Tax policy Germany: New coalition agreement brings tax policy shifts

The new German federal government has adopted tax changes for companies in its coalition agreement. These include corporate taxation, tax relief for work and income, as well as for electromobility and energy efficiency. The Ecovis tax advisors explain the details. 

The new coalition of the Christian Democratic Union (CDU), Christian Social Union (CSU), and Social Democratic Party (SPD) has also set numerous goals in its coalition agreement to strengthen the economy and Germany as a business location.

Tax incentives for investment

The coalition agreement introduces several changes to corporate taxation, notably a 30% accelerated depreciation for certain business investments, limited to the years 2025-2027.This measure aims to encourage investments in new business assets, particularly in the technology and infrastructure sectors. In addition, tax breaks for research and development spending are to be expanded. The goal is to boost companies’ innovation power – this could be achieved in the future through expanded business expense deductions or targeted R&D bonuses.

Corporate taxation

The corporate tax rate will be gradually reduced by 1% each year starting in 2028, from the current rate of 15%. The solidarity surcharge will remain, and the minimum trade tax rate will increase from 200% to 280%, raising the tax burden on businesses in some regions. The introduction of an investment allowance for small and medium-sized enterprises (up to EUR 50,000 annually for future investments) is intended to make Germany an attractive location for business again. As things stand at present, there are no plans to increase income tax rates.

Tax relief in Germany would be a positive signal for companies and the location.

Marion Dechant, Tax Advisor, ECOVIS Wirtschaftstreuhand GmbH Auditors, Munich, Germany

Energy taxes

In order to reduce energy prices, the electricity tax is to be reduced to the minimum level specified by European law. Also, tax exemptions for agricultural diesel engines are to be maintained, protecting farmers from additional costs.

Tax relief for work and income

A new provision could allow for tax-free overtime in certain sectors, which may reduce the overall tax burden for employees working overtime. Additionally, retirees may benefit from a EUR 2,000 tax-free monthly allowance if they continue working after reaching the official retirement age. This is intended to support older citizens, particularly those who wish to remain active in the workforce after retirement. The commuter allowance is expected to rise to EUR 0.38 per kilometre starting in 2026 (currently EUR 0.30). This change could make commuting more financially viable for individuals living in more remote areas.

Electromobility

Electric vehicles used as company cars are to receive tax incentives by increasing the gross price limit to EUR 100,000. In addition, special depreciation allowances are to be introduced for electric vehicles to promote the transformation of the transport sector. Furthermore, the motor vehicle tax exemption for electric vehicles will be extended until 2035.

For further information please contact:

Marion Dechant, Tax Advisor, ECOVIS Wirtschaftstreuhand GmbH Auditors, Munich, Germany
Email: marion.dechant@ecovis.com