Category: VAT

31 July – Tax Day in Germany

Tax payers in Germany must file the respective annual (e.g. income) tax returns for the previous tax year (calendar year 2019) not later than 31 July 2020 unless (!) a German tax law professional is instructed to file that return on behalf of the tax payer – in that case the deadline is extended from seven to 14 months (i.e. ending on 28 February 2021).

Obviously, the German legislator believes that it is time-consuming to involve an external tax expert and therefore grants twice as much time (14 instead of 7 months) when involving such certifed tax professional. Good news for our professions..

With a proper justification being provided, it is possible to apply for a deadline extension. But the underlying statutory rules have become stricter and tax offices are quick now to assess a penalty for late payment (Verpätungszuschlag) based on Sec. 152 German Fiscal Code (Abgabenordnung).

Uh, ah! New deadlines for tax filings in Germany (as of FY 2018). – Good, bad and ugly news.

Today (31 July 2019) the revised “general deadline” for tax filings in Germany (tax year = calendar year 2018) expires. 

The good news:

  • The “general deadline” was extended by two months, now ending on 31 July. Previously the  deadline was 31 May (for tax filings for 2017 or earlier years).
  • Moreover, the “extended deadline”, applicable for taxpayers that file respective tax returns through a tax advisor or tax lawyer, was extended by two months as well. It now ends 14 months after the end of the respective tax year / calendar year. (Previously, i.e. for tax filings for 2017 or earlier years, the deadline was after 12 months, i.e. 31 December of the following year).

Example (new “extended deadline”): Taxpayer Andy Thom, originally from Scotland, has worked as a tennis coach in Berlin and Hamburg in 2018 and earned EUR 60,000 from students (business expenses not yet reflected). Andy must file an income tax (Einkommensteuer) return and, due to relevant turnover exceeding the thresholds for “small entrepreneurs”), his VAT (Umsatzsteuer) return for 2018. He might also have to file a trade tax (Gewerbesteuer) return. Andy has engaged the local German tax advisor Tommy Doll to take care of the tax filings. When are Andy’s tax filings due?

As Andy has engaged a tax law professional and assuming that Andy’s tax office is duly informed on the engagement of Tommy Doll, the relevant deadline is not 31 July 2019, but the last day of February 2020. That 29 February 2019 is a February which will further extend the deadline to the Monday thereafter. Hence, Andy’s tax advisor must file not later than on 2 March 2020 electronically Andy’s annual tax returns for 2018.  

The bad news:

  • If the extended deadline is missed, the tax authorities must assess penalty payments, unless another deadline extension is successfully applied for. It should be demonstrated that it was reasonably not possible to meet the deadline. The respective provisions (Section 152 German Fiscal Code) have become much stricter.

The ugly news:

  • The tax office has the right to shorten the statutory deadline and request from certain taxpayers an earlier filing (e.g.: as of 31 May or 30 August for the previous year). Here we have a new weapon for the tax administration to put pressure on slow or “difficult” taxpayers. Not good.


2019: Ultimate phase of Angela’s chancellorship – not many changes to German tax laws

The end of the Angela era

Angela Merkel, in office for more than 13 years now,  will not run again for chancellor again in the Federal German elections scheduled for late September 2021 (date to be confirmed). The German economy is still doing good. The public’s focus is on issues such as the Brexit debate.

These are the reasons why not much “tax law reform” is happening at the moment in Germany. Tax law is not on top of anybody’s agenda at the moment.

A few thoughts on where we stand at the moment:

  • Real estate transactions might get even tighter tax rules. For your information, acquisition of real estate in Germany is not subject to VAT (unless you opt for it, being an entreprenur) but to Real Estate Transfer Tax (RETT) at rates from 3.5 up to 6.5% (read here  under 4.).  Large investors operate through special entities (special purpose companies) that acquire real estate. In an exit, the investor will not sell the property, but the shares in the company. If the investor sells just 94% of the company’s shares, no RETT is triggered.  The remaining 6% are the “RETT blocker” as only an acquisition of 95% or more in a company owning German real estate triggers RETT. Well, initiated through a few Länder, these rules might get further tightened: The threshold may go down to 90% (rather than 95%) and “holding periods” will be further extended.
  • Apple/Google/Facebook/Starbuck’s/IKEA royalty structure: Since 2011 an international discussion on minimizing local tax burdens through license structures is going on. Many multinationals make good many in Germany but pay almost no taxes. Profits are offset inter alia against charges for (trademark /franchising) license payments. This is the general perception in Germany. This may be partially true but from a technical perspective it is far more complicated. The reason why this “works” is primarily not an issue of German but of foreign tax regimes. I discuss this in technical seminars, e.g. in mid-February 2019 in Frankfurt.  What Germany is doing now is to limit deductions from royalty payments (i)  for trade-tax purposes as well (ii) for income tax purpose through the Lizenzschranke rules (license-barrier rules pursuant to § 4j EStG effective as of 1 January 2018. The objective is to come to an international approach on further tackling the problem (on OECD and/OR EU level) by 2021.
  • German property tax (annually charged on German real estate you own) needs reform due to constitutional reasons. There are proposals on the table, but nothing has been decided on. Technically and politically it is not easy to change (replace) the existing rules.
  • Other technicalities have been changed. The deadline for filing tax returns was extended to 14 months (if you use a tax law advisor). Morover, taxpayers increasingly being asked to file any tax return electronically. And so on.

Let’s wait for the German economy to turn sour and/or a new chanecellor take office (due in late 2021 at the latest) before the next wave of “tax law reforms” hits Germany. For investors and residents, a pause on the tax reform front should be good news. (Of course, tax rates are always too high).