Tax policy plans of the new federal government - an overview

In the coalition agreement of 9 April 2025, the new federal government set out a series of tax measures that affect both companies and private individuals. These measures aim to provide tax relief, promote investment and strengthen municipal finances. Here is an overview of the most important points:

Corporate taxes and investment incentives

• Degressive depreciation: To promote business investments, a declining balance method of depreciation will be introduced between 2025 and 2027. Companies can immediately claim 30% of the acquisition or production costs for tax purposes.
• Reduction in corporation tax: From 2028, corporation tax is to be reduced by 1 percentage point per year and by a total of 5 percentage points by 2032. This is intended to make Germany more competitive internationally.
• Simplifications for partnerships: The option model (Section 1a of the German Corporation Tax Act (Körperschaftsteuergesetz - KStG)) and the tax relief on retained earnings (Section 34a EStG) will be improved in order to offer smaller companies more flexibility in their tax choices.
• Increase in the minimum trade tax rate: The minimum trade tax rate will be increased from 200% to 280% in order to strengthen municipal finances.
• Solidarity surcharge: Retention of the solidarity surcharge in its current form.
• Gastronomy: Permanent VAT reduction to 7% for food in the gastronomy sector from 1 January 2026.
• Donations in kind: Extensive VAT exemption for donations in kind to charitable organisations.

Income tax and family support

• Relief for small and medium incomes: The basic tax-free allowance will be raised and the key figures of the income tax rate will be shifted to the right in order to reduce the tax burden for small and medium incomes.
• Support for families: Child benefit will be increased by €50 per month per child and the child allowance will be adjusted accordingly.
• Tax benefits for single parents: The relief amount for single parents is to be increased in order to provide better financial security for this particularly vulnerable group.
• Overtime is tax-free: Supplements for overtime in excess of a collectively agreed full-time position are tax-free. This means that anyone who works more also benefits from a tax perspective.
• Tax relief for pensioners: Standard old-age pensioners who are still employed and subject to social security contributions will in future be allowed to earn an additional €2,000 tax-free subject to progression (active pension).
• Bonus for increasing to full-time: Anyone who increases from part-time to full-time can receive a tax-free bonus - an additional incentive to increase working hours.
• Increase in the commuter allowance: From 1 January 2026, the commuter allowance is to be increased to 38 cents from the first kilometre to relieve the burden on commuters. 

Energy, mobility and consumption

• Promotion of electromobility: Tax incentives for electric vehicles are being extended. Companies can claim higher depreciation for electric vehicles; vehicle tax exemption until 2035.
• Energy tax relief: The energy tax on electricity will be lowered in order to reduce energy costs for consumers.

Bureaucracy reduction and tax simplification

• Bureaucratic hurdles are to be removed and tax loopholes closed more consistently.
• Digitalisation of the tax administration: The tax administration is being further digitalised in order to simplify processes for companies and private individuals.
• Abolition of the receipt requirement: The controversial receipt requirement is to be abolished - a real relief, especially for smaller businesses.
• New thresholds for cash registers: From 1 January 2027, only businesses with an annual turnover of over €100,000 will be obliged to use electronic cash registers.
• Easing of statistical obligations: Small and medium-sized enterprises will be relieved by the elimination of selected statistical reporting obligations.

These are political announcements that are to be implemented - subject to funding - but are still a long way from being realised.