Draft law for an immediate tax investment programme to strengthen Germany as a business location

With the draft law of 4 June 2025, the German Government plans to create targeted investment incentives and thus new growth through a rapid boost to growth-promoting investments combined with long-term relief measures that will give the economy long-term planning security.

The draft bill includes the following points in particular:

Declining depreciation for movable fixed assets (Section 7 (2) of the Income Tax Act (EStG))

This depreciation booster is intended to enable all companies to benefit from an annual depreciation allowance of 30 per cent for investments in equipment. Implementation is straightforward, which should ensure that the incentives take effect quickly and across the board. The accelerated depreciation applies to investments made between 1 July 2025 and 31 December 2027. Normally, newly purchased machinery, equipment or vehicles are depreciated on a straight-line basis over their useful life. Now, a declining balance depreciation (AfA) of 30 percent is being introduced. This means that companies can claim 30 percent of the costs for tax purposes in the year of acquisition. In each of the following two years, a further 30 percent of the remaining residual value could then be depreciated.

Reduction in corporation tax (Section 23 (1) Corporate income tax law (KStG))

From 2028, corporation tax is to be gradually reduced, which should significantly lower the tax burden on companies. The plan is to reduce it by one percentage point per year, from the current 15 percent to 10 percent within five years. From 2032, the total tax burden for companies would thus be around 25 per cent instead of the current 30 per cent.

Reduction of the retention tax rate (Section 34a (1) Income Tax Act (EStG))

For sole traders and co-owners, the retention tax rate for undistributed profits is to be reduced in three stages from the current 28.25 per cent to 27 per cent (tax assessment period 2028/2029), 26 per cent (tax assessment period 2030/2031) and 25 per cent (from the tax assessment period 2032). These measures are intended to maintain the goal of tax neutrality between partnerships and corporations.

Promotion of e-mobility in businesses (Section 7 (2a) / Section 6 (1) No. 4 Sentence 2 No. 3 and Sentence 3 No. 3 of the Income Tax Act (EStG))

This will allow companies to write off 75 percent of the acquisition costs for electric vehicles used for business purposes in the year of purchase. In the following year, a further 10 percent can be deducted, in the second and third years 5 percent each, in the fourth year 3 percent and in the fifth year 2 percent. This rule applies to electric cars bought between 30 June 2025 and 31 December 2027. Plus, the price cap for tax breaks on electric company cars will go up from €70,000 to €100,000.

Expansion of the research allowance (Section 3 Research allowance Act (FZulG))

In order to further strengthen investment in research, the research allowance will be expanded. From 2026 to 2030, the maximum assessment basis for tax incentives for research will be increased from ten to twelve million euros. In addition, the eligible applications are to be expanded. Flat-rate deductions are also intended to simplify the procedure and reduce bureaucracy.