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Tax
08. May 2025
WP/StB Daniel Scheffbuch / Christina Schultz

Tax policy plans of the new coalition government in Germany

The coalition agreement of the CDU/CSU and SPD was published on 9.4.2025. This includes  comprehensive tax policy proposals - mostly subject to a finance condition - that aim to provide targeted support for investments, cuts to bureaucracy and social relief. In the following report we outline the specific measures while placing them in the overall tax context and we also discuss the potential implementation hurdles.

Business taxation

The agreement envisages investment incentives and other policy measures to enhance Germany as a business location, such as the ones set out below. 

  • Reduction in the corporation tax rate - Starting in 2028, the corporation tax rate will be reduced in five steps from 15% to 10%. In this way, the aim is to reduce the burden on companies and to make Germany more attractive as a business location. It remains to be seen if this is compatible with the international rules on minimum levels of taxation.
  • Declining balance method of depreciation - With a view to encouraging investments, in the period 2025 to 2027, companies will be able to charge depreciation for new machines and equipment at the higher rate of 30% in the first year.
  • Research allowance - The existing funding will be increased and its procedures will be simplified in order to provide enhanced support via tax incentives for innovations in enterprises. There will be an additional special depreciation allowance for companies that purchase electric vehicles.
  • Adjustments will be made to the option model for corporation tax for partnerships (Section 1a of the German Corporation Tax Act) and to the preferential tax treatment for retained profits (Section 34a of the German Income Tax Act).
  • An assessment will be made as to whether or not, as of 2027, new companies should be automatically liable for corporation tax irrespective of their legal form.
  • The solidarity tax surcharge will remain.
  • The minimum municipal multiplier used to calculate trade tax will be increased from 200% to 280% in order to prevent tax shifting.

Income tax

Various tax breaks are intended for employees. Small and medium incomes can expect tax relief in the middle of the legislative period - it however remains to be seen exactly what form this will take. The planned measures are as follows.

  • Overtime premiums will become tax exempt.
  • The bonuses paid by employers to part-time employees who extend their working hours will be subject to favourable tax treatment.
  • Pensioners who continue to work will be allowed to earn an extra €2,000 per month tax free.
  • As of 1.1.2026, the commuter allowance will increase to 38 cents per kilometre starting from the first kilometre.
  • In the context of company car taxation, the gross list price for electric cars will be raised to €100,000.

Indirect taxes - Reduction in the burden on consumers and certain sectors

Changes are also planned in the area of excise taxes.

  • The electricity tax will be cut to the European minimum level and the transmission network fees (a component of the electricity price) will be reduced.
  • Import VAT will be switched to the offsetting model with a view to helping businesses to conserve their liquidity.
  • VAT on food in the food service sector will permanently remain at 7%.
  • The agricultural diesel rebate will be reintroduced in order to boost farming.
  • Taxes, charges and fees in the aviation sector will be reduced. The recent increase in air passenger taxes will be cancelled again.
  • Moreover, Germany is supporting the introduction of a financial transaction tax at the EU level.

Cuts to bureaucracy

There is moreover an aim to cut tax bureaucracy generally. Future legislation will be written in a way that is digital-compatible. The fiscal administration will work with artificial intelligence in order to enhance the efficiency of processes. Apart from the above, other plans include:

  • standardisation, flat rates and simplifications in the tax collection process;
  • more automation for the processing of tax returns;
  • combining income-related expenses via a flat-rate working days expense allowance.

Outlook

Sufficient funds would have to be made available in the federal budget for most of the proposals. Furthermore, for many of the tax changes the coalition will need the approval of the Bundesrat [upper house of parliament] where the federal states that are governed by the coalition parties CDU/CSU and SPD alone do not have a majority. There could be opposition, most notably, in the case of corporation tax or tax relief for employees so that the adoption of all the plans will depend on political negotiation skills. There are thus still a number of obstacles to overcome, both political as well as financial, before the innovations can become noticeable in everyday life.