What will change in German tax and commercial law in 2025?

Changes in tax law

Book value transfer of individual assets

Under certain conditions, individual assets can be transferred between different business assets at book value and thus without realizing hidden reserves. To date, there has been no provision for book value transfers between sister partnerships, which is unconstitutional in the opinion of the Federal Constitutional Court (BVerfG). The legislator is addressing this as part of the Annual Tax Act 2024 (JStG 2024) and allowing book value transfers in all open cases, but only between partnerships with identical shareholdings.

At the same time, however, the so-called corporation tax clause will be tightened for transfers of assets at book value from 19 October 2024. If a corporation's share in the asset is established or increased within a blocking period, its going concern value must be recognized retroactively. Contrary to the Federal Fiscal Courts (BFH) case law, this legal consequence is now also triggered if a corporation already holds an interest in the asset and transfers its interest to another corporation.

Additional requirements for cross-border financing relationships

Since 1 January 2024, according to German tax law the tax recognition of cross-border financing relationships has generally required that the provision of the debt service for the entire term, the economic necessity, and the use for the company can be credibly demonstrated. In addition, the agreed interest rate must stand up to an arm's length comparison based on the rating for the group of companies. The JStG 2024 added an explicit application provision to this effect for so-called old contracts. These include contracts that are legally concluded before 1 January 2024 and were actually carried out for the first time before 1 January 2024. In these cases the aforementioned additional requirements only have to be carried out for expenses incurred after 31 December 2024. However, if such legacy contracts were significantly amended in 2024, the costs incurred after that already fall within the scope of the audit.

Submission of transfer pricing documentation

If an audit order is issued after 31 December 2024, a statutory provision introduced at the end of 2022 requires transfer pricing documentation to be submitted to the German tax authorities within 30 days of notification of the audit order without a separate request from the tax authorities. The Fourth Bureaucracy Relief Act (BEG IV) has specified the content of the transfer pricing documentation to be submitted to the effect that it is not necessary to submit complete documentation, but rather a transaction matrix, a master file if the 100 million euros threshold is exceeded and records of exceptional transactions. However, the tax authorities can also request the submission of factual and appropriate documentation at any time, which in turn must be submitted within 30 days of the request.

Modernization of the external audit

Legislative changes made in 2022 have already set the course for the modernization of external audits in Germany, which will generally apply from 1 January 2025. For example, audits are to be accelerated by issuing the audit order in advised cases by the end of the calendar year following the year in which the tax assessment notice is issued at the latest. A reduction in the suspension of the expiry of the assessment period for tax assessment notices to a maximum of five years after notification of the audit order also serves to speed up the procedure. If the audit order is issued later than the aforementioned deadline in the cases discussed, the five-year suspension of expiry will still apply, which increases the pressure on the tax authorities to carry out audits promptly.

From 2025, further options for communication between external auditors and taxpayers will also be introduced and obligations to cooperate and make corrections will be specified.

Shortening the retention periods for accounting documents and invoices

The BEG IV has shortened the retention periods for accounting documents and invoices under tax and commercial law. If the previous ten-year retention periods have not yet expired on 31 December 2024, the retention periods are now only eight years.

Offsetting losses from forward transactions and losses on receivables

Separate loss offsetting pools have so far been provided for losses from forward transactions and bad debt losses incurred in private assets. So far, it has only been possible to offset such losses against gains from corresponding transactions up to an annual amount of 20,000 euros. This restriction on offsetting losses will be lifted in all open cases with the JStG 2024, meaning that offsetting against all other positive income from capital assets is now possible.

Introduction of exit taxation for holdings in investment funds

Up to now, if a taxpayer has permanently relocated his residence away from Germany this has meant that investments in corporations held as private assets of at least 1 % within the last five years are deemed to have been sold, meaning that value increases are subject to taxation in Germany upon departure. For departures after 31 December 2024, the JStG 2024 now provides for a corresponding regulation if there is an investment of at least 1 % in German and foreign investment funds or their acquisition costs amount to at least 500,000 euros. Holdings in special investment funds are always recognized, regardless of any materiality threshold. As with shares in corporations, it is possible under certain conditions to pay the tax triggered by the departure in installments, although this can be counteracted by the distribution behaviour of the fund.

