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EXPLAINED: How Germany’s new multibillion aid package will benefit you

The government has agreed on a huge economic stimulus package aimed at kick-starting the economy and supporting people in Germany. From families to consumers and business owners, this is how it measures up.

EXPLAINED: How Germany's new multibillion aid package will benefit you
Children at a Kita in Dresden, Saxony. Families are to benefit from the new package. Photo: DPA

Germany is ploughing €130 billion into a stimulus package to kick-start the economy which has been severely hit by the coronavirus pandemic, Chancellor Angela Merkel confirmed on Wednesday June 3rd.

With border closures, employees hit with reduced hours or forced to stay home, and the shutdown of restaurants, bars, shops and clubs to slow down the spread of coronavirus, Germany is headed for the worst recession in its post-war history.

To fund the unprecedented package, parliament has approved new borrowing, marking a big change in German economic policy.

Here's how the German government is planning to help the country get on its feet again, and who will benefit.

READ ALSO: Germany agrees €130 billion package to kick-start economy hit by coronavirus pandemic

Consumers

The leaders of the grand coalition, made up of Merkel’s Christian Democrats (CDU), their Bavarian sister party, the CSU and the centre-left Social Democrats (SPD) have agreed on a temporary reduction of VAT. 

This measure is aimed at boosting domestic consumption to help kick-start the economy.

From July 1st to December 31st 2020, the VAT rate is to be reduced from 19 per cent to 16 per cent, and the reduced rate from 7 per cent to 5 per cent. The reduced rate applies to goods for everyday use, such as food.

It will cost the German government around €20 billion.

Families and daycare centres (Kitas)

Families in Germany are to get more money with the introduction of a one-off bonus of €300 planned for each child. The Kinderbonus is taxable.

There will be an additional €1 billion for extensions, refurbishments or the new construction of Kitas and crèches – and to improve the hygiene situation in these facilities.

READ ALSO: When and how will Germany's daycare centres reopen?

Employees and employers

As a result of the coronavirus crisis, expenditure in all social security schemes is increasing. In order to prevent an increase in non-wage labour costs, the coalition government is planning a “Social Guarantee 2021”.

Social security contributions are to be stabilized at a maximum of 40 percent, through subsidies from the federal budget worth billions. This is to protect the net income of employees and offer reliability to employers.

Hard-hit small and medium-sized companies

Industries and firms under particular pressure due to the crisis – including hospitality, tourism and entertainment – will receive “bridging help” worth €25 billion in total this summer.

The aim is to prevent a wave of bankruptcies among small and medium-sized businesses whose sales have collapsed due to the shutdown. The bridging aid is to be granted for the months June to August.

It is to apply to sectors such as the hotel and restaurant industry, clubs and bars, travel agencies, entertainers, but also professional sports clubs in the lower leagues. Fixed operating costs of up to €150,000 for three months will be reimbursed.

Tax breaks for companies are also planned. Meanwhile, a programme to mitigate coronavirus effects in the cultural sector is also in the pipeline, to the tune of €1 billion.

The catering industry has been hit hard in the crisis. Photo: DPA

READ ALSO: Is Germany doing enough to ensure small businesses survive the coronavirus crisis?

The coalition also wants to spend more money on artificial intelligence and on the expansion of the new super-fast mobile phone broadband 5G. Modernisation and digitisation of existing infrastructure is to be promoted across Germany.

Electricity customers

Residents and companies in Germany are to be relieved of electricity costs.

The EEG levy, which promotes green electricity plants, is to be reduced from 2021 through subsidies from federal budget.

So in 2021 it is to be 6.5 cents per kilowatt hour and in 2022 6 cents – currently the levy, which citizens pay via their electricity bill, is 6.76 cents.

READ ALSO: Germany divided over new coronavirus stiumlus package

Drivers and the car industry

The grand coalition has decided against a controversial proposal for a purchase rebate for low-emission petrol and diesel cars. The demand for petrol and diesel cars will instead be boosted by the lower VAT, CSU leader Markus Söder said.

