I. Changes for all taxpayers

1. Utilization of loss carryforward

The Growth Opportunities Act initially created a short-term improvement to the loss carryforward. Under current law, the use of a loss carryforward up to an amount of EUR 1 million for single persons or EUR 2 million for jointly assessed spouses is possible without restriction in subsequent years. However, a loss carryforward in excess of this amount was previously limited to 60% of the total amount of income for the year in question (so-called minimum taxation). With the Growth Opportunities Act, the percentage limit has now been raised to 70% for a limited period for the assessment periods 2024 to 2027. Tax-reducing loss carryforwards are therefore possible for a limited period of three years under improved conditions. From 2028, the percentage will then be limited to 60% again.

2. Promotion of electric company vehicles and staff cars

Freelancers, tradespersons and employees already benefit from the fact that only a quarter of the non-cash benefit is to be recognized for the private use of a purely electric company or company car. Previously, however, this only applied if the gross list price of the vehicle did not exceed a maximum amount of EUR 60,000. With the Growth Opportunities Act, this maximum amount has now been raised to EUR 70,000 for a limited period for all vehicles purchased after 31.12.2023 and before 01.01.2031. If the gross list price is higher than EUR 70,000, half of the non-cash benefit is to be recognized as before.

3. Donations to foreign charitable organizations

From 2025, donations made to a charitable organization outside Germany may only be deducted for tax purposes if the recipient of the donation issues a donation receipt in accordance with the requirements of an official template. In order to be authorized to issue such a certificate, the organization must be registered in the register of recipients of donations at the Federal Central Tax Office, which will be established this year.

4. Exemption limit for private sales transactions

Also important for all taxpayers is the increase in the exemption limit for private sales transactions, which has been raised from EUR 600 to EUR 1,000 from 2024. Profits from private sales transactions in a calendar year will therefore remain tax-free up to the limit of EUR 1,000.

II. Changes for freelancers and tradespeople

1. Degressive depreciation

The most important changes for freelancers and tradespeople relate in particular to the improved conditions in the area of depreciation. For movable fixed assets that are acquired or manufactured after 31.03.2024 and before 01.01.2025, the legislator has reintroduced the option of declining balance depreciation for a limited period with the Growth Opportunities Act. Instead of straight-line depreciation, in which the costs are distributed evenly over all years of the useful life, taxpayers can therefore make use of declining balance depreciation for a limited period. The percentage rate to be applied may not exceed 2 times the percentage rate used for straight-line depreciation and may not exceed 20%.

2. Increase in special depreciation

In addition, from 2024, freelancers and tradespersons whose profit in the previous year did not exceed EUR 200,000 can claim up to 40% of the acquisition and production costs as special depreciation in the year of acquisition and the four following years for new movable depreciable fixed assets. Previously, a special depreciation allowance of only 20% was possible in these cases.

3. Increase in the minimum amounts relating to the accounting obligation

For sole traders, the accounting obligations under commercial law have been increased from EUR 600,000 to EUR 800,000 revenue and from EUR 60,000 to EUR 80,000 net profit for the financial year beginning after December 31, 2023. At the same time, the tax accounting limits have been increased to EUR 800,000 turnover and EUR 80,000 profit. For those sole traders who are not subject to the bookkeeping obligation, this is accompanied by tax simplification.

4. Gifts

With regard to gift expenses incurred by freelancers and tradespeople for their business associates, the exemption limit for deductible business expenses has been raised from EUR 35 to EUR 50 with the Growth Opportunities Act. The exemption limit applies to the total of all gifts given to a recipient within one year.

5. Research allowance/write-offs

The Growth Opportunities Act contains significant improvements for freelancers and tradespeople with regard to the research allowance. Here, the eligible value of a working hour of the sole proprietor or partner was increased from EUR 40 to EUR 70. In addition, the maximum subsidy was increased from EUR 1 million to EUR 2.5 million. The funding rate for small and medium-sized enterprises has also been increased from 25% to 35% with the Growth Opportunities Act. In addition, the material costs of a research project are now also eligible for funding by way of depreciation. These changes provide new tax incentives for investment and innovation.

III. Changes for landlords

1. Degressive residential building depreciation

To promote residential construction and support the construction industry, the legislator introduced a declining balance depreciation for residential buildings for a limited period of six years with the Growth Opportunities Act. According to this, 5% of the acquisition or production costs of a residential rental building in an EU/EEA country can be depreciated from the annual residual value. Prerequisite for this is that construction begins in the period from 01.10.2023 to 30.09.2029 or the purchase agreement is concluded and the building is acquired by the end of the year of completion.

