- Tax Reform Act Will Increase Net Income From 2025
- Celebrating in the Company: Which Tax Rules Apply to Company Events
- Allocation of the Business Identification Number to Self-Employed Will Start Shortly
- Tax Reform Act Will Increase Net Income From 2025
In Japan, there is currently a heated debate over the so-called JPY1.03 million barrier, and an increase in the basic deduction amount is being considered. However, in Germany, an increase in the basic deduction amount from 2025 has already been agreed upon by the government.
In its budget talks, the German government agreed to further reduce the burden on its citizens. To this end, the cabinet has launched the “Tax Reform Act”, which is intended to ensure a noticeable increase in net income from 2025. Companies and non-profit organizations are also set to benefit from this. The planned measures are listed below in brief.
The basic and child allowances are to be significantly increased for 2025 and 2026. The basic tax-free allowance i.e. the income up to which no income tax must be paid currently stands at € 11,604 and is set to rise to € 12,084 in 2025 and to € 12,336 in 2026. At the same time, the tax-free allowance for children is also to be increased from the current € 9,312 to € 9,600 in 2025 and to € 9,756 in the year 2026.
In 2025 and 2026, the exemption limit for the solidarity surcharge is also to rise and the income tax rate, except for the so-called “wealth tax rate”, is to be adjusted again for inflation. This means that wages and salaries are not taxed more if their increase is intended to compensate for higher prices.
Child benefit is set to rise from €250 to €255 per month from 2025 and then by a further €4 to €259 in 2026.
Tax incentives are to be provided for companies through improved tax deductions and the expansion of research funding. In the future, tax-privileged organizations will be allowed to occasionally comment on current political events outside of their purpose without losing their tax privileged status. For example, sports clubs are allowed to take a stand against racism in response to current events. In addition, non-profit organizations will receive more time to use the funds allocated to them, and more flexibility when installing or operating photovoltaic systems.
The tax class combination III and V is to be abolished from 2030 and transferred to the factor method of income tax class IV. However, the splitting method will remain available to spouses and cohabiting partners in the future with the factor method, the tax reducing effect of spousal splitting can already be considered individually in the monthly income tax deduction.
- Tax Rules That Apply to Company Events
Company parties and celebrations lift the mood in the organization, enable a relaxed get-together and strengthen the bond between management and employees as well as between employees themselves. For tax purposes, employers can deduct all costs of such company events as business expenses, and even pay any income tax for their employees. However, they must be careful not to jeopardize their social insurance exemption. In the case of a company event, benefits from the employer are tax-free up to €110 per employee; however, this allowance is limited to only two events per year. If celebrations are held more often in a year, the resulting benefits must be taxed. However, employees are not obliged to do this. They do not have to declare anything in their own tax return, as the employer is responsible for such taxation. The employer should be aware that the tax exemption for two events per year can only be claimed if the celebration is open to all members of the company (or part of the company in the case of larger companies), i.e. there is no hierarchical limit. In addition, the employer must keep a record of who actually took part in the company event in order to be able to allocate the costs correctly to the participants. If employees bring accompanying persons, the entire expenses for the accompaniment are allocated to the employee belonging to the company. The allowance of € 110 is then quickly exceeded in such cases.
The participants of a company event are not only allocated their directly attributable costs, such as food, drinks and raffle prizes. The law requires that all gross expenses incurred by the employer for the company event, including expenses that are not directly attributable, are allocated to the employees. This means that the tax- free amount also includes, for example, room rental as well as the costs for booked artists, external event managers, tips or even paramedics present at that event. All electricity and water costs on the employer’s premises, as well as the costs for internal staff who are assigned to the celebration are excluded from these attributable costs. If the event is held on the company premises, the travel costs are also not included in the tax-free allowance. This applies, for example, to employees who work at another location and travel to the company headquarters for a summer party. The employer can reimburse these travel expenses tax-free.
For example, if costs of €135 per employee are incurred for a company event, the payroll department must tax €25 as a non-cash benefit. The employer can choose whether to tax this additional amount individually plus social security contributions or at a flat rate of 25% without social security contributions. The latter is usually more advantageous for employees. Furthermore, the employer can pay the wage tax for the employees, so that the event is a genuine gift from the company management.
- Allocation of the Business Identification Number to Self-Employed Will Start Shortly
The “tax identification number” was introduced in Germany on 1st July, 2007. Since then, every citizen registered in Germany has been assigned a personal, eleven-digit number by the Federal Central Tax Office. The number is valid for life and enables the tax authorities to uniquely identify the person. Now comes the next step: the economic identification number has been introduced on 1st November, 2024. Every self-employed person, every legal entity and every association of persons will now receive this new identifier, which consists of the letters “DE” and nine digits.
Note: If an individual is commercially active, they receive the business identification number in addition to their tax identification number, so that the business activities can be clearly distinguished from private activities.
The initial award and notification to the economically active persons or associations of persons will take place in several stages and should be completed in 2026. It is not necessary to submit any application for this purpose. The business identification number remains the same for the duration of the entire economic activity and does not change.
Economic operators who were already assigned a VAT identification number before the introduction of the business identification number will not be notified separately of the business identification number. Instead, they will be informed by a notice published in the Federal Tax Gazette that their VAT identification number is also to be used as a business identification number. There is no need for individual notification of the assigned business identification number, as the business identification number is identical in structure to the already known VAT identification number. For economic operators without a VAT identification number who are already registered for VAT purposes or who operate as small businesses, the electronic notification of the economic
operator’s VAT number is carried out by the tax office.
Businesses without a tax advisor must have an Elster user account (electronic tax declaration which is a German online tax office system designed by the Federal Central Tax Office) for this purpose. If they have a tax advisor with the appropriate disclosure authorization, the notification is sent to the tax agent. The tax authorities provide an interface to software providers so that tax advisors can retrieve the business identification number via their office software.
Disclaimer: All views expressed in this article are solely for informational purposes and should not be construed as legal advice. This information is for reference only and is bound to change in case of any amendments or changes to applicable laws. We do not assume any responsibility or liability for any errors or omissions in the content of this article, and do not make any warranties about the completeness, reliability and accuracy of the information expressed in this article.