Even before the parliamentary summer recess, the new federal government passed the “Act on an Immediate Tax Investment Program to Strengthen Germany as a Business Location.” It has been making the rounds in the media under the term “investment booster.” According to the explanatory memorandum, the simultaneous implementation of the investment booster and the gradual reduction of the corporate income tax rate starting in 2028 “send clear signals about Germany’s status as a business location, create reliable framework conditions, and thus ensure planning certainty for companies.” Incidentally, the law was published in the Federal Law Gazette on July 18, 2025, and has thus entered into force.
Below, we will briefly outline a few selected aspects of this law.
I. The Investment Booster, or: Back to the ’90s
The so-called “investment booster” is essentially nothing more than the temporary reintroduction of declining-balance depreciation under tax law. This can only be claimed for movable fixed assets. In terms of timing, these assets must be acquired or manufactured between July 1, 2025, and December 31, 2027. Declining-balance depreciation is a tax option. This means that—provided the requirements are met—the taxpayer may depreciate assets using this method, but is not required to do so.
Declining-balance depreciation results in higher depreciation amounts being claimed in the first years of the asset’s useful life—compared to “normal” straight-line depreciation—and thus generates a higher tax-reducing expense to that extent. However, since the total depreciation amount (i.e., the acquisition and production costs) remains the same, this implies that the depreciation amounts toward the end of the useful life are lower than they would be with straight-line depreciation applied from the outset. The depreciation amounts are thus merely shifted over time.
The declining-balance depreciation rate is three times the straight-line depreciation rate, but is capped at 30 percent. This means that for a useful life of up to ten years, the declining-balance depreciation rate is at the maximum of 30 percent. For a useful life of ten years, the maximum declining balance rate is therefore exactly three times the straight-line rate. For a useful life of less than ten years, the cap of 30 percent applies.
This also makes it clear that declining-balance depreciation is ineffective for assets with a useful life of only three years or less, because the straight-line rate exceeds 30 percent. Finally, it should be noted that the calculated declining-balance depreciation rate is applied to the respective remaining book value of the asset and is not calculated based on the acquisition and production costs, as is the case with straight-line depreciation.
Since it is possible to switch from declining-balance to straight-line depreciation during the useful life (a switch in the opposite direction is not possible), depreciation is typically calculated using the declining-balance method initially and then, if straight-line depreciation is more favorable, switched to the straight-line method.
Readers interested in tax matters will have already noticed that the investment booster is not a new invention, but a well-known tool that lawmakers introduce from time to time (usually) for a limited period, but each time with different maximum rates (at one time it was twice the straight-line rate capped at 20 percent; another time, two and a half times the rate capped at 25 percent; and now it is currently three times the rate capped at 30 percent), such as during the financial crisis or the COVID-19 pandemic. The current structure—with a declining balance depreciation rate equal to three times the straight-line rate and capped at 30 percent—has also existed before: namely, in the 1990s.
To illustrate the effect of declining-balance depreciation using a simple example:
Suppose the acquisition cost of an asset is 100,000 euros, and its useful life is ten years.
When using declining-balance depreciation, the following depreciation amounts result (the switch from declining-balance to straight-line depreciation occurs in year eight, since straight-line depreciation is more favorable from that point on):
Year 1: €30,000 depreciation
Year 2: €21,000 depreciation
Year 3: €14,700 depreciation
4th year: €10,290 depreciation
5th year: €7,203 depreciation
6th year: €5,042 depreciation
Year 7: €3,529 depreciation
Year 8: €2,745 depreciation
Year 9: €2,745 depreciation
Year 10: €2,745 depreciation
Dr. Harald Riedel
Dr. Harald Riedel is a certified public accountant, tax advisor, and founding partner of PKF Riedel Appel Hornig GmbH, with more than 30 years of experience in auditing, tax consulting, and management consulting.
He specializes in auditing and advising manufacturing, retail, and service companies; designs tax models; performs business valuations; and advises on structural measures. Dr. Riedel is a member of the executive board of PKF Deutschland GmbH and a member of the Chamber of Tax Consultants and the Chamber of Public Accountants.
