The agreement contains several changes, which are intended to increase the competitiveness of German businesses.

To support new investments in German businesses it is planned to introduce a special depreciation scheme (“Investitions-Booster”) of 30% for equipment investments (“Ausrüstungsinvestitionen”). These typically include investments in machines, vehicles or operating business fixtures. This depreciation scheme shall be available to German businesses from 2025 up to and including 2027.

Furthermore, a gradual decrease of the corporate income tax rate to 10% is envisioned. It is planned to annually decrease the corporate income tax rate by 1% per year for 5 years. The first decrease will take place per 1 January 2028.

It is planned to pass both measures together already within 2025.

Regarding trade tax the future government plans to increase the minimum municipal rate (“Hebesatz”) from 200% to 280%. Generally, municipalities can set their own trade tax rate, by deciding on their municipal rate. This rate is then multiplied by 3.5 to calculate the local trade tax rate. With the new minimum municipal rate, the minimum trade tax rate will increase from 7% to 9.8%.

As all municipalities decide on their own trade tax rate, companies might pretend to conduct business activities in low-taxed municipalities to profit from lower trade tax rates. The prospective government wants to utilize all available administrative measures to combat these undue reductions of trade taxes. As of now, no detailed actions have been agreed upon.

In addition, the government plans to increase tax fairness and improve legal form-neutral taxation. Specifically, the option for partnerships to opt for corporate taxation (§1a KStG), and the privileged taxation of retained earnings (§34a EStG) are to be significantly improved. However, concrete measures are not yet included in the treaty.

In regard to international tax initiatives the parties agreed to hold on to the global minimum taxation. In particular it is planned to further pursue initiatives which aim for an easier application of these rules.

In regard to EU initiatives, is it planned to support the introduction of an EU-wide corporate income tax base and a tax on financial transactions.

As of now, all of the agreed upon measures in the coalition treaty are merely planned initiatives and depend on the eventual success of the coalition negotiations.

Still, companies might already start incorporating the planned changes in their respective tax planning and tax models (e.g. in the context of business evaluations) to assess increased returns of their (planned) investments and identify new investment opportunities.

Companies that plan to use the new depreciation scheme should begin updating their tax planning and tax models, as the introduction is already planned for 2025 and only available for a limited time.

The incorporation of the new tax rates is not as time critical, due to the gradual introduction in 2028. However, this is not the case for companies that are active in municipalities with low trade tax rates as an increase of the minimum trade tax rate is planned and no timeline has been provided. These companies should already assess the potential impact on their business structure and prepare measures to mitigate adverse tax consequences.

As the prospective government also plans to investigate more thoroughly structures that use low taxed municipalities, companies that utilize these (or plan to do so) should analyze whether they located sufficient business activities and prepare respective documentations.

The initiatives within the coalition treaty, that have been agreed upon without concrete details should be monitored for further clarifications in the future.

Nevertheless, the implementation of the presented measures remains uncertain. While the preparation of a coalition treaty is a further step towards a new government, it remains to be seen which measures will eventually be implemented.