Immediate Programme for Investment - Focus on the reduction in the corporation tax rate and the effects on deferred taxes
With its new Immediate Programme for Investment the Federal Government has put in place tax incentives that, most notably, bring the possibility for businesses to make use of the declining balance method of depreciation and funding for e-mobility. Another core element is the phased reduction in the corporation tax rate; this will require deferred taxes to be re-measured and will present new challenges for tax reporting processes.
An overview of the tax changes
The Act for an Immediate Programme of Tax Incentives for Investment to Strengthen Germany as a Business Location (Immediate Programme for Investment) was passed by the Bundestag [lower house of German parliament] as well as by the Bundesrat [upper house of German parliament] and came into force on 19.6.2025. The Federal Government has thereby put in place incentives for short-term growth-effective investments and has combined these with long-term tax relief with the aim of providing planning security for businesses. An overview:
- Depreciation according to the declining balance method of up to 30% per year for equipment investments (long-term movable assets)
- Phased reduction in the corporation tax rate (CT rate)
|
By 2027 |
15 % |
|
2028 |
14 % |
|
2029 |
13 % |
|
2030 |
12 % |
|
2031 |
11 % |
|
From 2032 |
10 % |
- Lowering of the tax rate on retained profits (Section 34a Income Tax Act)
|
By 2027 |
28,25 % |
|
2028 and 2029 |
27 % |
|
2030 and 2031 |
26 % |
|
From 2032 |
25 % |
- Corporate e-mobility: The legislation enables accelerated depreciation of 75 % of the acquisition costs for electric vehicles already in the year of investment. The regulation will apply to e-cars that are newly purchased after 30.6.2025 and prior to 1.1.2028. Moreover, the legislation introduces an increase in the gross list price limit for the tax concessions for electric company cars from € 70,000 to € 100,000.
- Expansion of the research allowance: From 2026 to 2030, the upper limit for the assessment of the tax research allowance will go up from ten to twelve million €. The expansion of the applications that would be eligible is moreover envisaged. Blanket deductions will make processes simpler and less bureaucratic.
The effects of sliding tax rate reductions on deferred taxes
The reduction in the CT rate will have a significant impact on the accounting recognition and measurement of deferred taxes. Under both the Commercial Code (Handelsgesetzbuch, HGB) as well as IFRS, deferred taxes have to be recognised and they arise in single-entity financial statements and consolidated financial statements when there are differences in the amounts stated in the financial accounts and in the tax accounts and these measurement differences will reverse in future financial years. The phased reduction in the corporation tax rate could impact deferred taxes in two ways.
First of all, it should be noted that the existing deferred taxes in annual financial statements prepared after the date of entry into force of the legislative amendment will have to be re-measured. The re-measurement of deferred taxes will be necessary because the company-specific tax rate at the time of the reversal of the temporary differences is relevant for the measurement of deferred taxes (Section 274(2) sentence 1 HGB, IAS 12.46 ff.). The phased reduction in the CT rate requires a precise time schedule for the decrease in deferred taxes. So, for example, a deferred tax that will decrease in the 2028 financial year with a CT rate of 14% will have to be measured differently if it reverses in the 2032 financial year with a CT rate of 10%. The same will apply to the measurement of deferred tax assets from loss carryforwards. These can be capitalised, under commercial law, if the offsetting of losses is anticipated within the next five years (Section 274(1) sentence 4 HGB) or, under IAS 12.34-36, is within the recognition criteria for deferred tax assets in the case of loss carryforwards.
Moreover, the new rules on declining balance depreciation for equipment as well as for company electric vehicles will give rise to further temporary differences. In these cases, the tax legislation provides for higher depreciation than the useful life under commercial law. These circumstances result in the creation of deferred tax liabilities in single-entity financial statements.