2. Special depreciation for new rental apartment buildings

In addition, the period of application of special depreciation for new rental apartment buildings has been extended. Under the provisions of the Annual Tax Act 2022, a special depreciation allowance of up to EUR 2,500 per square meter of living space could already be claimed for the acquisition or production costs of rental apartments. However, this was subject to the condition that either a building application was submitted between 01.01.2023 and 31.12.2026 or a corresponding building notification was submitted within this period. With the Growth Opportunities Act, the period of application of this special depreciation has now been extended to 30.09.2029 in line with the declining balance depreciation for residential buildings. The special depreciation for new rental apartment buildings can be claimed in addition to the newly introduced declining balance depreciation for residential buildings.

3. Tenant electricity and solar systems

In order to also promote production and/or purchase of self-generated electricity models, also called landlord-to-tenant electricity supply (“Mieterstrommodell”) and solar systems, the corporation tax exemption for housing cooperatives and associations has been adjusted with effect from 2023. This now applies if income from electricity supplies does not exceed 30% of total income. Previously, this threshold was 20%. In addition, the extended reduction in trade tax for property management companies will apply from 2023 if income from solar systems and charging stations for electric vehicles does not exceed 20% of total income, instead of the previous 10%.

IV. Corporation tax option also for the GbR

As early as 2022, the legislator introduced an option in the German Corporation Tax Act (Körperschaftssteuergesetz) that allows commercial partnerships and partnerships to be taxed like a corporation. In line with the changes that the Act on the Modernization of Partnership Law (MoPeG – see the newsletter of 21.12.2023) provided for the legal treatment of civil law partnerships (GbR), the Growth Opportunities Act gave registered GbRs the option of opting for taxation in accordance with the German Corporation Tax Act from 28.03.2024 onwards. This means that the tax advantages of the German Corporation Tax Act – in particular the lower tax rate of 15% – can now also be used for registered GbRs at the discretion of their partners.

V. Changes to value added tax

Finally, the Growth Opportunities Act provides for a number of changes to VAT that are intended to simplify taxes and reduce both financial and bureaucratic burdens.

1. Increase in threshold values for actual taxation

Firstly, the threshold for calculating VAT on the basis of the consideration received was raised from EUR 600,000 to EUR 800,000 with retroactive effect from January 1, 2024. This change is in line with the change to the tax accounting obligation described above and means that the group of entrepreneurs subject to VAT will be smaller.

2. Increase in threshold value for advance VAT return

At the same time, the threshold for exemption from submitting a quarterly advance VAT return was increased. From 2025, entrepreneurs will be exempt from submitting advance returns and making advance payments if the tax for the previous calendar year did not exceed EUR 2,000. Previously, this threshold was EUR 1,000.

3. Small business

The Growth Opportunities Act also provides further relief for small businesses. From 2024, small business owners will no longer have to submit an annual VAT return and will therefore be noticeably relieved. However, from 2024, the waiver of the small business regulation can only be declared until the end of the second calendar year following the tax period. Previously, this was possible until the tax assessment became incontestable.

4. Electronic invoicing from 1.1.2025 and transitional regulation

Finally, the introduction of an obligation to use electronic invoices is also new. As a result of the Growth Opportunities Act, from 01.01.2025, domestic entrepreneurs will be obliged to use an electronic invoice for deliveries and services to other domestic companies. From then on, the issuing of an electronic invoice will no longer be dependent on the consent of the invoice recipient. This obligation to use electronic invoices is the first step towards the introduction of a national reporting system for all sales, with which the tax authorities intend to combat VAT fraud in future. Only invoices that are issued, transmitted and received in a structured electronic format will be recognized as electronic invoices. It must also be possible to process the invoice electronically. Paper invoices and other electronic invoices, such as pure PDF documents, are only considered other invoices under the new provision. However, an exception to the obligation to use electronic invoices applies to low-value invoices up to an amount of EUR 250. For the years 2025 to 2027, there are also various, graduated transitional regulations intended to facilitate the introduction of electronic invoicing for entrepreneurs. In particular, any type of invoice may continue to be issued until 31.12.2026. In addition, all companies can agree the format used among themselves under certain conditions and regardless of any turnover limits, so that the EDI procedure (Electronic data interchange) in particular can continue to be used until the end of 2027.