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The German 1997 Annual Tax Act

The German 1997 Annual Tax Act (Jahressteuergesetz 1997) was enacted into law in December of 1996 and has since entered into force. Most, but not all, of its provisions take effect on 1 January 1997. Please note that this article is one of a 14-part set of articles describing the 1997 Annual Tax Act.



Effective 1 January 1997, the minimum duration of a business trip required to qualify for the lowest standard deduction amount of DM 10 has been shortened from 10 hours to 8 hours. The standard deduction amounts can be reimbursed tax free by the employer. The meal per diem amounts and durations for longer trips remain unchanged.

Effective 1 January 1997, the law (new sec. 40 par. 2 sent. 1 no. 4 EStG) also permits the employer to subject amounts reimbursed to employees in excess of the meal per diem ceilings to a flat rate withholding tax of 25 %. The amounts so taxed and the tax remitted thereon are then not taken into account in the employee's personal income tax return, nor are they subject to social security contributions. However, the excess amount qualifying for flat-rate taxation cannot be greater than the ceiling amount itself.

The total reimbursement receiving favourable tax treatment is thus limited to double the applicable ceiling amount. Any excess is subject to normal tax and social security treatment.

Business trips to other countries are accorded the same treatment (tax-free reimbursement of minimum amount for trip lasting 8 hours; option of flat-rate withholding taxation for reimbursements exceeding the tax-free limits by not more than 100 % of such limits).

Meal costs reimbursed on trips lasting less than 8 hours remain fully taxable.


The earnings limits for small-scale employees have been increased to the following limits effective 1 January 1997:

                       Old German States           New German States

per month                     610.00                      520.00
per week                      142.33                      121.33

If the wages paid are within the above limits, the employer may, subject to further conditions, remit a withholding tax of 20 % in fulfilment of all liability.


The official values of meals received have been fixed as follows from 1 January 1997:

Breakfast:              DM 2.60 (trainees and minors DM 2.50)
Midday or evening meal: DM 4.60 (trainees and minors DM 4.40)

The monthly value of free meals is set at DM 351.

The monthly value of free housing is increased to DM 337 and DM 220 for the old and new German states respectively.

The resulting totals for room and board together are DM 688 and DM 571 for the old and new German states respectively.


The annual wage limit up to which reporting may take place on a calendar year basis (instead of quarterly or monthly) has been increased from DM 1,200 to DM 1,600.


The scope of optional flat rate wage withholding for part-time help has been widened. The wage withholding rate has been increased from 3 % to 5 % (sec. 40 par. 3 EStG).

This article is one of a 14-part set of articles entitled "The German 1997 Annual Tax Act" in which we have endeavoured to provide a useful overview of what we consider to be the major changes made in the German laws by the 1997 Annual Tax Act and, more selectively, by other recent legislation. To access the other articles in the set please enter 'The German 1997 Annual Tax Act', 'KPMG Tax Advisers' and 'Business Monitor'. We are of course at your disposal to discuss in depth the ramifications of new provisions which are of particular interest to you.

Disclaimer and Copyright
This article treats the subjects covered in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. Specialist advice must be sought with respect to your individual circumstances. We in particular insist that the tax law and other sources on which the article is based be consulted in the original, whether or not such sources are named in the article. Please note as well that later versions of this article or other articles on related topics may have since appeared on this database or elsewhere and should also be searched for and consulted. While our articles are carefully reviewed, we can accept no responsibility in the event of any inaccuracy or omission. Please note the date of each article and that subsequent related developments are not necessarily reported on in later articles. Any claims nevertheless raised on the basis of this article are subject to German substantive law and, to the extent permissible thereunder, to the exclusive jurisdiction of the courts in Frankfurt am Main, Germany. This article is the intellectual property of KPMG Deutsche Treuhand-Gesellschaft AG (KPMG Germany). Distribution to third persons is prohibited without our express written consent in advance.