„Responsibility for Germany“ – Coalition agreement by CDU/CSU and SPD

The negotiating partners of the prospective governing parties, CDU/CSU and SPD, have agreed on a coalition agreement. However, this still has to be approved by the respective parties, which is scheduled for the end of April.

The coalition partners see growth and cohesion as the guiding principles of their budgetary and fiscal policy. They want to strengthen Germany’s competitiveness while guaranteeing external, internal and social security. The tax burden on both citizens and companies is to be reduced so that performance is once again rewarded. Lower taxes and contributions should also lead to higher wages, more jobs, stronger growth and secure social systems.

However, it should also be noted that during the presentation of the coalition agreement, it was expressly stated that all measures to ease the burden on taxpayers are subject to the criterion of affordability and payability. This shows that the measures that have now been “agreed” are political objectives and guidelines, the implementation of which only the future will show. Nevertheless, the successful conclusion of the coalition negotiations should send a positive signal.

We provide an overview of the main tax measures planned under the coalition agreement.

Business taxes

A so-called “investment booster” is to be introduced to provide tax incentives for investment. This is to take the form of a declining balance depreciation on equipment investments of 30 % for the years 2025, 2026 and 2027. So far, the initial rate of declining balance depreciation is 20 %.

After this temporary measure has expired, the corporation tax rate of 15 % is also to be reduced in five steps of one percentage point each from 2028 onwards. Accordingly, the option model (Section 1a KStG) and the tax relief on retained earnings (Section 34a EStG) are to be significantly improved for partnerships. One new idea is to examine whether the scope of application of corporate income tax can be extended to include commercial income of newly established companies, regardless of their legal form, from 2027.

A special depreciation is to be introduced for purely electrically powered vehicles. Tax incentives for e-vehicles used as company cars are to be extended to a larger group. To this end, the relevant gross price limit is to be increased to EUR 100,000. Furthermore, to promote environmentally friendly e-mobility, electric cars are to be exempt from motor vehicle tax in general until 2035.

The relocation of fictitious registered offices to so-called trade tax havens is to be effectively countered with all available administrative measures. To reduce competition between domestic locations, the trade tax minimum assessment rate is therefore to be increased from 200 % to 280 %.

The global minimum tax for large corporations is to be retained in principle. However, on the one hand, work at the international level for a permanent simplification of the minimum tax is to be supported. On the other hand, the effects on the global tax structure resulting from international differences are to be monitored. At the same time, the coalition parties want to work at the European level to ensure that German companies are not placed at a disadvantage in international competition as a result. In view of international developments, business circles already consider adherence to the minimum tax to be regrettable. This is because it is a bureaucratic monster for the companies concerned and does not bring any financial advantages for the German tax authorities.

The coalition aims to permanently reduce the electricity prices paid by companies and consumers by at least five cents per kilowatt hour. To achieve this, the electricity tax is to be reduced to the European minimum and levies and grid fees are to be reduced, with the latter also being capped permanently. There will be an industrial electricity price for energy-intensive companies.

Further individual measures listed in the coalition agreement:

A cash register requirement is to be introduced for businesses with an annual turnover of over EUR 100,000 from January 1, 2027.
The mandatory issue of receipts is to be waived.
The research tax credit is to be significantly increased in terms of both the funding rate and the assessment basis, and the procedure is to be simplified.
The legal framework for the so-called tax combination is to be adapted to ensure the continued existence of municipal services in the long term.
A financial transaction tax at the European level should be supported.

Income tax

The income tax for small and medium incomes is to be reduced in the middle of the coming legislative period. However, details such as specific measures, time frames and orders of magnitude have not yet been further elaborated.

As a tax incentive for overtime work, overtime pay above and beyond collectively agreed or collectively-oriented full-time work should be made tax-free immediately. Similarly, a premium should be given preferential tax treatment when employers pay it to extend working hours from part-time to permanently collectively-oriented full-time work.

