Federal Council (Bundesrat) approved VAT changes as part of Annual Tax Act
The German Bundesrat has approved the Ministry of Finance’s Jahressteuergesetz 2024 (Annual Tax Act) on 22 November 2024. The Bill will shortly be gazetted and largely comes into effect from 1 January 2025.
Read more in our German VAT guide. Major VAT changes include:
VAT on education services
Tax exemptions for educational services under Section 4 No. 21 of the German VAT Act remain unchanged. Public institutions, private schools, and educational entities serving educational purposes are VAT-exempt, provided they hold a certificate from the relevant state authority. Private teachers offering school and university education also qualify for this exemption. This correction aligns with previous provisions, ensuring such services continue to be exempt from VAT as before.
Input VAT Apportionment
The new wording in Section 15 (4) of the German VAT Act clarifies that in the case of input VAT apportionment, non-deductible input VAT can only be calculated using the total turnover key if this is the only possible apportionment method. It is therefore subordinate to other, more precise (and appropriate) apportionment methods.
Revision of the VAT threshold of Small Businesses selling in rest EU
The new regulation serves to implement Directive (EU) 2020/285, which must be implemented by December 31, 2024. This introduces the €100,000 EU SME VAT registration threshold which will enable German businesses to sell goods or services in the rest of the EU under their German VAT number.
Credit Management
The draft bill amends sec. 4 no. 8 of the German VAT Act to exempt the management of credits by creditors from VAT. This aligns with Art. 132 para. 1 of the EU VAT Directive, addressing a long-standing disparity. Previously, Germany taxed these services, unlike other EU nations, disadvantaging domestic creditors. The amendment primarily affects syndicate loans where a lead manager coordinates credit provision among multiple creditors. While lead managers’ services are taxable under current German law, the new rules would render such management activities VAT-exempt.
This change is expected to eliminate competitive disadvantages, benefit holding structures, and improve conditions for group financing. Notably, creditors can still opt to apply VAT for their management services, while non-creditor service providers remain subject to VAT.
Operational Helpers in Agriculture and Forestry
The second amendment expands VAT exemptions for operational helpers in agriculture and forestry, aligning with Art. 132 para. 1 lit. g of the EU VAT Directive. Currently, VAT exemptions apply only to services provided by organizations or legal entities, excluding individual operational helpers even if costs are covered by social security providers. The amendment ensures VAT exemptions for all such services, including those provided through support organizations.
The proposal corrects inconsistencies in German VAT law and aligns it with EU directives, addressing gaps identified by the German Federal Fiscal Court. This change benefits distressed agricultural and forestry businesses by ensuring broader tax exemptions for operational aid.
