Germany’s new tax policy: Focus on growth and bureaucracy reduction
Philipp Lucas
Germany
by Philipp Lucas
Germany’s new government has presented its coalition agreement, outlining major reforms to strengthen the country’s position as a business location. However, the implementation of these plans remains subject to fiscal constraints under Germany’s constitutional debt limit.
Tax reliefs
A central initiative is the gradual reduction of the corporate income tax rate from 15% to 10% starting by 2028 (reducing 1% every year).
From 2025 to 2027, a temporary “investment booster” will allow companies to apply a 30% declining-balance depreciation on investments in movable assets. The government is also considering applying corporate income tax to newly established businesses, regardless of their legal form, to simplify investment structures.
To further support businesses, especially energy-intensive industries, the government plans to reduce the electricity tax to the EU minimum level and lower transmission grid fees.
Reform of trade tax
The government plans to counteract aggressive domestic tax planning by increasing the minimum municipal trade tax multiplier from 200% to 280% (raising the minimum effective tax rate for a GmbH – Gesellschaft mit beschränkter Haftung, which translates to "company with limited liability" – from approximately 22.8% to 25.6%). This aims to reduce tax-motivated relocations of company headquarters within Germany.
Digitalisation and bureaucracy
The coalition plans to ease administrative burdens through several measures:
Gradual introduction of self-assessment procedures for corporations and partnerships;
Simplification of value-added tax (VAT) rules, particularly for donations and research activities;
Abolishment of the mandatory printed receipt requirement (Bonpflicht); and
Introduction of a deferred settlement model for import VAT, allowing companies to offset import VAT directly in their VAT returns, improving liquidity and aligning with international practices.
While Germany remains committed to the global minimum tax framework, the government supports efforts to simplify its application and mitigate negative impacts on competitiveness.
Innovation and the green transition
The government intends to enhance incentives for electric mobility, including special depreciation allowances for electric vehicles, and to extend the tax exemption for EVs until 2035. Additionally, the R&D tax credit will be expanded by increasing funding rates and eligible cost bases to foster innovation.
Conclusion
The proposed measures aim to modernize the tax system, reduce bureaucracy, and improve investment conditions. Whether these plans will be fully realised remains uncertain. However, initial legislative procedures governing the reduction of the CIT rate have already been set in motion (expected to be completed in July).
It’s worth remembering that the call for a “lean state” (Schlanker Staat) dates back to the 1990s, when bureaucracy reduction was already high on the political agenda. Yet, over the years, rather than vanishing, regulations have multiplied – earning Germany its somewhat ironic reputation as a nation that not only tolerates but perhaps even loves bureaucracy.
XLNC member firm Bergemann Schönherr & PartnerMunich/Frankfurt, GermanyT: +49 89 540 465 100
Philipp Lucas’ main areas of expertise include ongoing tax advice to major and medium-sized companies, national and international tax structuring, and assisting clients with ongoing and completed tax audits. Furthermore, the preparation of tax returns and tax balance sheets of major and medium-sized companies as well as legal forms of all kinds are among the main areas of his activity. Contact Philipp.