The new definition of the supply of work for VAT purposes

From 6 December 2024, a supply of work with a corresponding effect on the determination of the place of performance for VAT purposes only exists if the entrepreneur has taken over the processing or treatment of a third-party item. If an own item is processed or treated, this is no longer considered a supply of work.

Small business regulation for VAT purposes

From 1 January 2025, a turnover threshold of 25,000 euros (instead of 22,000 euros) for the previous calendar year and a turnover threshold of 100,000 euros (instead of 50,000 euros) for the current calendar year will apply for the application of the small business regulation.

In addition, the comprehensive changes contained in the JStG 2024 mean that sales made using the small business regulation are considered VAT-exempt sales instead of the previous rule that VAT is not charged.

Developments in commercial law

Reduction of written form requirements by downgrading to text form

As part of BEG IV, numerous measures were implemented to promote digitalization, in particular by reducing written form requirements. In the future, landlords will be able to provide receipts for the statement of operating costs in digital form. Commercial lease agreements that are concluded for longer than one year can be concluded in text form, i. e. as a legible declaration on a permanent data carrier, e. g. an email.

Note: For reasons of legal certainty and to preserve evidence, the written form should still be used for such contracts.

Certificates of employment and references can also be issued in text form with the employee's consent, and text form is also sufficient in most cases for proof of the main working conditions.

Changes to the transparency register

The EU Anti-Money Laundering Regulation will come into force in mid-2027 and will then apply directly in all EU member states. The EU Anti-Money Laundering Regulation will create a standardized framework for identifying the beneficial owner, who will henceforth be referred to as the "beneficial owner". The information that must be submitted to the transparency register, which will in the future be known as the central register, will be expanded. The relevant threshold for qualification as a beneficial owner in direct and indirect shareholding structures will then be at least 25 % instead of more than 25 % of the shares, voting rights, or other ownership interests as is currently the case. A standardized methodology will be prescribed for determining indirect beneficial owners, which will result in a considerable expansion of reporting obligations. Changes are also planned for foundations.

Note: Companies subject to transparency requirements should review the beneficial owners following the new requirements by mid-2027 and adjust them if necessary.

EU Listing Act

On 8 October 2024, the Council of the European Union officially adopted the EU Listing Act, a legislative package that, among other things, standardizes the requirements for the format, language, and length of a securities prospectus and grants further simplifications and exemptions from the prospectus requirement. For example, the ad hoc publicity obligation will in the future only extend to the final event in the case of delayed circumstances.

Note: However, all intermediate steps may still constitute so-called inside information.

The regulations on deferring the publication of insider information will also be amended and the option of keeping simplified insider lists containing a reduced amount of data will be introduced for all issuers. The reporting threshold for directors' dealings is to be raised from the current 20,000 euros to 50,000 euros.

Some measures of the Listing Act will enter into force 20 days after publication in the Official Journal of the EU. However, other amendments will only be applicable 15 or 18 months later. Concerning the directives contained in the Listing Act (MiFID and multiple voting rights), the member states have 18 months and two years respectively to transpose the amendments into national law.

Changes in the area of civil jurisdiction

Commercial civil proceedings at regional courts in Germany can be conducted in English from 1 April 2025. In addition, the federal states can set up commercial courts specializing in major commercial and international disputes. They are to have special expertise, for example in disputes between a company and members of its management body or supervisory board. The commercial courts are to be responsible for disputes of 500,000 euros or more and with party agreement. The parties can also agree that a verbatim record will be drawn up that can be read.

