12.07.2024Government announces growth initiative that includes proposed tax measures
On 5 June 2024, the German government published its plan for a growth initiative to revitalize Germany's economy. The new initiative is the result of budget negotiations among the social democratic party, liberal party, and green party, which are representing the current governing coalition, and should boost the German econcomy and provide relief for businesses from bureaucracy and levies. The long-term growth potential of the German economy and its competitiveness should be increased, and Germany should be strengthened as a business location.
The most important proposed tax measures that were announced in the plan are the following:
- Extension of the declining balance depreciation for moveable assets that are acquired or manufactured for the period from 1 January 2025 to 1 January 2028 and increase of the maximum rate of depreciation from 20% to 25%;
- Increase of the maximum amount for optional pool depreciation for movable assets from EUR 1,000 to EUR 5,000;
- Increase of the cost basis for calculating the research and development tax incentive from currently EUR 10 million to EUR 12 million; as a result, the maximum annual incentive would increase to EUR 3 million and for small and medium-sized companies to EUR 4.2 million;
- Introduction of a special depreciation for businesses for newly registered all-electric vehicles and comparable zero-emission vehicles, which would apply retroactively for vehicles newly registered between 1 July 2024 and 31 December 2028;
- Equal tax treatment of vehicles powered exclusively by e-fuels with all-electric vehicles, particularly related to motor vehicle tax and company car taxation (benefit-in-kind taxation);
- Increase of the maximum amount of the purchase price of an electric company car in order to benefit from a preferential wage tax treatment (benefit-in-kind taxation) from currently EUR 70,000 to EUR 95,000;
- Avoidance of inflation-related tax burden by adjusting personal income tax brackets and by increasing basic allowances for 2025 and 2026;
- General reduction of tax bureaucracy and simplification of tax laws;
- Tax reduction/exemption for certain overtime payments;
- Introduction of a tax incentive for extending the working hours of certain part-time employees;
- Tax incentives for newly hired skilled workers from abroad for jobs in Germany;
- Improved tax framework for venture capital investments, e.g., tax neutral rollover in the case of a reinvestment;
- Abolishment of the nondeductibility of the bank levy, which is applicable to financial service providers and banks;
- Reduction of the electricity tax for the manufacturing industry to the EU minimum; and
- Option to use reporting based on the EU corporate sustainability reporting directive instead of separate reporting based on the domestic Corporate Due Diligence Obligations in Supply Chains Act (LkSG).
The initiative of the German government has been welcomed by businesses, even though business groups have expressed their disappointment about the limited nature of the proposed tax measures.
The proposed tax measures now must be incorporated into a formal legislative proposal, which then must enter the legislative process. There is no timeline yet for this process.
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