Support for Businesses

Innovations of the Tax Reform 2009

• Increase of the tax-free amount for profits from 10 % to 13 %
• Extension of the tax-free amount for profits from taxpayers applying the cash-accounting method to taxpayers applying the accruals accounting method
• Abolishment of the investment requirement for profits up to € 30,000
• Inclusion of buildings into the list of possible investment assets
• Abolishment of the preferential taxation for retained profits

The new tax-free amount for profits

Individuals may claim a tax-free amount for profits for their business (or their businesses). Thus, the profit of each business is diminished by 13 %. The maximum amount per person and year amounts to € 100,000.

The tax-free amount for profits is divided into two parts: a basic tax-free amount and a tax-free amount for profits invested. The new tax-free amount for profits applies to assessments as from the year 2010.

For which categories of income may the tax-free amount be claimed?

It may be claimed for profits from business income, which is income from agriculture and forestry, income from independent personal services and income from commercial activities. It may not be claimed for income from renting or leasing.

For which methods of determining taxable income may the tax-free amount be claimed?

In this case, a difference has to be made between the basic tax-free amount and the tax-free amount for profits invested.

Basic tax-free amount: Cash accounting method, accruals accounting method and flat deduction regime.

Tax-free amount for profits invested: Cash accounting method and accruals accounting method.

What does basic tax-free amount mean?

When calculating the taxable base a difference has to be made between the first € 30,000 of profits (total profits of all businesses of the entrepreneur) and the remaining profits: For the first € 30,000, 13 % are taken into account automatically as a “basic tax-free amount“ (thus a maximum of € 3,900/person/year).

For partnerships the basic tax-free amount is limited to € 3,900 per person and year and, in addition, per partnership.

How to profit from the basic tax-free amount?

The basic tax-free amount is granted ex officio and is automatically taken into account in the tax return for the year 2010.

What does the tax-free amount for profits invested mean?

If profits (total profits of all businesses of the entrepreneur) exceed € 30,000, 13 % of the exceeding amount may only be claimed as tax-free amount for profits invested under the condition that, up to the respective extent, depreciable assets with a useful life of more than four years (NEW: buildings, too) or privileged securities have been acquired.

The tax-free amount (basic tax-free amount and tax-free amount for profits invested) is limited to € 100,000 per person and year and, in addition, per partnership.

How to profit from the tax-free amount for profits invested?

In order to be entitled to the tax-free amount for profits invested you have to allocate the basic tax-free amount to one business (out of several) in your tax return. For that part of the profit for which you would like to claim the tax-free amount for profits invested you have to indicate the assets acquired that correspond to the profits of this business in your tax return.

The tax-free amount may be claimed in the tax return of the year 2010 for the first time.

Abolishment of the preferential taxation for retained profits

The preferential taxation for retained profits can, for the last time, be claimed in the tax assessment for the calendar year 2009. The profits preferentially taxed until the tax assessment for the calendar year 2008 may be recaptured at a tax rate of 10 % in the tax assessment for the calendar year 2009. In this case preferential taxation for retained profits may not be claimed for the tax assessment 2009.

How to claim the preferential ad hoc recapture?

The tax return 2009 will provide for a respective box.

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