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5 January 2024 • 10 minute read

Global Tax Alert: VAT and other indirect taxes – Changes in Germany in 2024

Written by:Björn Enders Lisa-Marie Mönch

In 2024, there will be a number of changes in Germany in the area of VAT and other indirect taxes and duties. Below is an overview of the various legislative changes and initiatives that have already been passed and are planned.

Increase in aviation tax rates

Due to a recent judgement by the German Federal Constitutional Court, the federal government has less budget funds available in 2024 than originally estimated. In order to compensate for the shortfall in the federal budget, the federal government is now planning to increase aviation tax rates from 2024 instead of introducing a national paraffin tax. By increasing aviation tax rates, the federal government intends to generate additional revenue of up to EUR580 million per year.

The aviation tax was introduced in Germany in 2011. In 2022, Germany generated tax revenue of EUR1.2 billion from the aviation tax. The tax rates for the aviation tax are currently:

EUR12.48 for departures from German airports to airports of other Member States of the European Union, to airports of EU accession candidate countries and EFTA Member States and to airports of third countries at a similar distance;
EUR31.61 for departures from German airports to airports in destination countries that are up to 6,000 km away but do not fall under the EUR12.73 category; and
EUR56.91 for departures from German airports to airports in all other countries.

The party liable for the aviation tax is the airline that operates the departures. The aviation tax is generally passed on to passengers through the sale of flight tickets. It is not yet clear when the increase in aviation tax rates will apply. The exact amount of the aviation tax rates has also not been clarified. One problem for airlines is that a large number of flight tickets have already been sold for 2024.

Introduction of a plastic tax

Germany does not currently levy a plastic tax in the true sense of the word, but uses budget funds to pay the levy to the European Union (EU). However, due to the recent judgement of the Federal Constitutional Court, the federal government has less budget funds available in 2024 than originally estimated in the federal budget. The federal government is now planning to pass on the levy to be paid to the EU to companies and consumers by introducing a plastic tax. According to the German government this plastic tax will be enforced from 2025 onwards. In addition to the aim of relieving the budget, the federal government is also pursuing the goal of reducing plastic consumption in general and protecting the environment.

However, the Packaging Act has been in force in Germany since 1 January 2019 and, from 1 January 2024, the Single-Use Plastics Fund Act will also apply. From 1 January 2024, manufacturers of single-use plastic products will have to record the quantity of reportable single-use plastics they place on the market as a basis for their first annual report in May 2025 on the basis of the Single-Use Plastics Fund Act. In addition, there is a reporting obligation for manufacturers within the meaning of the law, which includes not only producers but also fillers, sellers or importers who make single-use plastic products commercially available on the German market for the first time.

Background: In 2020, the European Parliament reached a compromise on the long-term EU budget and thus also agreed a levy on non-recycled used plastic packaging that will apply from 2021. Germany pays around EUR1.4 billion a year to the EU for this. The levy amounts to EUR0.80 per kilogram of non-recycled plastic packaging waste generated in the respective member state. The amount of non-recycled packaging waste is defined as the difference between the weight of packaging waste generated in a year and the amount recycled in the same year. The levy is payable monthly by the respective national households and is therefore not a tax in the true sense of the word. One quarter (EUR0.20) of the levy is to remain in the respective country and three quarters (EUR0.60) is to be paid to the EU. Various EU member states have subsequently introduced national plastic taxes to cover the EU levy.

The exact structure of the plastic tax is not yet foreseeable. Draft legislation has not yet been presented. It is possible that the German government will propose adapting the existing laws – the Packaging Act and the Single-Use Plastics Fund Act.

VAT rate for restaurant and catering services of 19%

From 1 January 2024, a VAT rate of 19% will once again apply to restaurant and catering services in Germany. However, the Federal Ministry of Finance (BMF) has issued a non-application decree for New Year's Eve, which is why the tax authorities (BMF, letter dated 21 December 2023 - III C 2 - S 7220/22/10001 :009) allow the reduced tax rate of 7% to be applied for New Year's Eve. However, this does not apply to the supply of drinks.

