This article was the Topic of the Week in the KW 29 newsletter in 2025.

While the promised electricity tax reduction for the broader economy is likely to be shelved, on July 11 the Bundesrat is expected to enact faster depreciation allowances and medium-term lower tax rates. However, for the intended "Investment Booster" to truly succeed, accelerated planning and approval processes, along with modern administrative systems, are essential.

Faster Depreciation Allowances

Faster depreciation allowances (AfA) of 30 percent on all movable fixed assets – such as machines or office equipment – will be reintroduced. This regulation is temporarily valid from mid-2025 until 2027. This is a positive start despite the fact that permanently quicker AfA would better reflect technological developments.

Faster depreciation allowances are a proven lever for higher corporate investments – and subsequently for greater growth, secure jobs, and medium-term higher state revenues.

Looking ahead, the German government should significantly simplify AfA rules by raising the threshold for immediate write-offs on low-value assets from 800 to 2,500 euros and adopting flat-rate depreciation models instead of detailed AfA tables. These measures would relieve businesses and noticeably reduce the bureaucratic burdens on tax administrations.

Tax Rates Lower from 2028

The corporate tax rate is set to decrease from 15 to 10 percent – albeit only from 2028 and in annual steps of one percentage point. This measure offers relief to capital companies.

Partnerships will also benefit: their tax rate on retained earnings will decrease from 28.25 to 25 percent starting in 2028, though also gradually over five years. This preferential taxation ensures that the tax burden is equal across companies with different legal forms.

Both measures would reduce Germany’s tax burden from around 30 percent to approximately 25 percent. An earlier relief – instead of waiting until 2028 – would be preferable. Nevertheless, the fact that the tax reduction is already anchored in law is positive.

Promoting Private Investments

The political debate currently centers on public investments in infrastructure for transport, energy, and digital networks. Through amendments to the Basic Law, credit financing options were expanded and translated into concrete budget plans.

From the business perspective, this is insufficient. Simultaneously, the causes that result in available budget funds being used inefficiently must be addressed. Specifically, there is a need for significantly simplified and expedited planning and approval processes – for both public and private projects.

Modern Administrative Systems Needed

A genuine investment booster calls for modern administrative systems with fully digitized and automated tax procedures. All tax regulations should undergo a digital check; paper-based procedures should be eliminated; and investments in the IT infrastructure of tax administrations should be increased.

Tax reliefs, simplifications, and digitalization must be implemented swiftly to strengthen Germany’s position and promote private investments. The German government’s tax incentive package is a step in the right direction – but more speed is needed in administration, impactful simplifications, and consistent digitalization.