Additional financial incentives for voluntary longer working hours are to be created in the form of a so-called “active pension”. Those who reach the statutory retirement age and voluntarily continue to work will receive their salary up to EUR 2,000 per month tax-free. In particular, the non-applicability of the regulation to those entering retirement below the age limit for the standard retirement age, the restriction of the regulation to income from employment relationships subject to social security contributions and the application of the progression proviso are to be examined.

To provide immediate relief for many employees, the so-called commuting allowance is to be permanently increased from 2026 and will be 38 cents from the first kilometer. Currently, the allowance for the first 20 kilometers of the route from home to work is 30 cents per kilometer; only from the 21st kilometer can 38 cents be claimed.

In order to reduce tax bureaucracy, a so-called flat-rate work-related expenses allowance is to be examined, in which income-related expenses for employees can be combined. Further improvements are to be achieved through standardization, simplification and flat-rate taxation, also in order to increase acceptance of the tax system. In this context, the mandatory digital submission of tax returns, on the one hand, and pre-filled and automated tax returns for simple tax cases, on the other, are to be gradually expanded. In particular, the taxation of pensioners is to be simplified and they are to be generally relieved of declaration obligations as far as possible.

To strengthen volunteering, the trainer allowance is to be increased from EUR 3,000 to EUR 3,300 and the volunteer allowance from EUR 840 to EUR 960.

The gap between the relief provided by the child allowance and the child benefit is to be gradually reduced. A statutory regulation is to ensure that an adequate increase in child benefit follows any increase in the child allowance. The financial situation of single parents is to be improved by increasing or further developing the single-parent relief allowance.

Value added tax

The VAT rate for food in restaurants is to be permanently reduced to 7 % as of January 1, 2026. Based on past experience, the one-time conversion effort involved is likely to be limited.

Donations in kind to charitable organizations should be exempt from VAT to the greatest extent possible.

In the medium term, the import sales tax is to be levied using a clearing model.

Public benefit

The tax exempt amount for the business operations of non-profit associations is to be increased to EUR 50,000.

The catalog of charitable purposes is to be modernized and the law governing charitable organizations is to be simplified. Charitable organizations with revenues of up to EUR 100,000 are to be exempted from the requirement of timely use of funds. If a charitable entity generates revenues of less than EUR 50,000 per year from economic activities, there will no longer be a split between whether these revenues come from a non-profit operation or from a taxable economic business.

Further plans for taxation and the economy

The following tax measures are also mentioned in the coalition agreement:

The solidarity surcharge is to remain unchanged.
The fight against tax evasion and avoidance is to be stepped up and further measures are to be introduced to combat “cum-cum transactions”, for example.
The regulation of crypto assets, the gray capital market and shadow banking is to be reviewed for gaps and these closed if necessary. It is therefore to be expected that legal regulation will be extended, particularly with regard to crypto assets.
As part of a reform of the Riester pension, it is to be transformed into a new pension product, freed from bureaucratic obstacles, the group of those eligible for funding is to be expanded, and those with small and medium incomes are to be supported with a state subsidy that is as simple as possible to administer.
The costs of energy-efficient renovations to inherited properties are to be deductible from income tax in the future.
In order to promote adequate participation of civil society in the economy, there should be tax incentives for trade union membership.
Regarding the substantial reduction of bureaucracy in the EU called for by the business community, the coalition partners welcome the recent announcements and omnibus proposals of the European Commission, including those to simplify CSR and supply chain directives. This clarity in the contract is seen as positive, but at the same time it is also called for this to be quickly implemented in the upcoming legislative negotiations in Brussels.

On the other hand, the statement does not include further tax policy demands in the coalition negotiations – especially from the SPD. However, given that the Ministry of Finance will probably be led by the SPD in the future, it is conceivable that further adjustments will be made here during the legislative period. This applies in particular to the following aspects:

the reintroduction of the wealth tax,
the abolition of inheritance tax privileges for the transfer of business assets (in particular housing companies),
the increase in the final withholding tax on capital income to 30 %,
the abolition of the holding privilege for the income-tax-free sale of real estate, and
the increase in the top rate of income tax to 47 % and the “wealth tax” to 49 %.