His practice focuses on:
- Restructuring/Conversions
- Acquisitions and divestitures
- Corporate tax law
- International tax law
- Contact person for small and medium-sized businesses
His key industry areas are:
- Automotive
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Dr. Harald Riedel will be happy to assist you:
Under “normal” straight-line depreciation, depreciation would amount to 10,000 euros in each of the ten years. This means that, in the first four years, the so-called investment booster results in higher depreciation—compared to straight-line depreciation applied from the outset. In the remaining six years, the opposite result occurs.
II. Reduction of the Corporate Income Tax Rate
Following the expiration of the aforementioned investment booster at the end of 2027, a phased reduction in the corporate income tax rate will begin in 2028. The rate currently stands at 15 percent and will be reduced by one percentage point annually in five stages starting in 2028. Thus, the corporate income tax rate will be
through 2027: 15%
in 2028: 14%
in 2029: 13%
in 2030: 12%
in 2031: 11%
starting in 2032: 10%
The solidarity surcharge, however, will remain unchanged.
However, as the corporate income tax rate is reduced, the amount of the solidarity surcharge also decreases (slightly) implicitly, since it remains at 5.5 percent of the corporate income tax, as before. With a corporate income tax rate of 15 percent, the solidarity surcharge thus amounts to 0.825 percent (5.5 percent of 15 percent); with a corporate income tax rate of 10 percent, it amounts to “only” 0.55 percent (5.5 percent of 10 percent).
III. Change in Company Car Taxation for Electric Vehicles
In my article in the previous issue of this magazine, I provided an overview of company car taxation. Under the heading “Special Provisions for Electric Vehicles,” I explained that the differentiated special provisions for electric and hybrid electric vehicles are repeatedly amended by the legislature. Another such change has now taken effect. The maximum gross list price for eligible pure-electric vehicles will be increased from 70,000 euros to 100,000 euros for vehicles purchased on or after July 1, 2025. If these limits are met, only 25 percent of the list price (under the one-percent method) or 25 percent of the acquisition cost or comparable expenses (under the logbook method) will be used as the basis for calculating the non-cash benefit and, consequently, the private use tax.
IV. Introduction of a Special Depreciation Allowance for Electric Vehicles
For electric vehicles as defined in Section 9(2) of the Motor Vehicle Tax Act that are classified as fixed assets and are acquired between July 1, 2025, and December 31, 2027, a special depreciation method may be elected, namely:
75% of the acquisition cost in the year of acquisition (Year 1)
10% of the acquisition cost in the second year
5% of the acquisition cost in the third year
5% of the acquisition cost in the fourth year
3% of the acquisition cost in the fifth year
2% of the acquisition cost in the sixth year
As can be seen, the law assumes a typical useful life of six years for electric vehicles.
However, in addition to this special depreciation, no special depreciation (e.g., under Section 7g(5) of the Income Tax Act [EStG] in connection with the claiming of investment tax credits) may then be claimed for the asset in question.
Another special feature here is that no pro-rata reduction or allocation of the depreciation amount takes place in the year of acquisition. This means that the 75 percent can be depreciated in the first year regardless of when the acquisition takes place. In an extreme case, an acquisition made on December 30 of a given year would still result in the full 75 percent being depreciated in that year.
According to the legislative rationale, the time limit on this provision is intended to create “incentives for prompt investment decisions.”
V. Further Changes and Outlook
For the sake of completeness, it should be noted that, in addition to the changes described above, the legislative package mentioned earlier also includes amendments to the retention rule under Section 34a of the Income Tax Act (EStG) and the Research Allowance Act. However, these will not be discussed in detail in this article.
The law that has now been passed already implements several measures from the new federal government’s coalition agreement. Some selected additional tax-related issues that the federal government intends to address in the future, according to the coalition agreement, include:
- The commuter allowance is to be permanently increased to 38 cents per kilometer starting with the first kilometer, effective January 1, 2026.
- The sales tax on food in restaurants is to be permanently reduced to seven percent as of January 1, 2026.
- Those who reach the statutory retirement age and choose to continue working voluntarily should be able to receive up to 2,000 euros per month tax-free. According to the coalition agreement, perverse incentives and windfall effects are to be avoided.
- Various changes in the area of “volunteer work and charitable activities,” such as an increase in the flat-rate allowance for instructors and the flat-rate allowance for volunteers.
- Tax exemption for overtime premiums that exceed the full-time work hours agreed upon in collective bargaining agreements or based on such agreements.
However, as is well known, these planned measures are subject to funding approval in accordance with the coalition agreement.