Need for action for website operators

There is an urgent need for website operators in Germany to act due to the Accessibility Reinforcement Act, which will come into force on 28 June 2025. Economic operators who sell certain products or services online must offer their services in an accessible manner. To this end, products and services must be findable, accessible, and usable for people with disabilities in a generally customary manner without particular difficulty and, in principle, without outside help. Specifically, perception must be regularly possible via two senses. From the end of June 2025, products and services may no longer be placed on the market if they do not fulfill accessibility requirements. There will be drastic sanctions for non-compliance.

Sustainability reporting soon also for SMEs

The CSRD Implementation Act is also due to be passed by the end of the year, thereby transforming the Corporate Sustainability Reporting Directive (CSRD) into German law. Staggered initial application regulations apply to the sustainability reporting obligation. Since 1 January 2024, so-called PIE companies with more than 500 employees have been affected; from 1 January 2025, all other PIE companies will also be required to report. Medium-sized companies will not be required to report on sustainability until 2026 - however, given the large amount of new data to be collected, preparations should be started early.

Note: As part of the (Group) management report, the sustainability report is subject to a mandatory content review, which must be carried out by an auditor. The auditor of the sustainability report can also be the auditor of the (consolidated) annual financial statements.

European Supply Chain Act

The Corporate Sustainability Due Diligence Directive (CSDDD) came into force on 25 July 2024 and must be transposed into national law within two years. In Germany, the Supply Chain Due Diligence Act (LkSG), which has been in force since 2023, is expected to be amended. EU companies with more than 1,000 employees and a global net annual turnover of 450 million euros will be covered by the gradual application of the CSDDD by 2029. The due diligence obligations under the CSDDD largely correspond to those of the LkSG, although the CSDDD extends the environmental due diligence obligations, and the chain of activities goes much further. What is new is that companies must draw up a climate plan to mitigate climate change and demonstrably implement it in their business strategy. Unlike the German LkSG, the directive provides for direct civil liability on the part of companies. Fines and penalties of up to 5 % of global net turnover can be imposed for violations.

Note: Like the LkSG, the CSDD provides for a reporting obligation concerning the implementation of and compliance with due diligence obligations in the supply chain. However, this reporting obligation can be waived if the companies report under the CSRD. A corresponding amendment to the LkSG is included in the draft of the CSRD Implementation Act. The LkSG reports must currently be submitted to the German Federal Office for Economic Affairs and Export Control (BAFA) - however, the due date for reports for the reporting period before 1 January 2024 has been postponed, currently to 31 December 2026.

EU Forest Protection Regulation

The EU regulation for deforestation-free supply chains, or EUDR for short, will create new import and export bans from 31 December 2024. Market participants who import goods covered by the EUDR from third countries into the EU, trade them in the EU, or export them from the EU will be affected. The obligations contained in the EUDR relate to the following commodities: cattle, cocoa, coffee, oil palm, rubber, soya, and wood, as well as certain products made from these commodities.

Special levy on single-use plastic from 2025

Manufacturers of single-use plastic products in Germany must make a financial contribution to finance collection, cleaning, and awareness-raising activities. To this end, payments must be made into a so-called single-use plastic fund, which is calculated according to the quantity of certain single-use plastic products placed on the market each year. The companies concerned have been obliged to register since 1 January 2024 and will be obliged to pay this special levy from 1 January 2025. The basis for this is a notification to be submitted by 15 May of each year, for the first time by 15 May 2025, which requires verification and confirmation by an expert or an auditor registered for this purpose.

Increasing demands on commercial property

On 28 May 2024, the amendment to the EU Buildings Directive came into force, which must be transposed into national law within two years. This will lead to a considerable tightening of requirements for existing commercial property owners in the EU member states and therefore also in Germany: the requirements for overall energy and building efficiency will increase, more charging points for car and bicycle parking spaces must be provided and, from 31 December 2027, there will be an obligation to install solar energy systems as part of certain modernization measures for certain commercial properties with a total usable area of more than 500 square meters. There is noticeable pressure to modernize existing commercial buildings.