.

The amendment brings the German VAT Act into line with European requirements. Educational services provided by public institutions are also tax-free. These institutions include in particular state schools and universities.

The scope of the tax-exempt services is being broadened. Previously, only services that prepared for a profession were tax-free. Now also

• school and university teaching,
• initial and further training, as well as
• retraining and related services

are exempt. The services that were previously VAT-exempt remain so.

Entry into force

Applies from 1 January 2025.

Supply and acquisition of works of art: reduced tax rate

The reduced tax rate now also applies to the supply and intra-Community acquisition of works of art.

What changes

The supply, intra-Community acquisition and importation of works of art and collectors' items are subject to the reduced VAT rate.

This has become possible as a result of an amendment to EU law effective 1 January 2025. However, the reduced VAT rate may still not be applied to the rental of works of art and collectors' items.

Entry into force

Applies from 1 January 2025.

E-invoicing becomes mandatory

Only an invoice issued, transmitted and received in a structured electronic format that enables its electronic processing and that complies with the requirements of Directive 2014/55/EU will qualify as an electronic invoice. Invoices transmitted in another electronic format or on paper will be grouped under the new term "other invoice".

What changes

It is clearly regulated in which cases an e-invoice must be used and in which cases the use of another invoice remains possible. For small-amount invoices and for transport tickets, all types of invoices can still be used.

For a transaction carried out between 1 January 2025 and 31 December 2026, an invoice on paper or in another electronic format (with the recipient's consent) may, on a transitional basis until 31 December 2026, be issued instead of an e-invoice.

This rule is extended by a further year until 31 December 2027 for invoices issued by entrepreneurs with total turnover in the previous calendar year (2026) of up to EUR 800,000.

The structured electronic format of an electronic invoice may also be agreed between the issuer and the recipient of the invoice. The prerequisite is that the format enables the correct and complete extraction of the information required under the UStG from the electronic invoice into a format that complies with the European standard (EN 16931) or is compatible with it. Thus, the widely used EDI procedure can, subject to the above conditions, continue to be used after 31 December 2027.

For a transaction carried out between 1 January 2026 and 31 December 2027, invoices may also be transmitted via the EDI procedure until the end of 2027 even if the above extraction is not possible (with the recipient's consent).

Entry into force

Applies from 1 January 2025.

Small businesses: VAT pre-return and VAT return

Small businesses should be aware of the changes regarding the VAT pre-return and the VAT return.

What changes

Small businesses are generally exempted from submitting a VAT pre-return. What is new is that the tax office is to release entrepreneurs from the obligation to submit pre-returns and pay advance payments if the tax for the previous calendar year did not exceed EUR 2,000 (previously EUR 1,000).

In future, small businesses are in principle to be exempted from submitting annual VAT returns. However, this is not to apply to the cases under § 18 Abs. 4a UStG. The obligation to submit a return also continues to exist if the tax office requests submission.

Entry into force

Applies from assessment period 2025 (pre-return) or 2024 (return).

Reducing red tape: new retention periods for documents!

The retention periods for accounting documents are being shortened.

What changes

Under the previous law, accounting documents had to be retained for 10 years. The Fourth Bureaucracy Relief Act (Bürokratieentlastungsgesetz, BEG IV) plans to shorten this period to 8 years.

This relief applies to all documents whose retention period has not yet expired on the day after the promulgation of the BEG IV. To ensure that the relief is fully effective, the VAT retention period for invoices is also aligned with the new period. The rule also applies to invoices already issued and received.

There is a special rule for persons or companies subject to the supervision of the Federal Financial Supervisory Authority (BaFin). For these, the shortening of the retention periods applies only one year later.

For all others, the shortening applies immediately if the previous 10-year period had not yet expired on the day the law entered into force.

Reducing reporting and information obligations

Reporting and information obligations are to be reduced, thereby relieving the burden on businesses.

Changes in the VAT Act

By raising the thresholds from EUR 7,500 to EUR 9,000 of turnover per calendar year with effect from 1 January 2025, the number of VAT pre-returns to be submitted is to be reduced. If the threshold is not exceeded, the VAT pre-return only has to be submitted quarterly.

Raising the de minimis threshold for margin scheme taxation from EUR 500 to EUR 750 (from 1 January 2025) is intended to provide relief in determining the VAT base. Under this provision, a reseller may, in simplified terms, determine the base from the total difference between all purchases and sales made within an assessment period if the purchase price does not exceed the de minimis threshold.

Reporting obligation for tourist accommodation

Amendments to the Federal Registration Act (Bundesmeldegesetz) and the Accommodation Registration Data Ordinance (Beherbergungsmeldedatenverordnung) are intended to implement the largely planned abolition of the reporting obligation for tourist accommodation agreed in the coalition agreement. There will no longer be a hotel reporting obligation for German nationals.

Information obligations in further areas

In addition, the BEG IV provides for the abolition of notification and information obligations in further areas. These include the abolition of a notification obligation under the Measurement and Calibration Act (Mess- und Eichgesetz) and an information obligation under the Fifth Capital Formation Act (Fünftes Vermögensbildungsgesetz).

Projects to simplify and accelerate administration

The BEG IV launches further projects to simplify and accelerate administration.

Transfer pricing documentation and transaction matrix

The revised documentation requirements for transfer pricing are intended to relieve businesses, since after the audit order has been issued, it is no longer necessary to prepare and automatically submit all transfer pricing documentation.

A key new element of the documentation is a transaction matrix.

This transaction matrix must include

• the subject matter and type of the transactions,
• the parties involved in the transactions, identifying the recipient and the provider of the service,
• the volume and consideration of the transactions,
• the contractual basis,
• the transfer pricing method applied,
• the tax jurisdictions concerned, and
• whether transactions are not subject to standard taxation in the relevant tax jurisdiction.

The obligation to submit a transaction matrix is intended to promote risk-oriented audits of cross-border business relationships (transfer pricing). In future, within the 30-day deadline following the issuance of the audit order, it will no longer be necessary to submit all (transfer pricing) documentation without a separate request, but only

• the transaction matrix,
• the master file, and
• the records of extraordinary transactions.

Nevertheless, the tax authority may, in the course of the external audit, request the submission of further documentation at any time. In the event of failure to submit the transaction matrix, a surcharge of EUR 5,000 is generally to be imposed.

Further changes

• The amendment to the Investment Tax Act corrects unintentional additional effort in the assessment of special investment funds and restores a legal status similar to that before the Secondary Credit Market Promotion Act (Kreditzweitmarktförderungsgesetz).
• The validity period of exemption certificates for capital gains tax and for tax deduction in the case of persons with limited tax liability is extended from 3 to 5 years (from assessment period 2024).
• Sample audits of income from capital assets in connection with the basic pension under SGB VI are abolished.
• The option of appropriately shortening the comment period in environmental impact assessments is introduced.
• It will be clarified that notaries who notarise or certify declarations in connection with the formation of a company are authorised to file notifications, submit information and lodge applications for the parties involved in connection with the formation.