The Bundesrat (Federal Council) has now unanimously approved 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. The tax shortfall for the federal, state, and local governments is estimated at more than €48 billion by 2029.

Companies will be able to deduct their expenses from their taxes on a declining-balance basis – up to 30 percent – in the current and next two years. Following this, 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 law provides for the following measures: The reintroduction and increase of declining-balance depreciation for movable fixed assets up to a maximum of 30 percent in 2025, 2026, and 2027. In addition, the corporate tax rate will be gradually reduced from the current 15 percent in 2028 to 10 percent from 2032. Furthermore, the retention tax rate for undistributed profits will be gradually reduced to 27 percent (tax period 2028/2029), 26 percent (tax period 2030/2031), and 25 percent (from tax period 2032).

In addition, the government is introducing arithmetic-degressive depreciation for newly purchased electric vehicles, raising the gross list price limit for company car taxation to 100,000 euros to benefit electric vehicles, and expanding the Research Allowance Act.

The German Association of Tax Consultants (Deutscher Steuerberaterverband e.V.) had previously called for a permanent reintroduction of declining-balance depreciation and a reform of the tax retention allowance in favour of small and medium-sized enterprises.

The states initially raised strong objections. The federal government then pledged to fully cover the shortfalls in revenue for municipalities between 2025 and 2029. According to calculations by the states, the law will cause tax shortfalls of approximately €17 billion for the states, €13 to €14 billion for the municipalities, and the remainder for the federal government.

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