Immediate tax investment program – this is the program’s focus

On Wednesday (June 4, 2025), the Federal Cabinet passed a "Law for an immediate tax investment program to strengthen Germany as a business location".

The investment package, which was also presented recently under the title Growth Booster by Federal Minister of Finance Lars Klingbeil, addresses a few but central tax projects of the coalition agreement and is aimed in particular at a short-term boost to growth through tax breaks for companies.

Declining balance depreciation 2025-2027 (Art. 7 (2) EStG-E)

With the so-called “investment booster”, the declining balance method of depreciation for movable fixed assets is being reintroduced and expanded at the same time. Companies will be able to choose the declining balance depreciation instead of straight-line depreciation for corresponding assets that are acquired or manufactured between July 1, 2025 and December 31, 2027:

• The maximum permissible depreciation rate is 30 % and is additionally limited to three times the depreciation amount that would apply if the asset were only depreciated on a straight-line basis.
• The (declining balance) depreciation can be calculated at a fixed percentage of the respective book value (residual value) and thus with declining annual amounts.

Corporate income tax rate falls to 10 percent from 2028 to 2032 (Art. 23 (1) KStG-E)

Another key concern of the German government is the reduction of the corporate income tax rate from the current 15 percent to 10 percent in future. The rate will be reduced in stages from 2028:

• 2028: 14 %
• 2029: 13 %
• 2030: 12 %
• 2031: 11 %
• 2032 and subsequent years: 10 %

This long-term measure aims to make the tax location attractive for national and international investors and to catch up with other countries in the tax competition.

Tax relief on retained earnings becomes more attractive (Art. 34a EStG-E)

For partnerships, the preferential income tax rate for profits not withdrawn will be adjusted in line with the reduction in the corporate income tax rate. This is currently 28.25% and will be reduced as follows:

• 2028/2029: 27 %
• 2030/2031: 26 %
• from 2032: 25 %

This is intended to encourage sole proprietorships, co-entrepreneurships and freelancers to leave profits in the company to finance operations. The measure is intended to improve equal tax treatment and promote equity capitalization in SMEs.

New depreciation rates for electric vehicles (Art. 7 (2a) EStG-E)

For purely electric vehicles purchased between July 2025 and December 2027, a separate declining balance depreciation variant will be introduced. Such variant provides for an arithmetic staggering of depreciation:

• Year 1: 75 %
• Year 2: 10 %
• Year 3: 5 %
• Year 4: 5 %
• Year 5: 3 %
• Year 6: 2 %

In the year of acquisition, the depreciation rate is not only to be taken into account pro rata temporis, but the 75 % rate is to be applied in total.

This targeted support provides strong investment incentives for companies to convert their vehicle fleet to electromobility. However, the scheme is only applicable to vehicles that are powered exclusively by electricity. Simultaneous use of special depreciation allowances is excluded.

0.25 percent rule for electric company cars: gross list price limit increases (Art. 6 (1) no. 4 EStG-E)

With effect for vehicles purchased after June 30, 2025 (and before January 1, 2031), the gross list price limit for the application of the 0.25 percent rule for the taxation of using a company car for private purposes with zero emissions will be increased from EUR 70,000 to EUR 100,000.

Thus, higher-quality e-vehicles can also be used as company cars with tax benefits. This expands the attractive tax framework for employers and employees alike.

Research allowance 2026: More funding, less bureaucracy (Art. 3 FZulG-E)

The German Research Allowances Act (“FZulG”) will be amended in two respects:

• Flat-rate overheads: In future, a flat-rate of 20% of eligible expenses can be deducted as overhead and operating costs for eligible research and development projects starting after December 31, 2025. This significantly reduces the documentation effort. An individual cost approach is excluded.
• Increase in the assessment basis: The maximum amount for eligible expenses incurred after December 31, 2025 will increase from EUR 10 million to EUR 12 million.

This gives companies with R&D departments, cooperative research projects or spin-offs from universities better opportunities to obtain tax benefits from innovation activities.

Other plans in the immediate action program (not included in the draft)

Some tax-related points of the immediate action program were not included in the current draft and will be presented separately:

• Reduction in the VAT rate for the catering industry as of January 1, 2026
• Increase in the commuter allowance from January 1, 2026
• Reduction in electricity tax

Financial impact and further legislative process

According to estimates by the German Ministry of Finance, the planned measures would result in a considerable loss of tax revenue for the federal government, federal states and local authorities. The financing is to be compensated for by expected growth stimuli and the resulting additional tax revenue. Approval in the Bundesrat is still pending, as some federal states and local authorities in particular are pushing for the federal government to at least partially compensate for the loss of tax revenue. In the next step, the plans still have to pass the Bundestag and Bundesrat, which is expected to take place before the parliamentary summer break.