04.06.2025New government adopts draft law to introduce tax incentives for investment boost
Measures are based on the tax policy agenda as included in the April coalition agreement, corporate income tax rate to be reduced starting from 2028
In its weekly cabinet meeting on 4 June 2025, the new German government, consisting of the center-right Christian Democratic Union (CDU), its sister party—the Christian Social Union (CSU), and the center-left Social Democratic Party (SPD), adopted the draft “Law for a tax-based immediate-action investment program to strengthen Germany as a business location.” The adoption comes just four weeks after the new government was formally confirmed and Friedrich Merz (CDU) was elected chancellor by the members of the lower house of parliament (Bundestag). The CDU/CSU coalition won the snap elections earlier this year on 23 February 2025.
The adopted draft law (on 25 pages) does not include any surprises and includes measures that were already included in the coalition agreement between the governing parties that was published on 9 April 2025 (see GTLN dated 04/11/25). The main measures include:
- A declining balance depreciation method (an “investment booster”) for moveable fixed assets that are acquired or manufactured after 30 June 2025 and before 1 January 2028 would be (re-)introduced. The maximum amount of the declining balance depreciation would be limited to three times the applicable straight line depreciation rate, with a maximum of 30% annually. The declining balance depreciation method was already available for movable fixed assets that were acquired or manufactured in the period between 1 January 2020 and 31 December 2022 (capped at 25%) and in the period between 31 March 2024 and 1 January 2025 (capped at 20%).
- The price limit for the tax favorable treatment of electric company cars would be increased from EUR 70,000 to EUR 100,000 and a special depreciation allowance for electric vehicles would be introduced (75% in the year of acquisition, 10% in the subsequent first year, 5% in the second and third following years, 3% in the fourth following year, and 2% in the last year). The special depreciation allowance would apply for electric vehicles that are acquired in the period between 1 July 2025 and 31 December 2027.
- The federal corporate income tax (CIT) rate of (currently) 15% would be reduced by 1% annually during the five-year period from 2028 to 2023 to, eventually, 10%. The applicable CIT rate would therefore look as follows:
o Until 2027: 15% (15.825% including solidarity surcharge);
o 2028: 14% (14.77% including solidarity surcharge);
o 2029: 13% (13.715% including solidarity surcharge);
o 2030: 12% (12.66% including solidarity surcharge);
o 2031: 11% (11.605% including solidarity surcharge); and
o 2032 and following years: 10% (10.55% including solidarity surcharge).
The reduction of the federal CIT rate would be the first change in the tax rate since 2008, when the CIT rate was decreased from 25% to 15%. The local trade tax (TT) rate that applies in addition to the federal CIT rate depends on the local municipality and currently is between 7% and 17%. On average, a 14% TT rate should apply (higher in large cities, e.g., Munich, Frankfurt, Berlin). The percentage of the TT rate is set by the respective municipalities and not the federal government. As a result of the planned decrease of the federal CIT rate, the combined CIT and TT rates of (currently) approximately 30% would be reduced to approximately 24.5% in 2023. - The cost basis for calculating the research and development tax incentive would be increased from EUR 10 million to EUR 12 million without any time limitation starting from 1 January 2026. The cost basis for eligible projects would be broadened in order to include overhead and other operating expenses through a general 20% increase of eligible expenses. This increase in eligible expenses would apply for projects that are initiated after 31 December 2025.
After the adoption by the government, the draft law is now going to be introduced into the formal legal process where it has to be approved by the upper and lower houses of parliament. The government is aiming at getting the draft law approved by the lower house of parliament before the summer recess; the first reading of the draft law in the lower house should take place already on 5 June 2025. The upper house of parliament is likely only going to vote on the draft law after the summer recess.
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