BDO Analyzes Annual Tax Act 2026 Draft

BDO AG Wirtschaftsprüfungsgesellschaft has published an analysis of the German Federal Ministry of Finance's draft for the Annual Tax Act 2026. The update offers a detailed overview of the proposed changes, which are expected to impact businesses and taxpayers in Germany.

A key proposal introduces a statutory rule for allocating the total purchase price of a built-up property. The new regulation in Section 6f of the Income Tax Act (EStG) aims to legally specify how the purchase price is allocated between land and buildings when a contractual allocation is missing or not tax-valid. This aims to prevent potential abuses and ensure allocation aligns with market values.

Furthermore, the draft reduces the minimum period for a permanent place of work in Germany for domestic assignments from 48 months to 24 months, effective January 1, 2027. The 48-month period will continue to apply for foreign assignments. Payroll tax closing procedures are also being simplified, allowing for amended tax certificates to be submitted by the end of February of the following year.

Significant procedural simplifications for withholding tax relief are also proposed. The exemption threshold is raised from EUR 10,000 to EUR 100,000, broadening the scope for payers to benefit from simplified, application-free partial exemption. To prevent prior abusive arrangements by non-resident shareholders, adjustments to the refund procedure will also apply in such cases.

The regulations for VAT groups are being fundamentally re-established. The new rules clarify that partnerships can also be members of a VAT group if integration requirements are met. To avoid so-called "unrecognized VAT groups," where companies are unaware of their inclusion, the reform aims to clarify the option and legal consequences of entering a VAT group.