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.