Coalition Agreement: What is planned in German tax policy
CDU/CSU and SPD agreed on a coalition agreement on 9 April 2025, marking a major step towards forming a government. Extensive tax policy measures are planned.
Based on the results of the exploratory talks and the further elaboration by 16 working groups, an agreement on the coalition agreement was reached by 19 representatives from CDU/CSU and SPD.
The topics of migration, economy and taxes were particularly intensively discussed.
Regarding taxes, the following statements are found in the coalition agreement:
Corporate tax and investments
- Introduction of a so-called investment booster in the form of a declining balance depreciation on investments in equipment of 30 % in 2025, 2026 and 2027 (p. 45)
- Reduction of the corporate tax rate as from 2028 in five steps by 1 % each reducing the corporate tax rate from 15 % to 10 % (p. 45)
- Improvement of the option model according to which partnerships may opt to be treated as corporations for tax purposes (Sec.1a of the Corporate Tax Act (“KStG”)) and improvement of the taxation of retained earnings (Sec. 34a of the Income Tax Act (“EStG”)) (p. 45)
- Examination of whether commercial income of newly established companies can fall within the scope of corporate taxation as from 2027, regardless of their legal form (p. 45).
Trade tax
- Taking administrative measures to prevent fictitious relocations to municipal trade tax havens (p. 45 f)
- Increase in the minimum municipal trade tax rate from 200 % to 280 % (p. 46).
Suspension of the global minimum tax
- Adherence to the global minimum tax for large corporations (p. 46)
- Supporting work at international level for permanent simplification (p. 46)
- Advocate at European level to ensure that the global minimum tax does not put German companies at a disadvantage in international competition (p. 46)
- Advocating for a uniform assessment basis for corporate tax within the EU (p. 136).
Income tax
- Reduction in income tax for small and medium incomes in the middle of the legislative period (p. 45)
- Introduction of a regulation whereby an increase in the child allowance also results in an adequate increase in child benefits, and reduction of the gap between the relief effect of child allowances and child benefits (p. 45)
- Improvement of the single parent tax relief amount (p. 45)
- No changes to the solidarity surcharge (p. 45).
Promotion of e-mobility
- Increase in the gross price limit for tax incentives for company e-vehicles from 70.000 to 100,000 euros (p. 7)
- Introduction of a special depreciation allowance for e-vehicles (p. 7)
- Vehicle tax exemption for e-vehicles until 2035
- Program for households with low and medium income from funds of the EU Climate Social Fund to specifically support the transition to climate-friendly mobility (p. 7).
Employees
- Strengthening employee participation schemes by a practical design of tax and social security law (p. 4)
- Increasing the attractiveness of a trade union membership through tax incentives for members (p. 19)
- Tax exemption for overtime pay in excess of collectively agreed or collectively agreed full-time working hours (p. 46)
- Incentives for voluntary longer work upon reaching the statutory retirement age through a monthly tax exemption of salary up to 2,000 euros (p. 46)
- Tax benefits for bonuses to extend working hours from part-time to permanent full-time (p. 46)
- Permanent increase of the commuter allowance from January 1, 2026, from the current 30 cents to 38 cents from the first kilometer (p. 46).
Voluntary work and non-profit status
- Increase in the lump-sum allowance for exercise instructor from 3,000 to 3,300 euros per year and the lump-sum allowance for volunteers from 840 to 960 euros per year (p. 47)
- Increase in the exemption limit for income from commercial business operations for non-profit organizations from 45,000 to 50,000 euros per year (p. 47)
- Elimination of the requirement for timely use of funds for non-profit organizations with income up to 100,000 euros (p. 47)
- Splitting of spheres no longer required if non-profit organisations generate less than annual income of EUR 50,000 from economic activity (p. 47).
Financial transaction tax
- Support for the introduction of a financial transaction tax at European level (p. 47).
Value added tax
- Conversion of the import VAT collection procedure to an offset model (p. 11)
- Permanent reduction of VAT on food in gastronomy from 19 % to 7 % as of 1 January 2026 (p. 47)
- Extensive VAT exemption for donations in kind to charitable organizations (p. 62).
Electricity tax
- Reduction of the electricity tax in a first step by at least 5 cent/kWh for everyone, with the aim of reaching the European minimum level as quickly as possible (p. 47)
- Reduction in transmission network fees (p. 47).
Agricultural diesel
- Complete reintroduction of the agricultural diesel rebate (p. 47).
Tax evasion and avoidance
- Measures to combat tax evasion, in particular evaluation of the existing cash register obligation, commitment for a consistent inclusion of uncooperative tax jurisdictions on the EU's "blacklist", expansion of possibilities for telephone surveillance in particularly serious cases of organized tax evasion (p. 47)
- Examination of further measures to avoid so-called cum-cum transactions (p. 47)
- Transfer of empirical tax research into efficient structures in cooperation with the federal states (p. 48)
- Strengthening of financial control against illegal employment and undeclared work (p. 48).
Reduction of tax bureaucracy
- Aiming for tax simplification through standardization, simplifications and flat rates, e.g. by introducing a flat rate working day allowance (p. 48)
- Simplification of the taxation of retirees (p. 48)
- Review of each tax-relevant legislative process for simplification and digitization (p. 48)
- Successive expansion of pre-filled and automated tax returns for simple tax cases (p. 48)
- Successive transition of corporations and partnerships to self-assessment (p. 48)
- Strengthening financial administration with greater digitalization and AI (p. 48).
Research & Development
- Significant increase in the subsidy rate and the assessment basis for the tax research allowance as well as simplification of the procedure (p. 80)
- Sectoral exemptions for research in the Value Added Tax Act (p. 79).
Other measures
- Efforts to raise the SME threshold at European level (p. 11)
- Tax deductibility of the costs of energy-efficient renovations of inherited properties (p. 24)
- Adjustment of the tax framework for cross-connections of public-sector organizations (p. 46)
- Introduction of a cash register requirement for businesses with an annual turnover of over 100,000 euros from 1 January 2027 (p. 60)
- Reversal of the increase in the air transport tax and reduction of air transport-specific taxes, fees, and charges (p. 27).
In addition, overall bureaucratic burdens are to be reduced, and digitalization driven forward. To this end, a Ministry for Digitalization and State Modernization is to be established.
Note: SPD will still vote on the coalition agreement by way of a membership referendum. The CDU is planning a small party conference at which a vote is to take place. On the CSU side, the party executive will make the decision. If all three decisions are positive, Friedrich Merz could be elected as the new Federal Chancellor in the German Bundestag on 7 May 2025.
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