Tax reforms 2025: Germany's economic boost with new relief!

Tax reforms 2025: Germany's economic boost with new relief!

The federal government has big plans to improve the economic situation in Germany with comprehensive tax reforms. According to information from Picture A draft bill is presented by the Federal Ministry of Finance under the leadership of Lars Klingbeil (SPD). The black-red cabinet under Chancellor Friedrich Merz (CDU) could decide on this tax package as early as Wednesday.

The package of measures is primarily aimed at combating the current economic downturn. A central innovation is the introduction of “degressive depreciation (Depreciation)” as an investment booster, which is to be implemented this year. Companies have the option of claiming special depreciation of up to 30 percent on the acquisition costs of movable assets in the first three years after investment. The structure is designed in such a way that more can be sold in the first year than in the following year, which creates an additional incentive for investments.

Long-term perspectives: corporate tax and retention tax rate

Another highlight is the gradual reduction in corporate tax, which is to take place in five stages by one percentage point each from January 1, 2028. The goal is to reduce the corporate tax rate to ten percent by 2032. The retention tax rate for profits not withdrawn will also be reduced from 28.25 percent to 25 percent.

In addition, the purchase of electric cars for companies is subsidized. In the year of purchase, they can claim a depreciation of 75 percent. In the fifth year after purchase, the depreciation is still two percent. Such measures are intended to also promote environmentally friendly investments.

Future tax reforms anchored in the coalition agreement

But that's not all. The reforms are also part of a comprehensive coalition agreement between the CDU/CSU and SPD, which forms the basis for the new federal government. The draft coalition agreement was presented on April 9, 2025, after exploratory talks were concluded on March 8. This includes important tax measures that, among other things, are intended to relieve the burden on the broad middle class.

The central points include a reform of the income tax, which should increase the commuter allowance and reduce the sales tax on food in restaurants to seven percent. In addition, tax relief for corporate investments is sought, which also includes the introduction of declining balance depreciation by 2027.

With these colorful initiatives, the actors hope to sustainably strengthen the local economy. Chancellor Merz is counting on quick decisions from the Bundestag and Bundesrat before the summer break begins. A good hand on these crucial issues could give the government a significant boost that many businesses urgently need.

So the coming week could be crucial to put the plans in place and give the country a breath of fresh air that is long overdue. We can only hope that the solutions on the table deliver what they promise.