Annual Tax Act 2026

Special interest accrual for retroactive events

With the new Section 4 (2a) of the German Income Tax Act (Einkommensteuergesetz; EStG) draft it is to be clarified by law that subsequent corrections to financial statements which have effects on subsequent years generally do not trigger a different interest accrual under Section 233a (2a) of the German Fiscal Code (Abgabenordnung; AO). This also applies if the correction of the financial statements is to be classified for tax purposes as a so‑called retroactive event.

However, if the correction of the prior year’s financial statements also rests on a retroactive event - which is the case, for example, when the 15% threshold pursuant to Section 6 (1) no. 1a EStG is exceeded and (maintenance) expenses are reclassified as production costs incurred shortly before acquisition - the start of the interest accrual of the first year affected by the retroactive event shall be decisive.

Lawful rule for allocation of a total purchase price for built-up properties

The new regulation in Section 6f EStG draft is intended to legally specify the required allocation of a total purchase price for a built-up property. If a contractual allocation of the purchase price is missing or such an allocation cannot be used for taxation because, for example, it does not reflect the real value relationships, it shall henceforth be expressly stipulated that the allocation shall be made according to the ratio of the market values attributable to the land on the one hand and to the building on the other, taking into account the highest court case law and the accepted principles of market value determination of real estate.

A minimum value rule is also intended to prevent, as a precaution, the possibility that for example a property containing a liquidation object could result in a negative building value component.

The new regulation in Section 6f EStG draft is intended to apply for the first time to built-up properties that were acquired on the basis of an obligatory contract or equivalent legal act concluded with legal effect after the day of promulgation of this law.

Shorter minimum period for permanent assignment to a first place of work in Germany

With regard to a first place of work, Section 9 (4) EStG requires a permanent assignment of the employee to that place of work by appropriate service or employment law provisions. The relevant period after which a permanent assignment is to be assumed, and thus a first place of work may exist, is to be reduced for domestic assignments from 48 months to 24 months. For foreign assignments, a period of 48 months shall continue to apply.

The planned new regulation is to apply for the first time to assignments that are determined by service or employment law after December 31, 2026. For assignments determined on or before December 31, 2026, Section 9 (4) sentence 3 EStG in the version applicable on December 31, 2026 shall continue to apply. The extension of a fixed‑term assignment shall be treated as a new assignment at the time of extension. This transitional rule is intended to protect existing assignments and to apply the new standard exclusively to assignments for Germany determined after December 31, 2026.

Changes to the electronic payroll tax certificate

From January 1, 2029 it shall be possible to close the employee’s payroll account no later than the last day of February of the following year and to transmit legally permissible amended payroll tax certificates without restriction by that date (Section 41b (1) sentence 1 EStG draft). Currently this must be done by the end of the calendar year. 

The catalogue of information to be transmitted by the employer as part of the payroll tax certificate submission to the tax office is to be expanded and/or already transmitted data is to be broken down in more detail. The previous official form of the electronic payroll tax certificate shall be further developed into an official electronic dataset.

Procedural simplifications for withholding tax relief

The exemption threshold introduced in June 2021 in Section 50c (2) sentence 1 number 2 EStG in the amount of EUR 5,000 was already raised to EUR 10,000 in March 2024. It is now to be significantly increased again to EUR 100,000 in order to enable a considerably larger number of payers of remuneration to benefit, under certain conditions, from the low-bureaucracy, application-free (partial) exemption from withholding tax upon payment.

To avoid previous abusive arrangements by non-resident major shareholders, Section 50c (2) EStG is to be supplemented by a sixth sentence. Until now, these shareholders could still receive capital income without or with a reduced withholding tax under the respective double taxation agreement in the case of pooled or special custody shares and the issuance of an exemption certificate. Therefore, the refund procedure shall also be applied in such cases in the future, which also reduces administrative effort. This amendment is to apply for the first time to capital income accruing after December 31, 2026. The validity of already issued exemption certificates for corresponding capital income shall expire at the latest at the end of 2026.

