The 2025 coalition agreement: An overview of the focuses in tax, economic and digital policy

Tax measures for companies and investors

Specific tax incentives are planned to strengthen Germany's attractiveness as a business location. The centrepiece is an “investment booster”, which is to take effect from 2025: Companies are to be given the opportunity to reduce their tax liability by 30% for investments in equipment by using declining-balance depreciation. The rule is limited to the years 2025 to 2027.

In the same bill, the German government is also planning a gradual reduction of corporate income tax. Starting from 1 January 2028, this is to be reduced by one percentage point over five annual steps to finally reach 10%. The aim behind both these changes is to encourage investment and increase competitiveness in terms of tax.

Reform of taxation that does not regard legal form

To harmonise the tax burden of different forms of businesses, the coalition agreement announces a significant improvement to the option model (section 1a of the Corporate Income Tax Act [KStG]) and the favourable treatment of retained earnings (section 34a of the Income Tax Act [EstG]).

It is also being checked to see whether the income from trade or business of newly established companies may come under corporate income tax, regardless of legal form from 2027. The aim is to treat companies equally for tax, regardless of their legal form.

Changes to income tax for individuals

A reduction in income tax for small and medium incomes is planned for the middle of the parliament. The solidarity surcharge will remain in place and is not currently the subject of further considerations for reform.

A detailed legal analysis of the current assessment can be found here:
Is the solidarity surcharge still constitutional?

Changes to trade tax

The coalition plans to increase the minimum trade tax assessment rate from 200% to 280%. These and other administrative measures are specifically designed to prevent sham business registrations in “trade tax havens”.

International tax policy and minimum tax

The German government will continue to implement global minimum tax for large corporations and support international efforts to make tax simpler permanently. On the European level, efforts are to be made to ensure that global minimum tax does not place German companies at a competitive disadvantage.

Further individual tax measures

The coalition agreement contains a large number of other tax rules:

• VAT rate in the restaurant and catering industry: The reduced tax rate of 7% on food is to apply permanently from 1 January 2026.
• Electricity tax: Reducing electricity tax to the European minimum level is planned as is simultaneously reducing transmission grid fees.
• E-mobility: The gross price threshold to qualify for the tax-free allowance for company cars is to be increased to 100,000 euros; special depreciation allowances and exemption from vehicle tax will apply to electric vehicles until 2035.
• Commuter allowance: This will increase starting on 1 January 2026 to 38 cents from the first kilometre.
• Overtime bonuses: Overtime bonuses are to be made tax-free; bonuses for increasing from part-time to full-time will receive tax benefits.
• Integrated public services: The tax framework will be adjusted to safeguard public services provided by local government.
• Import VAT: There will be a switch to a clearing model to free up liquidity.
• Air passenger tax: The recently approved increase is to be rescinded.
• Agricultural diesel: Full reimbursement will be reintroduced.
• Tax transparency & tax fraud prevention: Further tax evasion measures are being considered (e.g. for cum-cum transactions); the requirement to use an electronic till is being evaluated.
• Financial transaction tax: A European solution is supported.
• Tax research allowance: The subsidy rate and assessment basis are to be substantially raised; the procedure is to be simplified.
• Cutting red tape & digitalisation: Steps to simplify tax legislation and digitalise the tax authorities are planned.
• Germany as a location for gaming: The gaming industry is to be supported with tax incentives.

Economic policy guidelines: location, transformation, labour market

Apart from purely tax matters, the coalition agreement contains a series of economic policy plans designed to affect the medium to long-term conditions for companies and investments:

• Strengthening Germany as a place to do business by reducing the tax burden, encouraging innovation and reducing the costs of electricity and administration.
• Fostering sustainable transformation, particularly by providing tax benefits for environmentally friendly technologies such as e-mobility.
• Stimulating the labour market, such as by offering tax incentives for overtime, bonuses for full-time employment and tax-free additional earnings beyond retirement age.
• Strengthening local government infrastructure, including tax adjustments in local public services.

Digitalisation as a focus of economic and tax policy

With the 2025 coalition agreement, for the first time the German government is sending a strong signal in favour of central control of digitalisation: an autonomous Federal Ministry for Digitalisation and State Modernisation is being set up. Its job will be to consolidate the fragmented responsibilities and push ahead with digitally transforming administration and the economy.

The new Ministry’s central tasks will include:

• digitalisation of tax and administrative processes, focusing on procedures within the same media, automation and centring the user.
• introducing e-invoicing as standard for electronic invoicing in B2B and B2C.
• modernising registers to create interoperable and centrally accessible data systems – including effects on tax reporting requirements.
• coordination of cross-departmental IT projects and promoting digital business models in industry and the mid-market.
• strengthening digital infrastructure and cyber security, particularly for critical infrastructure.

This restructuring is designed to implement digitalisation projects more efficiently and improve Germany’s long-term digital competitiveness.

Conclusion: tax reforms focusing on economic policy

The 2025 coalition agreement is based on a bundle of tax, economic and digital measures that affect both companies and private individuals. Many of the plans still have to be put down in specific legislation – but the direction is clear: fostering growth, driving forward digitalisation, and reducing the complexity of tax.

How we can support you

Our experts will be glad to advise you on the tax and economic implications of the coalition agreement – individually, proactively and with a focus on solutions. We’re looking forward to hearing from you!