2025 Tax Amendment Act - Relief, digitalisation and simplification for everybody
The 2025 Tax Amendment Act aims to provide relief for citizens who have been especially affected by crises such as COVID-19, high energy prices and inflation. First of all, in the overview that follows, we outline the most important measures contained in the current legislative proposal. In addition to this, we have derived recommendations for action that make it possible to achieve tax-saving effects through focused planning.
Background - Tax relief and modernisation
The draft bill for the 2025 Tax Amendment Act was adopted by the Federal Government on 10.9.2025. The intention here is to implement key specific fiscal measures from the coalition agreement that are supposed to provide, in particular, financial relief for taxpayers. Furthermore, this legislation provides for technical adjustments for the purpose of simplifying and clarifying existing regulations; on 17.10.2025 already, the Bundesrat [upper house of German parliament] communicated that amendments are required.
An overview of the measures
The draft legislation includes (major) amendments, which are presented in detail in the following sections, that are supposed to come into force on 1.1.2026:
1. Modifications to income tax legislation in the case of the commuting allowance and the removal of the time limit for the mobility bonus
2. VAT relief in the food service sector as well as the introduction of centralised customs clearance
3. Notification of a tax assessment notice by providing it for data retrieval
4. Changes centred around non-profit status and voluntary service
5. Updating of the reference to the de minimis regulation in the case of the research allowance
1. Income tax
(1) Adjustment of the commuting allowance - he commuting allowance will be increased to a uniform rate of 38 cents from the first kilometre (km) driven. Up to now this rate has only applied from the 21st kilometre. Assuming that the other allowable deductions already exceed the standard allowance for employees of currently € 1,230 then, in the case of a 5-day week (230 working days), the impact of the increase would be calculated as follows:
| Straightforward commute in km |
Additional allowable deductions when compared with previous regulation |
| 5 | € 92 |
| 10 | € 184 |
| 20 | € 368 |
(2) Removal of the time limit for the mobility bonus - Through this amendment, taxpayers with lower incomes will still receive the mobility bonus even after 2026 in addition to the commuting allowance. These measures are intended to provide relief to commuters, low-wage earners, trainees and part-time employees.
2. Value-added tax (VAT)
(1) Reduction in the VAT rate for restaurant and catering services - The VAT rate for food in the food service sectors (restaurant and catering services) will be permanently reduced to the 7% rate. By contrast, the VAT rate for beverages will still be at the higher rate of 19%. This already applied as a temporary crisis measure from 1.7. 2020 until 31.12. 2023. Firstly, the aim is to thus bolster the food service sector. Furthermore, the VAT reduction is intended to secure lower prices. Besides classic catering establishments (such as, for example, restaurants), the beneficiaries of this measure will also be bakeries, butcher shops and food retailers as well as service providers in the catering sector and food services for child day care facilities, schools and hospitals. Overall, the reduction in the tax burden on the food service sector and the other beneficiaries will be approx. € 3.6 bn annually.
(2) Introduction of centralised customs clearance (Centralised Clearance for Imports, CCI) - The draft legislation has created the legal basis for the proper collection of import VAT when using the centralised customs clearance. There is an important change for companies that operate internationally. In future, the tax for imports via other EU states will arise at the place where they are presented in Germany. The amendment means that a customs declaration in another country will also be deemed to be a tax return in Germany. Additional tax reporting in Germany will no longer be required.
3. Electronic provision of specific tax assessment notices
Procedures involving the tax authorities will become increasingly digitalised. From 2026 onwards, the Federal Central Tax Office (Bundeszentralamt für Steuern, BZSt) will make certain assessment notices available electronically as standard - e.g., notifications of rejections of applications for input tax refunds. Up to now, the consent of the business owner was required to this end, however in future, online provision will become the norm.
4. Voluntary service and non-profit status
(1) Relief for small non-profit entities through the limitation of the obligation to use funds in a timely manner - The obligation to use funds in a timely manner will be eliminated for tax-privileged entities whose annual income does not exceed € 100,000 (previously € 45,000). Consequently, in future, the obligation to use funds in a timely manner will cease to apply for around 90% of tax-privileged entities. This obligation comprises the legal requirement not to hold funds (e.g., donations, fees, income from commercial business operations or asset management) permanently as assets of an entity, but instead to disburse them as swiftly as possible for the tax-privileged purposes in its articles. Tax-privileged entities have to provide proof of the timely use of funds within the scope of their financial reporting via a uses of funds statement.
(2) Increase in the exemption limits for commercial operations -: If the income, including VAT, from commercial business operations - which are not (tax-exempt) special-purpose operations - does not exceed an overall amount of € 45,000 annually, then - for reasons of simplicity - corporation tax and trade tax are not currently levied in order to alleviate the bureaucratic burden on smaller tax-privileged entities. This exemption limit will go up to € 50,000.
Example: A sports club organises a summer party with income of € 48,000. If the overall annual income from commercial activities (incl. VAT) stays below € 50,000, then, from 2026 onwards, no corporation tax and trade tax will be levied. The VAT obligations would remain unaffected.
(3) Adjustments to the allowances for instructors and for voluntary service - The tax-free allowance for instructors will be raised from € 3,000 to € 3,300 per year and the voluntary service allowance from € 840 to € 960.
(4) Esports as a non-profit purpose - A novel element is that esports (electronic sports) will be recognised as a non-profit purpose. According to the preamble to the legislation these involve “competition between human persons in computer and video games […]. Gaming success has to be measurable and based on a person’s motor skills as well as their tactical and/or strategic abilities and must not be largely dependent on luck.” However, only games with no violence or other problematic contents will be recognised as non-profit activities. Online gambling activities will likewise be excluded from non-profit status.
5. Research allowance - Aid and documentation
Businesses that invest in research and development are able to apply for aid in the form of tax breaks (research allowance). This will now be aligned more closely with EU rules. The focus is on the so-called de minimis regulation. It stipulates that state aid for a business must not exceed € 300,000 over a three-year period. The aim is to prevent distortions of competition. A novel element is that, from 2026 onwards, any aid that is granted must be entered into a central register within 20 working days. The grant date here will be the date of the tax assessment for the research allowance. Since 2024, the de minimis test has been based on a three-year period backdated to the exact date of the inception of the aid.
Recommendations for action for businesses
To make selective use of the tax and financial advantages, private individuals and businesses should actively factor the proposed relief into their planning. This includes, in particular the commuting allowance, the mobility bonus as well as the potential VAT reductions. These measures will be able not just to reduce the tax burden, but also to enhance liquidity - provided that they are taken into account early on and systematically implemented.
Furthermore, it would be advisable to regularly review funding options and to document them clearly. The research allowance provides attractive financial support for innovative projects, although it requires clear demarcation and seamless evidence. De minimis aid should likewise be comprehensively recorded in order not to exceed the maximum permitted limits for aid and to avoid subsequent claims for repayment.
Another important issue is deadline management. Electronic assessment notices are legally deemed to have been automatically delivered - this will make it necessary to adjust internal processes. Businesses should ensure that digital deliveries are promptly registered and processed - for example, via a centralised deadline and document management system, or by engaging a tax consultant.
Moreover, for non-profit organisations, it can be worthwhile taking a critical look at their own club structure. By making selective use of tax exemption limits and simplification rules - for instance, in the case of donations or commercial activities - it would be possible to reduce administrative expenses and expand financial leeway.
