New Tax Incentive Law in Germany: Investment Relief Measures Effective July 2025

On July 19, 2025, Germany enacted the Act to Strengthen Germany as a Business Location, a legislative package designed to stimulate investment and enhance the country’s economic competitiveness.

The core element of the reform is the introduction of accelerated depreciation for movable assets acquired between July 2025 and December 2027. Under the new rule, businesses are allowed to depreciate up to 30% of the acquisition cost in the first year, significantly improving liquidity and making capital investment more tax-efficient.

Additional tax benefits have been introduced for corporate electric vehicles. The eligible price threshold has been increased to €100,000, and in many cases, up to 75% of the vehicle’s cost can be depreciated in the year of purchase. This measure provides both financial relief and environmental incentives for businesses modernizing their fleets.

From 2028 onwards, the law also initiates a gradual reduction of the corporate income tax rate, decreasing from the current 15% to 10% by 2032. In parallel, the effective tax burden on retained earnings is expected to decline. Moreover, tax incentives for research and development activities have been expanded, with improved eligibility under the Forschungszulagengesetz (Research Allowance Act), making Germany more attractive for innovative industries.

According to estimates from the German Economic Institute, the reform may result in a significant increase in private-sector investment and create tens of thousands of new jobs. At the same time, federal tax revenues are expected to decline temporarily—by up to €80 billion through 2029—although this is projected to be offset by stronger long-term economic growth.

The law marks a shift in Germany’s fiscal policy, aimed at simplifying the regulatory framework and restoring the country’s appeal as a business-friendly environment. It reflects a broader strategy under Chancellor Friedrich Merz to reduce tax pressure on companies and drive growth through private enterprise.

 Recommendations for Companies and Investors

1. Adjust investment timing.
Capital expenditure originally planned for later years may benefit from being brought forward to fall within the 2025–2027 window.

2. Consider transitioning to electric fleets.
Tax incentives significantly improve the business case for adopting electric vehicles in corporate operations.

3. Review profit retention strategies.
The gradual tax reduction supports reinvestment models and favors companies that retain earnings for growth.

4. Leverage R&D tax credits.
If your business engages in innovation, software development, or technology projects, now is the time to assess eligibility for the expanded research subsidy.

5. Seek professional tax advice.
A tailored tax and legal review will help identify how best to benefit from the new incentives.