The tax rate for restaurant and catering services was reduced to 7% on 1 July 2020 as a temporary crisis measure in the context of the COVID-19 pandemic (12 para. 2 no. 15 German VAT Act). However, this reduction in the tax rate only applied to the supply of food, but not to the supply of beverages. This reduction was extended twice and was valid until 31 December 2023.

In practice, it should be noted that cash register systems must be converted to the 19% VAT rate in good time.

CO₂ price, electricity tax and VAT on the supply of gas

Another result of the budget negotiations in mid-December is the increase in the CO₂ price for petrol, heating oil and gas to EUR45 per ton from 1 January 2024. Originally, an increase to just EUR40 per ton was planned. The higher CO₂ prices are regulated in the amended Fuel Emissions Trading Act (BEHG). The amendments to the BEHG are in turn part of the Budget Financing Act, which the Bundestag and Bundesrat have now passed. CO₂ pricing was already extended to all fossil fuel emissions in November 2022.

The additional revenue from the increase to EUR45 is to be channelled into the Climate and Transformation Fund and thus made available for economic development and climate protection in Germany.

Furthermore, the electricity tax rate is to be reduced to the EU minimum tax rate of EUR 0.05 per kilowatt hour for 2024 and 2025. The current electricity tax rate is EUR0.02 per kilowatt hour. The aim of lowering the electricity tax rate is to reduce the burden on particularly energy-intensive companies, such as SMEs and the manufacturing industry. If possible in subsequent federal budgets, the reduction will continue to apply for the years 2026-2028.

For the supply of gas via a gas pipeline network (Section 28 (5) German VAT Act) and the supply of heat (Section 28 (6) German VAT Act), the reduced tax rate of 7% applied for a limited period from 1 October 2022 to 31 March 2024. The German government planned to return to the regular VAT rate of 19% on 31 December 2023, as energy prices have fallen significantly again. The Finance Committee of the Bundestag recommended that the reduction in the tax rate should only be shortened by one month. As the Growth Opportunities Act (Wachstumschancengesetz) has not yet been passed and the shortening of the deadline has not been spun off into the Secondary Credit Market Promotion Act (Kreditzweitmarktförderungsgesetz), the shortening has not yet been adopted in the legislative process. Accordingly, the original time limit, i.e. the continued application of the reduced VAT rate of 7% until 31 March 2024, for the supply of gas via a gas pipeline network and the supply of heat could remain in place.

Newly introduced VAT exemption for funds

From 1 January 2024, the management of all alternative investment funds (AIFs) will be exempt from VAT in accordance with section 4 no. 8 letter h of the German VAT Act. All alternative investment funds, including private equity, venture capital, real estate, infrastructure and crypto funds, which were not previously covered, are now exempt from VAT. This means that only the management of such investments, which do not qualify as alternative investment funds, will remain subject to VAT. Consequently, following the introduction of the Future Financing Act, investment clubs and single-investor funds in particular will continue to be subject to VAT.

This results in the following consequences, which we discuss in detail in our alert:

No VAT on invoices for the management of investment funds, regardless of whether they are UCITS or AIFs;
loss of the right of capital management companies to deduct input VAT for input transactions in this context; and
the need for landlords and/or the leasing capital management company to review existing leases for commercial premises.

Changes to VAT law in the Growth Opportunities Act

The Growth Opportunities Act has not yet fully passed through the legislative process. The Growth Opportunities Act was passed by the Bundestag in November 2023. However, due to the unfair distribution of costs in the view of the Bundesrat (Federal Council), the Bundesrat refused to give its necessary approval and called on the Mediation Committee. The Mediation Committee did not deal with the Growth Opportunities Act in December 2023 due to the negotiations on the federal budget for 2024.

Important, time-bound changes that would have had to be implemented in the Growth Opportunities Act – in particular adjustments due to the Act to Modernise the Law on Civil Law Partnerships (Personengesellschaftsrechtsmodernisierungsgesetz, in short: MoPeG) – have been incorporated into the Secondary Credit Market Promotion Act (Kreditzweitmarktförderungsgesetz), which was passed by the Bundestag in mid-December 2023 and received the approval of the Bundesrat. The changes in the area of VAT have not been included in the Secondary Credit Market Promotion Act. Changes and simplifications in the VAT area discussed by us in our alert will therefore not come into force on 1 January 2024.