Re-regulation of the VAT group

To date, Section 2 (2) number 2 of the German VAT Act (Umsatzsteuergesetz; UStG) provides for a VAT group where a legal person is integrated financially, economically and organizationally into an enterprise according to the overall picture of the factual circumstances.

On the one hand, the planned re-regulation clarifies that - pursuant to case law of the European Court of Justice and the German Federal Fiscal Court - partnerships may also be group members within a VAT group, provided the integration requirements are met.

On the other hand, no option to choose whether to enter into a VAT group and its legal consequences has been foreseen so far. This often led to the formation of VAT groups without the companies covered by the group being aware of being part of a VAT group (so-called unrecognized VAT groups). To avoid this, the re-regulation provided for in Section 2c UStG draft supplements the previously applicable and largely adopted rules for VAT groups in that the legal consequences of the VAT group shall in future only arise upon express declaration. Further rules, in particular on the reversal of an erroneously assumed VAT group or the regular termination of a VAT group, follow.

The new regulation of Section 2c UStG is to apply for the first time as of January 1, 2030. However, the possibility should be granted to submit corresponding declarations already from July 1, 2029.

Electronic notification of administrative acts

As of January 1, 2027, electronic notification (for example of tax assessments) is to become the default. A prerequisite is an active ELSTER user account of the taxpayer or, for notification to an authorized representative, an electronically displayed power of attorney for receipt. If the taxpayer or his authorized representative nevertheless wishes postal notification despite these prerequisites, this must in future be applied for electronically only.

It is also clarified that an administrative act is effectively notified even if the incorrect form of notification was chosen.

Adjustment of the interest rate for full interest

A law from mid-2022 reduced the interest rate for additional and refund interest pursuant to Section 233a AO retroactively for interest periods from January 1, 2019 from 0.5% to 0.15% per month, i.e. from 6% to 1.8% per year (Section 238 (1a) AO).

Pursuant to Section 238 (1c) AO, the appropriateness of this interest rate is to be evaluated taking into account the development of the base rate pursuant to Section 247 of the German Civil Code (Bürgerliches Gesetzbuch; BGB). Since the base rate has risen significantly since January 1, 2022, the interest rate is to be increased to 0.3% per full month for interest periods from January 1, 2027, i.e. 3.6% for a full year, in order to ensure its appropriateness.

Increase of the reporting threshold under the Research Allowance Act

The total amount of state aid granted for a research and development project is to be increased retroactively to January 1, 2026 from previously EUR 15 million to EUR 25 million.

Introduction of special Safe‑Harbour rules in the Minimum Tax Act

The Side‑by‑Side harbours agreed under the so‑called Side‑by‑Side package of the OECD in January 2026 (Section 81a of the Minimum Tax Act (Mindeststeuergesetz; MinStG) draft) and the UPE safe‑harbour (Section 81b MinStG draft) are to be implemented nationally with effect for financial years beginning after December 31, 2025.

The Federal Government in particular agrees with the following proposals of the Federal Council:

• Earn-out payments
  Earn-out payments are variable portions of the purchase price that are payable only at a later date and upon the occurrence of certain suspensive conditions. In future, these are to be taxed not according to the cash-in principle but retroactively in the assessment period of the disposal. With this proposal, the legislator is responding to the German Federal Fiscal Court (Bundesfinanzhof; BFH) judgment of September 9, 2023 (case no. IV R 9/21); it concerns disposals within the meaning of Section 16 and Section 17 EStG that occur after December 31, 2026.
• Tax-neutral share exchange
  For taxpayers holding shares as private assets, a share exchange in corporations can be carried out tax-neutrally under certain conditions (Section 20 (4a) EStG). This is an exception to the principle that an exchange generally constitutes a disposal or acquisition for tax purposes and serves to allow credit institutions to process capital gains tax withholding for small investors without burdensome investigations. In future this should apply exclusively to custody-held shares, so that non-custody shares of less than one percent will no longer fall within the scope.
• Redemption of a usufruct right in shares of a corporation
  The remunerated redemption of a usufruct right in a GmbH share has so far not been taxable if the usufructuary is not at the same time the beneficial owner of the GmbH share. Now any payments made to redeem a usufruct right that lead to acquisition costs for the payer are to become subject to income tax under a new number 6 in Section 22 EStG.
• Loss carryforwards for corporations after harmful acquisition of participation
  It is to be made clear by law that after a harmful acquisition of participation within the meaning of Section 8c of the German Corporate Income Tax Act (Körperschaftsteuergesetz; KStG), not only current losses and loss carryforwards but also losses under Section 2a, Section 15 (4), Section 15a and Section 15b EStG and comparable losses are no longer deductible.
  
