Planned tax relief in Germany

With a so-cal­led growth in­itia­tive, the Ger­man fe­deral go­vern­ment wants to tackle the struc­tu­ral chal­len­ges fa­cing Ger­many as a busi­ness lo­ca­tion, which are cau­sed by ac­ce­le­ra­ted de­mo­gra­phic change, weak po­ten­tial, pro­duc­tivity growth, the ne­cessary tran­si­tion to cli­mate neu­tra­lity, and the in­crease in geo-eco­no­mic risks. Nu­me­rous fis­cal sti­muli are part of this growth in­itia­tive. Some of the mea­su­res an­noun­ced were in­tro­du­ced into the le­gis­la­tive pro­cess on 10 July 2024 with the go­vern­ment draft of the Tax Fur­ther De­ve­lop­ment Act. The Ger­man fe­deral go­vern­ment also in­tends to use the draft to reintro­duce an ob­li­ga­tion to re­port do­mestic tax ar­ran­ge­ments.

Spe­ci­fi­cally, the go­vern­ment draft of the Tax Fur­ther De­ve­lop­ment Act in­clu­des the fol­lo­wing mea­su­res:

• Im­pro­ved depre­cia­tion op­ti­ons th­rough
  • the re­form of col­lec­tive item depre­cia­tion for movable fi­xed as­sets with a va­lue which ex­ceeds 800 eu­ros but not 5,000 eu­ros. Among other things, this should enable tax­pay­ers to im­me­dia­tely depre­ciate hol­dings with a va­lue of up to 800 eu­ros, but also to uti­lise the pool depre­cia­tion of the col­lec­tive item. This is to take place over th­ree years in­stead of the pre­vious five years,
  • the con­ti­nua­tion of de­gres­sive depre­cia­tion for movable fi­xed as­sets ac­qui­red or ma­nu­fac­tu­red from 2025 to 2028 at two and a half ti­mes the strai­ght-line depre­cia­tion rate, up to a ma­xi­mum of 25 %. The de­gres­sive depre­cia­tion was reintro­du­ced with the Growth Op­por­tu­nities Act publis­hed on 27 March 2024, but cur­rently only ap­plies to the ac­qui­si­tion or pro­duc­tion of as­sets in the pe­riod from 1 April 2024 to 31 De­cem­ber 2024 and is cap­ped at twice the strai­ght-line depre­cia­tion rate, up to a ma­xi­mum of 20 %.
• Ex­ten­sion of the re­se­arch al­lo­wance by in­cre­asing the ma­xi­mum as­sess­ment ba­sis for eli­gi­ble ex­pen­ses in­cur­red af­ter 31 De­cem­ber 2024 to 12 mil­lion Eu­ros. The sub­sidy is to re­main un­chan­ged at 25 % of the as­sess­ment ba­sis.
• Per­so­nal tax re­lief th­rough
  • the in­crease in the ba­sic tax-free al­lo­wance of the in­come tax rate and cor­re­spon­ding ad­just­ment of the in­come tax rate for 2025 and 2026, so that the top tax rate of 42 % is only ap­plied to a hig­her ta­xable in­come.
  • the in­crease in the ex­emp­tion li­mits for the so­li­da­rity surch­arge for 2025 and 2026.
  • the in­crease in the tax-free al­lo­wance for child­ren for 2025 and 2026 and the in­crease in child be­ne­fit from 2025.
• In­tro­duc­tion of an ob­li­ga­tion to re­port cer­tain tax ar­ran­ge­ments wi­thin Ger­many. The in­ten­ded pro­vi­si­ons are clo­sely mo­de­led on the exis­ting no­ti­fi­ca­tion ob­li­ga­tion for cross-bor­der tax ar­ran­ge­ments but are to be ap­plied in si­gni­fi­cantly fe­wer ca­ses.

In a se­pa­rate go­vern­ment draft, the in­come tax rate is also to be chan­ged ac­cor­din­gly in 2024 by in­cre­asing the ba­sic tax-free al­lo­wance from 11,604 eu­ros to 11,784 eu­ros. In ad­di­tion, the tax-free al­lo­wance for child­ren for 2024 is to be in­crea­sed from 3,192 eu­ros to 3,306 eu­ros. For in­come tax pur­po­ses, the chan­ges are to be ta­ken into ac­count in the pay­roll for De­cem­ber 2024.