The tax roadmap for 2025: the most important tax plans in the coalition agreement at a glance

From income tax cuts to a corporate tax reform – the new coalition agreement announces extensive changes to tax policy. 

In the coalition agreement for the 21st legislative period, the new government announces comprehensive tax reforms. The goal: a more just tax system, a competitive economy and a modern state. The agreement addresses topics ranging from relieving the burden on low and medium-income households to combating tax avoidance and the digitalisation of tax administration. Below are the new coalition government's tax plans at a glance: 

Lower income tax for medium-income households 

A central concern of the new coalition government is relieving the burden on low and medium-income households. A reduction in income tax is planned for the middle of the legislative period. This is intended to provide noticeable relief for medium-income earners. 

In addition, the relief for single parents is to be "increased or further developed", while introducing a statutory linking mechanism between child allowance and child benefit to gradually reduce the gap between the relief effect of child allowance and child benefit.  

The solidarity surcharge is to remain unchanged. 

Tax incentives for companies: promoting investments through tax incentives, reducing corporate income tax 

The tax framework for companies is to be made more growth-friendly. The new coalition government plans to introduce the following two measures in a joint legislative process: 

• an "investment booster" in the form of degressive depreciation of 30 % on equipment investments in the years 2025, 2026 and 2027 and 
• the gradual annual reduction of corporate income tax by 1 % each year, in a total of five stages, starting on 1 January 2028, reducing the corporate income tax rate to 10% in 2032. 

In addition, important components of the taxation of partnerships, such as the retained earnings tax relief (section 34a German Income Tax Act (EStG)) and the option model for corporate income tax (section 1a German Corporate Income Tax Act (KStG)) are to be revised. In addition, whether the trade income of newly founded companies can fall within the scope of corporate income tax regardless of their legal form from 2027 is to be examined. 

Minimum assessment rate for trade tax: preventing trade tax havens 

In order to ensure fair competition between local authorities and prevent tax avoidance through sham relocations to "trade tax havens", the minimum trade tax rate is to be raised to 280 % (previously: 200 %). The aim is to prevent "trade tax havens" within Germany in future. 

(No) commitment to the global minimum tax? 

Under the heading "Global minimum tax", the wording of the coalition agreement seems slightly contradictory: although the new coalition government is committed to the minimum tax for large groups and wants to support work at an international level to permanently simplify the minimum tax, it simultaneously announces its intention to monitor the effects of international divergences on the global tax architecture and to make efforts at European level to ensure that this does not put German companies at a disadvantage when it comes to international competition.  

The restaurant industry and VAT: a permanent rate of 7 % VAT on meals in restaurants 

The VAT rate on meals in restaurants is to be permanently reduced to 7 % from 1 January 2026. 

Proper payment for work: tax incentives for overtime and longer working hours 

The new coalition government has announced targeted incentives for increased gainful employment: 

• Overtime in excess of collectively agreed or contractually agreed full-time hours is to be tax-free in future.  
• Anyone who works beyond retirement age will in future be able to earn up to EUR 2,000 per month tax-free. 
• Premiums for increasing the hours of part-time jobs are also to be tax-privileged. 

These measures are intended both to counteract the shortage of skilled labour and to recognise voluntary work performance. 

Voluntary work and non-profit status: tax relief for social engagement 

Further tax relief measures in the coalition agreement concern voluntary work and non-profit organisations: 

• The allowance for voluntary work is to increase to EUR 960 per year. 
• The sports trainer allowance is to increase to EUR 3,300 per year. 
• In addition, the exemption threshold for business operations by non-profit associations is to be increased to EUR 50,000 and the catalogue of charitable purposes is to be modernised.  
• Non-profit law is to be simplified overall. Non-profit organisations with income of up to EUR 100,000 are to be exempted from the requirement to use funds promptly. 
• If non-profit corporations generate income of less than EUR 50,000 per year from economic activities, there is no longer any need to determine whether this income comes from a special-purpose operation or from a taxable commercial business operation. 

Increase of the commuter allowance and tax incentives for e-mobility 

From 2026 the commuter allowance is to rise to 38 cents per kilometre from the first kilometre – regardless of the distance.  

E-mobility is to be promoted by tax measures which include: 

• favourable tax treatment of company cars by increasing the gross price limit for tax incentives for e-vehicles to EUR 100,000, 
• special depreciation for e-vehicles, 
• vehicle tax exemption for electric cars until 2035. 

Energy prices and electricity tax: electricity tax at European minimum level 

The new coalition government has its eye on the high energy costs. It plans to reduce electricity tax to the European minimum level and reduce levies and grid charges. 

Tax transparency and fairness: tougher action against tax avoidance and undeclared work 

The government wants to take tougher action against tax evasion and tax avoidance as follows: 

• Cum-cum transactions are to be systematically prevented. 
• Gang tax evasion is to be pursued in particularly serious cases through extended possibilities for telephone surveillance. 
• In order to be able to take effective action against tax havens, non-cooperative tax jurisdictions being consistently added to the EU list of non-cooperative jurisdictions for tax purposes is to be supported. 
• The obligations relating to cash registers are to be reformed in order to eliminate deficits and prevent abuse. 

In addition, the Financial Control of Undeclared Work Unit (Finanzkontrolle Schwarzarbeit) is to be strengthened so that tougher action can be taken against those who engage in illegal employment or undeclared work. 

Tax dumping and unfair tax competition in the EU is to be prevented. The new government therefore wants to support a uniform EU-wide assessment basis for corporate income tax. 

Digitalisation and simplification: reducing tax bureaucracy 

Tax administration is to become more efficient and digitalised. The matters to be examined include: 

• A working day flat rate for the flat-rate settlement of income-related expenses. 
• In addition, the digital submission of tax returns is to gradually become mandatory. 
• For simple cases, pre-filled and automated tax returns are to be successively expanded.  
• Pensioners and employees are to be relieved of declaration obligations as far as possible.  
• Corporations and partnerships are to gradually move to self-assessment. 

Other matters: financial transaction tax and other tax issues in the coalition agreement 

The coalition agreement also contains the following tax plans: 

• Costs for energy-efficient refurbishment of inherited properties are to be tax-deductible.
• Home ownership for families ("home ownership start-up aid") is to be improved through government measures.
• Landlords offering affordable rental properties are to receive tax breaks.
• A financial transaction tax at European level is to be supported.
• The legal tax framework for the Querverbund (joining together of several municipal companies) is to be adapted in order to ensure the continued existence of municipal services of general interest in the long-term.
• The research tax allowance is to be significantly increased and the assessment basis simplified.
• Employee participation is to be further strengthened through practice-based structuring of tax and social security law.
• The collection of import VAT is to be switched to a settlement model.
• The air transport-specific taxes, fees and charges are to be reduced and the increase in air traffic tax reversed.
• The agricultural diesel rebate is to be fully reintroduced. 

In short: the 2025 tax policy roadmap is in place – the further details and how it will be implemented remain to be seen 

With the 2025 Coalition Agreement, the new government is setting extensive tax policy priorities: the focus is especially on easing the burden on broad sections of the population, investment incentives and tax cuts for companies and a digital, citizen-centred administration. At the same time, the tax system is to be made fairer, for example through further measures against tax avoidance. How quickly the planned measures will be rolled out and how far they will go remains to be seen with.