Growth initiative of the German government

The governing coalition wants to boost the economy, ease the tax burden on companies and drive forward the reduction of bureaucracy with a comprehensive catalog of measures.

Together with the federal budget for 2025, the coalition government has agreed on a package of measures that it calls a "growth initiative". With the 49 measures from different areas, the federal government wants to give the German economy additional impetus for a new economic dynamic. Not only the name is reminiscent of the Growth Opportunities Act, the package also contains measures that were negotiated with great difficulty from the Growth Opportunities Act just a few months ago. However, this time the package of measures is much broader and, in addition to changes in tax law, also provides for measures in labor and social law as well as in other areas. The following overview shows which tax changes are planned:

• Degressive depreciation: The declining balance method of depreciation, which has been possible again since April 1, 2024, is to be extended until 2028 and the depreciation rate increased to two and a half times the straight-line depreciation rate.

• Pool amortization: Collective item depreciation is to be reformed and converted into pool depreciation. As a first step, the amount up to which assets can be included in the collective item is to be increased to EUR 5,000.

• Cold progression: For 2025 and 2026, the benchmark values of the income tax rate are also to be adjusted again in line with inflation in order to avoid an inflation-related additional burden.

• E-mobility: A special depreciation allowance for newly registered all-electric and comparable zero-emission vehicles will be introduced for companies with retroactive effect from July 1, 2024. In addition, the maximum gross list price for reduced company car taxation for e-vehicles will be raised from 70,000 euros to 95,000 euros.

  

• Tax-free overtime: Supplements for overtime in excess of the agreed full-time working hours are exempt from tax and contributions. Full-time work is defined as a working week of at least 34 hours for employment relationships based on collective agreements, and 40 hours per week for employment relationships not based on collective agreements.

• Part-time work: If employers pay a bonus for extending the working hours of part-time employees, the bonus is to be tax-privileged. Abuse should be ruled out.

• Employment of older people: Various measures are being taken to make working in old age more attractive. For example, the employer's contribution to unemployment and pension insurance is to be abolished for employees who have reached the standard retirement age and paid directly to the employee. In addition, these employees will be able to receive a tax-free pension deferral bonus in the amount of the pension payment foregone and the health insurance contributions foregone, and it will be made easier to limit the duration of employment contracts at retirement age.

• Immigration of skilled workers: Tax incentives are planned for foreign skilled workers. In the first three years, newly arrived skilled workers will be able to claim 30, 20 and 10 % of their gross salary tax-free. There is to be a lower and upper limit for the gross wage.

• Income tax classes: The transfer of the tax class combination III/V to the factor method of tax class IV is intended to contribute to more female employment. Together with the federal states, the federal government wants to examine how this changeover can take place as soon as possible and significantly faster than the previously planned date of 2030.

• Retirement plan: The Riester pension is to be reformed so that products without a premium preservation guarantee but with better potential returns are also favored. In addition, to strengthen competition, it should be possible to switch between products with low or no costs at any time. In addition, the products should be open to all employees - including the self-employed where possible. The regulations on company pension schemes are also to be revised and improved.

• Venture capital: The tax framework for venture capital investments is to be improved in various areas, particularly with regard to the taxation of investments in commercial partnerships and the reinvestment of profits from the sale of shareholdings in corporations.

• Research allowance: The maximum assessment basis is to be increased by a further EUR 2 million to EUR 12 million. This would increase the maximum annual allowance to EUR 3 million or even EUR 4.2 million for small and medium-sized enterprises (SMEs).

• Simplification: The German government intends to examine the proposals of the expert commissions "Simplified Corporate Tax" and "Citizen-oriented Income Tax", which are expected in July, and implement them in a legislative proposal this year if the results are positive.

In addition to the changes to tax and social legislation, there is also a focus on reducing bureaucracy, for which there is to be an annual Bureaucracy Reduction Act in future. The government wants to implement the measures quickly - this year if possible. However, it is not a foregone conclusion that all changes will be implemented, as the federal states also have a say in many areas via the Bundesrat.