Immediate tax investment program to strengthen Germany as a business location

On June 26, 2025, the Federal Parliament passed the bill for an immediate tax investment program to strengthen Germany as a business location, with an addendum by the Finance Committee. The Federal Council is expected to approve the bill on July 11, 2025.

We present the key aspects of this bill below.

Increase in the gross list price limit for so-called company car taxation for electric vehicles

Until now, the gross list price of a company electric vehicle may not exceed EUR 70,000 in order for its private use to be taxed at one quarter in accordance with Section 6 (1) No. 4 Sentence 2 No. 3 and Sentence 3 No. 3 of the German Income Tax Act (EStG) in the case of the so-called 1 % method or consideration of the acquisition costs or comparable expenses in the case of the so-called logbook method.

This gross list price limit is to be raised to EUR 100,000 for electric vehicles purchased after June 30, 2025.

Reintroduction and increase of the declining fixed asset depreciation allowance for movable fixed assets (so-called investment booster)

For movable fixed assets acquired or manufactured after June 30, 2025, and before January 1, 2028, depreciation in equal annual amounts may be replaced by depreciation in decreasing annual amounts in accordance with Section 7 (2) EStG. This declining depreciation can be calculated as a fixed percentage of the respective book value (residual value). The percentage used may not exceed three times the percentage applicable to straight-line depreciation and may not exceed 30 %.

For movable fixed assets acquired or manufactured after December 31, 2019, and before January 1, 2023, or after March 31, 2024, and before January 1, 2025, the application of Section 7(2) EStG in the version of the so-called Growth Opportunities Act of March 27, 2024, remains permissible. In the first case, the declining balance method may not exceed two and a half times the percentage applicable to straight-line depreciation, and in the second case, it may not exceed twice the percentage applicable to straight-line depreciation, and may not exceed 25% or 20%, respectively.

Introduction of arithmetical declining depreciation for newly acquired electric vehicles

For electric vehicles that are classified as fixed assets, were or will be newly acquired after June 30, 2025, and before January 1, 2028, and for which no other special depreciation allowances are claimed, the following amounts may be deducted as a percentage of the acquisition costs, in deviation from the straight-line or declining balance method of depreciation pursuant to Section 7(1) or (2) EStG, the following amounts may be deducted as a percentage of the acquisition costs (Section 7 (2a) EStG, new):

Reduction of the so-called tax rate for retention of profits

If the taxable income includes profits from agriculture, forestry, trade, or self-employment that have not been withdrawn, the income tax on these profits shall be refunded in full or in part at the taxpayer’s request, except for any tax benefits that may have been claimed (Sections 16 (4) and 34 (3) EStG), pursuant to Section 34a EStG, at a special tax rate.

This amounts to

With the gradual reduction of the tax rate for retention of profits, the goal of tax neutrality between partnerships and corporations is being maintained.

Gradual reduction of the corporate income tax rate

The corporate income tax rate will be gradually reduced starting in the 2028 assessment period and will be as follows

of taxable income (Section 23 (1) of the German Corporation Tax Act (KStG)).

The reduction in the corporate income tax rate is thus in line with the reduction in the so-called tax rate for retention of profits and follows on from the temporary declining depreciation allowance, which is limited until 2027. The explanatory memorandum to the bill already points to adjustments to other statutory provisions that will be necessary as a result of the reduction in the corporate income tax rate, and which are to be implemented in subsequent legislative procedures, such as adjustments to the capital gains tax procedure and to tax deductions for taxpayers with limited tax liability.

Extension of the research allowance

From January 1, 2026, eligible expenses for the research allowance will also include a lump sum for additional overheads and other operating costs incurred in connection with an eligible research and development project that began after December 31, 2025. The overhead and operating costs to be considered as eligible expenses shall amount to a flat rate of 20 % of the eligible expenses incurred in the financial year. According to the explanatory memorandum to the law, it is not possible to apply individual costs. The flat-rate system chosen means that these costs do not have to be itemized, which simplifies the procedure and avoids additional bureaucracy. Furthermore, the eligible value of the hours worked for own contributions will increase from EUR 70 to EUR 100 per proven hour worked.

The assessment basis for the research allowance, which is based on eligible expenses incurred during the fiscal year, is currently EUR 10 million and is to be increased to EUR 12 million for eligible expenses incurred after December 31, 2025.