The leaders of the CDU/CSU and SPD, however, have decided on significantly higher rebates for people who purchase electric cars.

Federal subsidies for the existing “eco-rebate” are to be doubled from €3,000 to €6,000 for electric vehicles with a net list price of up to €40 000, for a limited period until the end of 2021. In addition, manufacturers will also receive support.

READ ALSO: Which German industries have been hardest hit by the coronavirus crisis?

The coalition also plans to invest an additional €2.5 billion in the expansion of the charging network for e-cars and in the promotion of research and development, for example in battery cell production.

A “bonus programme” of €2 billion is to be set up for the years 2020 and 2021 for future investments by manufacturers and the supply industry. The automotive industry is undergoing a difficult transition towards alternative systems.

Rail and local transport

Deutsche Bahn is receiving financial aid worth billions of euros due to loss of revenue in the crisis. The federal government wants to provide the state-owned company with additional equity capital of €5 billion.

There are also planned subsidies of €2.5 billion for the local public transportation system (ÖPNV).

Local authorities

Municipalities in Germany face high tax losses because trade tax, in particular – the most important source of revenue for them –  is collapsing.

Losses in trade tax revenues are to be compensated by the federal and state governments together. The federal government plans to plough in almost €6 billion.

The goal is that municipalities remain capable of investing – this is viewed as extremely important for the construction and trades industries. There will be no takeover of old debts by the federal government, however due to opposition from the CDU/CSU.

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WORKING IN GERMANY

7 tips for how to survive as a freelancer in Germany

Taking the decision to go it alone and freelance in Germany can be a daunting prospect. But, if you do it right, it can be an exciting and liberating path. Here are some of our top tips on how to survive.

7 tips for how to survive as a freelancer in Germany

1. Get a tax advisor

The German tax system is complicated, even for Germans. All the associated paperwork uses the Amtsprache (authority language) which is more like legalese than ‘normal’ German, and mistakes when filling out tax forms can cause you, at best, a massive headache and, at worst, a costly fine. So it’s best that you employ someone who knows what they’re doing to help you out.

That person is called a Steuerberater (tax advisor) in Germany. They will help you register with the tax office, correspond with them and submit your tax declarations.

Be aware that, in Germany, different deadlines apply for tax returns depending on whether you employ an official tax advisor or not. If you are doing the tax return on your own, the deadline for submitting your annual tax return is earlier than if you use a tax advisor’s services. 

READ ALSO: What NOT to do when you’re freelancing in Germany

When looking for a tax advisor, a top tip is to use your network to get recommendations. Ideally, you want someone who will do more than just fill in the forms for you, but who will actually advise you on how best to manage your business finances so that you can make tax savings.

2. Keep your accounting in order

The better you keep your own accounts in order, the easier it will be for your tax advisor to compile your tax declarations and therefore the cheaper their services will be.

As a freelancer, there are a lot of costs you can deduct from your taxes – from train tickets, working materials, to meals out – so it’s best to keep hold of all your receipts and to keep them in good order.

2 euros and 50 cents lie on a receipt in a beer garden. Photo: picture alliance/dpa | Peter Kneffel

In Germany, you’re obliged to keep hold of receipts for two years, in case of a tax inspection, so it’s a good idea to photocopy the type of machine-printed receipts you get from restaurants so that they stay legible for a long time.

There are also a few things to be aware of when writing your own invoices. Firstly, make sure that you include your tax number. This isn’t the 11-digit Steueridentifikationsnummer that everyone gets when registering in Germany, but the 10-digit Steuernummer you get from the Finanzamt after registering yourself as a freelancer. 

Most companies won’t pay you if you don’t have this on your invoices so make sure you include it.

You should also make sure that you number your invoices properly – ideally in ascending order so that you can easily keep track of them. You are not allowed to issue two invoices with the same number and if you do so and the finance office notices, you could face an inspection of your whole accounting system.

