June 2010

Changes to German tax law affects individuals and businesses

The German government has recently published its draft version of the proposed changes of German tax law in 2010 [Annual Tax Bill 2010 – Jahressteuergesetz 2010 (JStG 2010)].

Most of the changes will affect German individual taxpayers, only. However, a few provisions of this law may affect foreign companies or their German corporate subsidiaries.

Companies that wish to centralize their bookkeeping electronically in a shared service center anywhere in the world may include their German subsidiaries as of 2011. According to the draft Annual Tax Bill 2010, it will be possible to opt-out of the requirement of doing bookkeeping and keeping records of a German corporate entity in the country, provided that the company agrees to grant the German tax authorities electronic access to the records in case of a field audit.

German CFC rules will be amended for outbound structures, considering shareholders’ tax credits in certain jurisdictions to determine whether or not a jurisdiction is deemed to be a tax haven for German tax purposes. This is supposed to avoid so-called double-Maltese-structures where excessive structuring took place applying the favorable tax laws of Malta.

Other domestic changes in the tax law will include income tax (Einkommensteuer), dividend and interest withholding tax (Kapitalertragsteuer), wage tax (Lohnsteuer), corporate income tax (Körperschaftsteuer), inheritance and gift tax (Erbschaft- und Schenkungsteuer) and VAT (Umsatzsteuer).

We will be happy to provide further information as soon as the legislation process continues. Our German colleagues in HLB International believe that the aforementioned changes will be enacted during the 3rd quarter of 2010, effective as of Jan 1, 2011.

In case you should require further details, please contact Bill Andreozzi, Paul Lau or Paul Oetter.  We are in regular contact with our German colleagues in HLB International and they will be happy to assist us in addressing your issues.