This article outlines the key changes in law and taxation taking effect from 2018.
And here is what changes...
Low-value assets: thresholds significantly increased
With regard to so-called low-value assets (geringwertige Wirtschaftsgüter, GwG), not only have the thresholds been raised, but the documentation requirements have also been relaxed. As of 1 January 2018, all independently usable assets with a net value of up to €800.00 (previously: €410.00 net) qualify as GwG.
This means that all assets classified as low-value under this rule and acquired from 1 January 2018 onwards may be fully written off immediately.
A simplification rule was also introduced regarding documentation: assets with a net value of up to €250.00 no longer need to be recorded in a separate register.
Caution: unannounced cash register inspections permitted
The so-called "Cash Register Act" represents a significant change for all businesses with cash transactions. From 1 January 2017, businesses with registers were already required to upgrade their electronic cash registers. As of 1 January 2018, the law now permits unannounced cash register inspections, during which the tax authorities may inspect businesses without prior notice during normal business and working hours. In addition, anonymous test purchases by inspectors may and should be carried out beforehand.
Important: From 1 January 2018, you should keep all organisational documents relating to the cash register (e.g. operating manuals, programming and setup logs, etc.) readily available as a precaution, since the inspector will request these during the cash register inspection.
We have already informed our clients in detail on this topic through several seminars — most recently with the participation of an active tax auditor. Missed the seminar? We will gladly send you the relevant seminar materials on request — simply contact our office.
Tax allowances raised once again
In 2018, the basic personal allowance, the child allowance and child benefit will increase further.
The basic personal allowance will rise from €8,820.00 to €9,000.00, an increase of €180.00.
The child allowance will be raised by €72.00, increasing from €4,716.00 to €4,788.00.
Child benefit for the 1st and 2nd child will increase by €2.00, reaching €194.00 from 2018.
Child benefit for the 3rd child will be raised to €200.00, and for the 4th child and each additional child, a child benefit of €225.00 will be paid going forward. However, the increase in allowances will generally only become noticeable in your 2018 income tax return.
Fewer documents for the tax office
From 2018 onwards (applicable to tax returns from 2017), many documents no longer need to be submitted to the tax office; they only need to be retained.
New deadline for exemption orders on investment income
Previously, exemption orders for investment income always had to be submitted within the current year. This deadline has now been extended by the tax authorities, so from 2018 you generally have until 31 January of the following year. This means, for example, that an application for 2017 can still be submitted or amended until 31 January 2018. The advantage is that the exemption volume can be better distributed in future, which may be particularly useful if you have accounts with several banks. However, banks are free to decide whether to adopt this "extension" or to retain the previous deadline. We therefore strongly advise you to contact your bank(s) to find out whether they will actually adopt the new regulation.
Investment funds: investors must observe new tax rules
The taxation system for retail funds will change significantly from 1 January 2018.
Automatic tax class combination IV/IV for newlywed couples
From 1 January 2018, all couples will be assigned to tax class IV/IV directly after marriage, regardless of whether both partners are employed or not. We therefore strongly advise all newlywed couples to have it checked whether this tax class is actually the most favourable for them. Please contact us in case of doubt — we will gladly calculate the most favourable tax class for you.
Statutory minimum wage
From 2018, there are no further exceptions, and the statutory minimum wage applies in all sectors for which no generally binding sector-specific minimum wages exist. Collective agreements below the minimum wage will no longer be permissible.
Sector-specific minimum wages are negotiated between trade unions and employers in a collective agreement and declared generally binding by policymakers. The generally binding sector-specific minimum wages are generally higher than the statutory minimum wage and apply to all businesses in the sector — including those not bound by a collective agreement.
Under the Minimum Wage Act, the statutory minimum wage is set every two years and remains at €8.84 in 2018. It can only be raised again as of 1 January 2019. To this end, the Minimum Wage Commission will submit a recommendation regarding the level of the minimum wage to the federal government during 2018.
Maternity Protection Act expanded again in 2018
The new Maternity Protection Act partly came into force in 2017. In 2018, among other things, the protection periods before and after the birth of a child will also apply to female pupils and students. Overall, the new law improves protection against dismissal and obliges employers to design workplaces and working conditions more clearly so that pregnancy does not have a negative impact on professional activity. In addition, a new authorisation procedure applies to night work.
General Data Protection Regulation
From May 2018, a new General Data Protection Regulation will apply across Europe. Its aim is to harmonise data protection law within Europe and give individuals greater control over their data.
Reduced earning capacity pension
The reduced earning capacity pension will increase from January 2018. Those who become entitled to a reduced earning capacity pension in future will receive an average of up to 7 percent more in steps until 2024. In addition, the "supplementary period" will be gradually extended by 3 years. Previously, recipients of a reduced earning capacity pension were treated as if they had been fully employed up to the age of 62. In future, this "supplementary period" will be extended to 65 years.
New Act to Strengthen Occupational Pensions
The new Act to Strengthen Occupational Pensions is intended to provide access to occupational pensions for employees in small businesses and those on low incomes. It is intended to help make occupational pensions more attractive and more firmly established in small businesses, thereby protecting low earners from poverty in old age.
Among other things, the following has been decided under this Act:
-
Increase in the tax-free maximum amount within occupational pension schemes. If you would like to make tax-free and social security-free contributions to an occupational pension, please contact our payroll department, who will gladly provide detailed information for your individual case.
