A Multibillion Euro Tax Break Boost for German Businesses
Government makes decision on corporate tax package - Government endorses business tax plan
The German Federal Government, in an effort to give businesses a much-needed economic lift, has unveiled a considerable tax relief package. The news has been sourced from government sources by the German Press Agency. This package, drafted by Finance Minister Lars Klingbeil (SPD), is aimed at propelling companies to invest, for instance, by providing extended depreciation options for equipment and electric vehicles.
Before this tax relief package becomes a reality, it needs to be approved by the Bundestag and Bundesrat in the discussions that are yet to take place. The SPD's ultimate aim is to reach a decision before the summer break in mid-July.
How It Works
For the following three years, in 2025, 2026, and 2027, companies will reap the benefits of the super-depreciations. After 2028, the corporate tax rate will be gradually reduced from the current 15 percent to 10 percent by 2032. This strategic move is intended to provide businesses with long-term planning security and reinforce Germany's competitive edge.
Breaking it down
The federal government's plan includes several key elements, such as the reduction of the corporate tax rate, extended depreciation options, incentives for research, and the reduction of tax on undistributed profits. Let's take a closer look:
Corporate Tax Rate Reduction
- Reduction Plan: The proposed reduction strategy involves a decrease in the corporate tax rate by 1% each year, starting from 2028. This will ultimately lower the tax rate to 25% by 2032 from the current 30% [1][2][3].
- Objective: Reducing the tax burden on companies is an attempt to boost competitiveness and attract foreign investment, given recent weak GDP growth [2].
Extended Depreciation Options
- Moveable Assets: Businesses are allowed to depreciate up to 30% of their investments in moveable assets, such as machinery, against tax for the current year and the subsequent two years [3].
- Electric Cars: Enhanced depreciation options are also planned for electric cars utilized by companies, although specific details are scarce in the accessible information [3].
Additional Measures
- Research Incentives: The package also contains expanded tax breaks for research activities to fuel innovation [3].
- Undistributed Profits: There will be a reduction in the tax rate for profits that remain unallocated, though specific percentages remain undisclosed [3].
This tax relief package intends to lessen the financial burden on companies, stimulate economic growth, and elevate Germany's competitive standing in the global market.
A key element of the tax relief package plans to provide extended depreciation options for businesses investing in vocational training programs, as well as for equipment and electric vehicles. In line with this, Finance Minister Lars Klingbeil aims to reduce the corporate tax rate, which will contribute to the financial stability and competitiveness of German businesses in the global market.