There are numerous great accounting software programmes you can use to help you, such as Lexoffice and Sevdesk and, even if you have to pay for them, the costs will be tax deductible!

3. Find out if you’re eligible for financial support

In Germany, there are several opportunities for freelancers to gain financial support and to cut their outgoings, and its worth finding out if you’re eligible for them.

If you’re claiming unemployment benefits under ALG 1 and are thinking about becoming a freelancer, the employment office offers a special type of financial support to help you to get your freelance business off the ground.

Called the Grundungszuschuss (“foundation grant”) the payment is a six-month grant equalling your monthly entitlement under ALG 1 plus €300 towards your insurance costs can be applied for those in receipt of this unemployment benefit.

READ ALSO: Will freelancers benefit from Germany’s €300 energy allowance?

If you are engaged in some form of artistic profession in Germany – which can include journalism to pottery – you may be entitled to membership to the Kunstlersozialkasse (artists’ social insurance).

Being a member of the KSK means you only have to pay half of your health insurance and pension contributions, and the KSK will pay the rest.

4. Work out how much you think you will earn

As with starting any business, you need to have some idea of your expected earnings from the outset.

If you’re just starting out as a freelancer, or have some freelance gigs on the side of an employment position, then it might be worth considering registering yourself as a Kleinunternehmer (“small business”).

As a Kleinunternehmer, you can currently earn up to €22.000 per year without having to charge VAT and having to submit only yearly tax declarations. 

An income tax declaration form lies on a table. Photo: picture alliance/dpa/dpa-Zentralbild | Hans-Jürgen Wiedl

Be aware that if you are registered as this kind of freelancer, you must include the following sentence in your invoices: ‘Gemäß § 19 UStG wird keine Umsatzsteuer berechnet’ which means ‘In accordance with Paragrah19 of the German VAT law, no VAT has been added to this invoice.’

READ ALSO: Everything you need to know about your German tax return in 2022

If you think you will earn more than €22.000 per year, you will need to pay Umsatzsteuer (VAT) and will have to submit tax declarations in advance and more often. Depending on how much you earn, this could be every month or every quarter. 

5. Get your insurance in order

In Germany, it’s a legal requirement to have health insurance.

If you’ve just made the move from employment to being a freelancer and want to keep the same health insurer, you should get in contact with your health insurance provider straight away to tell them about your change of circumstances. They will ask you to re-register and to tell them your projected freelance earnings for the year, so they can amend your monthly fees.

If you don’t keep your health insurer provider updated, you could continue to be charged the higher rate that you had from your previous salary.

The insurance cards of the health insurance companies DAK, AOK, Barmer and Techniker-Krankenkasse TK lie with euro notes under a stethoscope. Photo: picture alliance / dpa | Daniel Karmann

It’s not just health insurance you need to think about as a freelancer. It’s also wise to think about protecting yourself from any sort of claims that could arise as a result of any working mishaps. 

If, for example, you lose your laptop which contains confidential client information, you need to be protected against claims.

That’s why it’s good to have both Betriebshaftversicherung (business liability insurance) and Rechtschutzversicherung (legal protection insurance).

6. Plan your time wisely

All of these bureaucratic obligations take time. So it’s really important that you take account of that when planning your time. For example, planning half a day a week to deal with your invoices, filing, emails to clients, and conversations with authorities can be really beneficial when scheduling your working time. 

7. Grow your network

As a freelancer, networking is absolutely crucial to success. 

Keep an up-to-date profile on websites like LinkedIn and German equivalent XING and keep in contact with anyone you’ve ever worked with, no matter how brief the contact was. 

Having a network is not only about getting more clients, but also about building a support network in your field to exchange advice, tips and generally for your own enrichment. 

Participating in workshops related to your field, going to seminars, and meet-ups, can be great ways of broadening your network. 

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