-
Background: Previously, up to 4% of the contribution assessment ceiling of the statutory pension insurance could be paid into an occupational pension free of tax and social security contributions. Additionally, for contracts concluded from 1 January 2005 onwards, a further tax exemption of €1,800.00 applied. This amount will no longer apply from 2018; however, up to 8% of the contribution assessment ceiling of the statutory pension insurance will be tax-free instead. Please note that tax-free contributions are not necessarily fully exempt from social security contributions. Within occupational pension schemes, the previous contribution assessment ceiling of 4% continues to apply for social security exemption.
-
Subsidy for employers within occupational pension schemes for certain employees
-
The Act also provides for a new subsidy to support the build-up of an occupational pension for employees with a monthly income of up to €2,200.00. Under certain conditions, the employer may deduct 30% of the employer's contribution to the occupational pension from the wage tax return. The employer contribution must be at least €240.00 and no more than €480.00 per calendar year. The subsidy therefore ranges between €72.00 and €144.00 per year.
-
Increase in the basic allowance under the Riester pension. In addition, the contribution liability for health and long-term care insurance has been abolished for occupational and private Riester contracts in the payout phase. Double contributions will therefore no longer apply. Companies with monthly variable wages can estimate social security contributions based on the previous month's figures so that the due date for reporting and payment of contributions can be met (deadline for payments: third-to-last bank working day of the current month). The difference from the actually payable amount is then simply paid or deducted from the contribution debt in the following month.
-
This simplification was already extended to all companies without restriction in 2017.
-
Simplified procedure for estimating social security contributions
-
The basic allowance under the Riester pension has remained unchanged since 2008. From 2018, it will be raised from €154.00 to €175.00. Please note: The maximum amount for the special expenses deduction by the directly eligible Riester beneficiary, however, remains at €2,100.00 as before, meaning that the tax advantage through the special expenses deduction within the tax return will be correspondingly lower.
END of the €500 note
The European Central Bank will discontinue issuing the €500 note at the end of the year. The abolition was already decided in 2016. No need to panic: the value of existing notes will of course be retained indefinitely.
Private builders gain more rights
From 1 January 2018, stricter obligations will apply to (construction) companies. For example, companies must provide private builders with more detailed building descriptions than before, so that home builders can better compare different offers and present evidence in the event of any disputes. Furthermore, binding information on completion times must be provided. Incidentally, construction contracts entered into by private builders may be withdrawn within 14 days.
New Europe-wide rules on payment transactions
From 13 January 2018, new, Europe-wide standardised rules on payment transactions will apply. Under these rules, bank customers will be liable, for example in the event of misuse of their bank or credit cards or damages arising from online banking, only up to a maximum of €50.00.
In addition, under these rules, online retailers may no longer charge separate fees for credit card payments. Outlook: From November 2018, real-time transfers will be possible in the eurozone.
Frequently asked questions
Frequently asked questions
What new value thresholds apply from 2018 for low-value assets (GwG)?
Effective 01/01/2018, independently usable assets with a net value of up to 800 euros qualify as low-value assets (previously 410 euros) and can be fully depreciated immediately. In addition, the documentation requirement has been eased: assets up to 250 euros net no longer need to be recorded in a separate register.
What does the unannounced cash register inspection from 2018 onwards mean for businesses with cash transactions?
Since 01/01/2018, tax authorities have been permitted to inspect businesses with cash transactions during regular business hours without prior notice. Anonymous test purchases by inspectors beforehand are also permitted. Businesses should keep all cash register-related organizational documents readily available, including operating manuals as well as programming and setup logs.
How did the basic tax-free allowance, child tax allowance and child benefit change in 2018?
In 2018, the basic tax-free allowance (Grundfreibetrag) rose from EUR 8,820 to EUR 9,000, and the child tax allowance (Kinderfreibetrag) from EUR 4,716 to EUR 4,788. Child benefit (Kindergeld) increased by EUR 2 per month: EUR 194 for the 1st and 2nd child, EUR 200 for the 3rd child and EUR 225 for each additional child. The effects will only become apparent in the 2018 income tax return.
Until when can exemption orders for investment income be filed from 2018 onwards?
From 2018 onwards, exemption orders (Freistellungsaufträge) can generally be filed or amended retroactively until 31 January of the following year. This allows the tax-free allowance to be optimally distributed across multiple bank accounts after the fact. However, each bank decides individually whether to apply this extended deadline, so we recommend checking with the respective bank.
Which tax class do newly married couples automatically receive from 2018 onwards?
As of 01/01/2018, all couples are automatically assigned the tax class combination IV/IV after marriage, regardless of whether both partners are employed. Since this is not always the most favorable option, the choice of tax class should be reviewed individually and changed if necessary.
What changes does the Betriebsrentenstärkungsgesetz (Company Pension Strengthening Act) 2018 bring regarding tax-free contributions?
The tax-free maximum for contributions to occupational pension schemes (betriebliche Altersversorgung) increases to up to 8 percent of the contribution assessment ceiling of the statutory pension insurance. In return, the previous additional tax exemption of 1,800 euros for contracts from 2005 onwards is abolished. Important: the social security exemption remains capped at 4 percent of the contribution assessment ceiling.