Federal government adopts Annual Tax Act 2024 - key income tax changes

On June 5, 2024, the Federal Cabinet approved the draft of the Annual Tax Act 2024. This law contains important adjustments in various areas of German tax law. We present some of the planned changes to income tax law below.

The Act implements necessary adjustments to EU law, ECJ rulings and decisions by the Federal Constitutional Court and the Federal Fiscal Court. The main aim of the changes is to modernize and simplify German tax law, for example to reduce bureaucracy, promote innovation and support sustainable business practices.

With this in mind, the new regulation on the flat-rate taxation of mobility budgets (Section 40 EStG) provides incentives to promote environmentally friendly mobility. 
Employers will now be able to levy a flat rate of 25% income tax on a mobility budget for off-duty use of mobility services in the form of a non-cash benefit or subsidy, provided that the budget is granted in addition to the regular salary. This regulation covers the short-term and occasional provision of modern means of transportation such as e-scooters, car sharing, bike sharing and other sharing offers as well as travel services. The options for flat-rate taxation are limited to a maximum annual amount of EUR 2,400.

Furthermore, the tax exemption for small photovoltaic systems (Section 3 no. 72 EStG) that are acquired, commissioned or expanded after December 31, 2024 will be extended. The new regulation will therefore not apply to old systems up to 31.12.2024. The permissible gross output for the tax exemption according to the market master data register will be increased from 15 kW (peak) to 30 kW (peak) per residential or commercial unit, whereby a maximum total of 100 kW (peak) per taxable person or co-entrepreneur is permitted. For buildings without a residential unit but with several commercial units, the benefit extends to up to 30 kW (peak) per commercial unit. The respective maximum gross output represents an exemption limit and not an allowance.

Further improvements are also to be introduced in the area of employee share ownership (Section 19a EStG). Shares in the employer's company can already be transferred to the employee free of charge or at a reduced rate, whereby the taxation of the resulting non-cash benefit can be deferred. The scope of application will be extended so that in future shares in group companies can also be transferred with tax relief. However, it should be noted that the tax-privileged transfer of a share in a group company is only possible if the thresholds pursuant to Section 19a para. 3 EStG are not exceeded in relation to all group companies and no group company was founded more than 20 years ago.

There will also be changes for taxpayers from 01.01.2026 with regard to the application for a refund of construction withholding tax (Section 48c EStG). In future, applications must be submitted electronically via the officially prescribed interface by the end of the second calendar year following the year in which the deduction amount was declared.

After decades of legal disputes, the tax-neutral transfer of book values between sister partnerships with identical shareholdings is now to be enshrined in law. To this end, Section 6 (5) sentence 3 EStG will be extended by number 4.
This makes it possible to carry out a tax-neutral transfer of assets in the case of gratuitous transfers of assets between the joint assets of different co-entrepreneurs of the same, identically participating co-entrepreneurs.

The new provisions of the Annual Tax Act 2024, which were adopted by the Federal Cabinet on June 5, 2024, are to come into force from January 1, 2024. However, some of the new regulations will also apply for the first time for tax periods beginning after December 31, 2024. However, the Bundestag and Bundesrat still have to approve the legislative process, meaning that the process is not expected to be finalized until the end of the year.