Relief for families and employees
In 2018, taxpayers will receive relief amounting to €4.1bn, which will benefit families and employees in particular. The following tax relief will be provided:
- The basic personal allowance will be raised by €180, from the current level of €8,820 to €9,000.
- The child tax exemption will be raised by €72, from the current level of €4,716 to €4,788.
- Monthly child benefit payments will be raised by €2. For the first and second child this represents an increase from €192 to €194, for the third child from €198 to €200, and, for four children or more, from €223 to €225.
- The child supplement (section 33a of the Income Tax Act) will be raised by €180, from €8,820 to €9,000, in line with the increase in the basic personal allowance.
- To compensate for fiscal drag, the other benchmark figures in the income tax schedule will be adjusted by the estimated inflation rate for 2017 (1.65%).
- The basic allowance for state-supported private Riester pensions will be increased from €154 to €175.
- The maximum tax-exempt amount for fully funded occupational pensions will be raised from 4% to 8% of the contribution assessment ceiling in the pension insurance system.
As for child benefit, the time limit for retroactive applications for child benefit will now be six months (previously the limit was four years). Holders of Riester pension contracts should bear in mind that they should amend their contributions if their financial circumstances or family situation change; this is because the direct beneficiary must pay in the required minimum own contribution in the respective contribution year in order to receive the full state support. The increased support will be paid out for the first time for the 2018 contribution year. However, the amount will only be credited after the end of the contribution year, therefore in 2019 at the earliest.
Improvements to old-age provision
Additional improvements are entering into force in the area of old-age provision. If the monthly pension entitlement from a Riester contract is very low, then the provider has the right to fulfil the pension entitlement in the form of a one-off payment at the beginning of the disbursement phase. As of 1 January 2018, this one-off payment will be taxed at a reduced rate in accordance with section 34 of the Income Tax Act. In addition, newly certified pension contracts must give the customer the option of choosing whether the one-off payment for a pension with a low monthly entitlement is received at the beginning of the disbursement phase or on 1 January of the following year. Postponing the payment can benefit the recipient in terms of tax if their other income is lower in the following year.
Income from additional retirement savings will no longer be credited in full when it comes to calculating basic income support for older people and for people with reduced earning capacity. In future, a monthly basic amount of €100 from supplementary retirement provisions will not be taken into account when calculating basic income support payments. If the monthly Riester pension is higher than €100, then 30% of the amount exceeding this level will not be taken into account. Overall, the exemption is limited to 50% of the level 1 normal requirement amount (Regelbedarfsstufe 1); in 2018, this corresponds to €208. The exemption sends the important signal that it is definitely worth making additional retirement provisions.
It is also possible to take advantage of Riester support within occupational pension schemes. In future, payments from occupational pensions that are supported in this way will no longer be liable for compulsory health insurance contributions during the disbursement phase. Previously, both the contributions to, and the payments from, Riester-supported occupational pensions were subject to health insurance contributions. The new rule will abolish these “double” contributions.
Measures to combat tax evasion
As of 2018, international corporations will only be able to deduct expenses for the granting of rights such as patents or licences to a limited extent in Germany if payments abroad are not taxed, or are only subject to low taxation, under harmful preferential regimes (so-called “IP boxes”, “licence boxes” or “patent boxes”). Preferential regimes are defined as taxation in a foreign country that deviates from standard taxation levels. The new rule is based on the agreements reached by the countries participating in the G20/OECD Base Erosion and Profit Shifting (BEPS) project, which is aimed at combating tax evasion and aggressive tax planning.
Measures to combat tax fraud at checkouts
As of 2018, tax officials will have the power to carry out unannounced inspections of cash registers. This makes it significantly more likely that any unlawful manipulations of cash register records will be detected. Continuing technological development means that it is now possible for digital records, such as those in electronic cash registers, to be deleted or changed without this being apparent. If the inspection findings justify it, the inspection can be expanded into a field audit without the need for a prior audit order.
Legal framework for payment services
In the area of payment services, new measures are coming into effect on 13 January 2018 aimed at adapting the legal framework for payment services to technological developments, in order to improve the security of payments and to enhance the rights of customers when using payment services. Third-party providers (known as payment initiation service providers and account information service providers) will be placed under the supervision of the Federal Financial Supervisory Authority (BaFin). These companies provide payment services for consumers or companies on the basis of access to selected account information – assuming the account holder grants his or her consent – and must fulfil special security requirements, mainly involving IT and data security. In future, certain electronic payment procedures will require what is known as “strong customer authentication”, which refers to authentication using two components, such as a card and PIN.
The EU PRIIPS Regulation has applied to packaged investment products since the end of 2014. PRIIPS stands for “packaged retail and insurance-based investment products”. Packaged products are defined as those which invest the customer’s money indirectly in the capital markets or where the right to repayment is otherwise linked to the value of certain securities or reference values. As of 2018, all small investors who wish to obtain information about a product of this kind must be provided with a standard information document on the product, thereby creating more transparency for consumers. The information must include the key features of the product in question, particularly the associated risks and costs. This standardisation of information will make it easier for consumers to compare different products.