Germany’s Federal Council (Bundesrat), or the upper house of parliament, has approved the Annual Tax Act 2024 on 22 November 2024.

This Act includes various tax amendments, particularly VAT exemptions thresholds for small businesses among others.

The Act will take effect once signed by the president and published in the federal gazette, which is expected in late November or early December of 2024.

VAT exemption thresholds for small businesses

The VAT exemption thresholds for small businesses have been increased from EUR 22,000 to EUR 25,000 for the previous year and from EUR 50,000 to EUR 100,000 for the current year. If turnover exceeds EUR 100,000 in the current year, there won’t be any VAT exemptions but will apply to transactions made before exceeding this threshold.

EU small business scheme introduced for cross-border supplies

Amendments have been implemented to introduce the EU small business scheme for cross-border supplies under the Council Directive (EU) 2020/285 of 18 February 2020. This means a taxable person from another EU Member State can apply for the VAT exemption for small businesses in Germany if their annual turnover in Germany is below the German VAT exemptions thresholds and their EU turnover does not exceed EUR 100,000.

These changes will take effect on 1 January 2025.

Other amended tax provisions

  • The Corporate Income Tax Act, Foreign Tax Act, Trade Tax Act, and Reorganization Tax Act have undergone technical updates.
  • For real estate transfer tax (RETT) purposes, the concept of a “deemed or fictitious real estate-owning entity,” introduced by the federal tax court in December 2022 and confirmed by tax authorities on 16 October 2023, is abolished.
  • A limited grandfathering rule is introduced for the new transfer pricing rules in Section 1 (3d) FTA (debt capacity/business purpose test and maximum arm’s length interest rate test. According to this rule, Section 1 (3d) is not applicable to expenses related to intercompany financing arrangements established before 1 January 2024 if those expenses are incurred before December 31, 2024.