  

The Federal Government intends in particular to examine or accede to the Federal Council’s requests to examine the following proposals:

• Increase of the threshold for low-value assets and abolition of the pool depreciation
  The threshold for immediate depreciation of low-value assets is to be increased from EUR 800 to EUR 1,200. At the same time, the collective item (pool depreciation) for acquisitions from the assessment period 2027 is to be abolished.
• Business transfers subject to reserved usufruct
  The transfer of businesses or parts of businesses subject to a reserved usufruct is to be able to be carried out tax-neutrally under book-value continuation (non-application statute in response to the BFH judgment of January 29, 2025 (case no. X R 35/19)).
• Shorter useful life for buildings
  Buildings may be depreciated on the basis of an actual useful life if this is shorter than the prescribed standardized useful life. The Federal Council now demands that the calculation of the actual useful life may be carried out only at the time of completion; the rule would thus apply only to certain buildings - such as lightweight halls or transformer station houses. The change is prompted by the BFH judgments of July 28, 2021 (case no. IX R 25/19) and January 23, 2024 (case no. IX R 14/23), which led to the use of partly “lay” expert opinions for calculating the actual useful life.

• Gratuitous transfer of assets between sister partnerships with identical partners
  The Federal Constitutional Court declared by decision of November 28, 2023 (case no. 2 BvL 8/13) that Section 6 (5) sentence 3 EStG was unconstitutional due to incompatibility with the principle of equality, because the provision excluded a book-value neutral transfer of assets between sister partnerships with identical shareholdings. The Annual Tax Act 2024 inserted a new number 4 in Section 6 (5) sentence 3 EStG, which makes tax‑neutral transfers of assets between partnerships with identical partners possible retroactively for transfer transactions from December 31, 2000.
  From December 31, 2026, tax‑neutral transfers are to be extended to partnerships with different shareholdings. In addition, besides gratuitous transfers, transfers in exchange for the granting or reduction of partnership rights are to be possible.
• Losses in cases of limited liability
  The provision on losses in cases of limited liability (Section 15a EStG) is to be fundamentally simplified by determining the loss-offsetting volume across fiscal years on the basis of contributions (the so-called capital contribution model). At the same time, loss compensation on the basis of existing external liability (within the meaning of Section 171 of the German Commercial Code (Handelsgesetzbuch; HGB)) is to be abolished.
• Tax-exempt real-estate disposals in divorce cases
  Disposals of real estate carried out within 10 years of acquisition are taxed as private disposal transactions. Exempt are properties used exclusively for one’s own residential purposes. According to the jurisprudence of the BFH judgment of November 14, 2023 (case no. IX R 10/22), this requirement is not met if use is (also) granted to the separated/divorced spouse.
  The Federal Council now calls for the introduction of a tax exemption for the sale of such properties when they are part of a divorce settlement agreement and provided that the asset was used exclusively for one’s own residential purposes until the time of the divorce and the preceding physical separation.
• Relief allowance for single parents
  An increase of the existing relief allowance for single parents as well as the additional allowance for each further child is being proposed.
• Consideration of the tax benefit for retained profits when determining advance payments
  The retention-tax benefit pursuant to Section 34a EStG for undistributed profits should already be able to be taken into account when determining advance tax payments.
  
  

The Federal Government in particular rejects the following proposals of the Federal Council:

• Simplified donation proof
  The simplified proof of donation, in which the cash deposit slip or the booking confirmation of the credit institution suffices instead of a donation receipt, is to be increased from EUR 300 to EUR 400.
• Increase of the minimum assessment rate for trade tax
  The minimum assessment rate for trade tax is to be raised from 280% to 300% as of January 1, 2027.