Today, the Federal Council is considering the federal government’s investment program to stimulate the economy, the so-called Investment Booster. The program is intended to revive the weak economy through several tax relief measures. It primarily provides improved depreciation options for companies when purchasing new machinery and equipment.

Companies will be able to deduct their expenses for this purpose from their taxes on a declining-balance basis – up to 30 percent – in the current and next two years. Subsequently, the corporate tax rate will be gradually reduced to 10 percent in 2032. The improved tax deduction will also apply to the purchase of purely electric vehicles by companies.

Specifically, the following measures are planned: The reintroduction and increase of the declining-balance depreciation for movable fixed assets to a maximum of 30 percent in 2025, 2026, and 2027. In addition, a gradual reduction of the corporate tax rate is planned from 2028 to 10 percent from 2032. Furthermore, the retention tax rate for undistributed profits is to be gradually reduced to 27 percent (2028/2029 tax year), 26 percent (2030/2031 tax year), and 25 percent (from 2032 tax year).

In addition, the government intends to introduce arithmetic-degressive depreciation for newly purchased electric vehicles, raise the gross list price limit for company car taxation to 100,000 euros to benefit electric vehicles, and expand the Research Allowance Act.

The German Association of Tax Consultants welcomes the measures, but considers a permanent reintroduction of declining-balance depreciation to be urgently needed and calls on the government to initiate a reform of the tax retention allowance to benefit small and medium-sized enterprises.

The states are expected to approve the proposed measures. However, they criticize that the reduced tax revenues would place too heavy a burden on themselves and the municipalities. They therefore need financial compensation. According to calculations by the states, the law will cause almost 50 billion euros in tax shortfalls. Of this, approximately 17 billion will be attributable to the states, 13 to 14 billion to the municipalities, and the remainder to the federal government.

For further questions about the investment booster, please contact the experts at Altehoefer International Tax Consulting.