The newly formed CDU-SPD coalition in Germany has launched an ambitious agenda to strengthen the country's economic position, foster innovation and address global trade challenges [1]. This comes at a critical time for German businesses, which have seen their competitiveness decline in recent years amidst rising energy costs, regulatory burdens and intensifying global competition. The 2025 Wettbewerbsindex (Competitive Index) study by Alvarez & Marsal and the Deutsche Gesellschaft für Managementforschung (DGMF) highlights these pressures, revealing a sharp drop in the competitiveness of Germany’s industrial sector in 2025.

The coalition agreement sets out key policy measures to address these challenges, including plans to reduce import tariffs with the U.S. and pursue a long-term free trade agreement [2]. These initiatives aim to ease trade tensions and create a more favorable environment for businesses operating across the Atlantic [3].

Below, we summarize the key tax reforms and their implications for foreign investors and businesses operating in Germany:

Corporate Taxation

• Reduction in Corporate Tax Rates: Starting in 2028, the corporate tax rate will be reduced incrementally by 1 percentage point annually over five years. This measure aims to enhance Germany's attractiveness as a business location [4].
• Degressive Depreciation: A temporary 30% declining balance depreciation for equipment investments will be introduced for 2025-2027, encouraging capital investments [5].
• Reform of Taxation for Startups: From 2027, the government will explore whether income from newly established businesses, regardless of legal form, can fall under corporate tax rules, potentially simplifying tax structures for foreign startups [6].

Trade Tax

• Minimum Trade Tax Rate Increase: The minimum trade tax rate will rise from 200% to 280%, potentially increasing the tax burden for businesses in low-rate municipalities [7].
• Anti-Tax Avoidance Measures: New administrative measures will target "sham relocations" to low-tax jurisdictions within Germany, ensuring fair competition [8].

Incentives for Sustainability and Innovation

• Energy Tax Reduction: The electricity tax will be lowered to the EU minimum, alongside reduced transmission grid fees, benefiting energy-intensive industries [9].
• R&D Tax Incentives: Enhanced research and development (R&D) tax credits, including higher rates and simplified procedures, will make Germany more attractive for innovation-driven businesses [10].
• Support for Electric Vehicles: Tax exemptions for electric vehicles will be extended until 2035 [11], and the price cap for subsidized company cars will increase to €100,000 [12].

Sector-Specific Measures

• Film and Gaming Industry: New tax incentives will be introduced to support investments in the film and gaming sectors, creating opportunities for foreign investors in these creative industries [13].
• Agricultural Diesel: The reintroduction of agricultural diesel tax refunds will reduce costs for businesses in the agricultural sector [14].

Other Notable Changes

• Import VAT Reform: The collection of import VAT will transition to a credit model, reducing administrative burdens for businesses engaged in international trade [15].
• Solidarity Surcharge: The solidarity surcharge will remain in place, maintaining an additional tax burden for high-income businesses and individuals [16].
• VAT on Gastronomy: The reduced VAT rate of 7% for food services will be made permanent from 01.01.2026, potentially boosting the hospitality sector [17].
• Financial Transaction Tax: Germany will support the introduction of a financial transaction tax at the EU level, which could impact foreign financial institutions [18].

Implications for Foreign Investors

These reforms reflect Germany's commitment to balancing fiscal responsibility with economic growth and sustainability. While measures such as corporate tax reductions and R&D incentives enhance Germany's appeal, increases in trade tax rates and the retention of the solidarity surcharge may offset some of these benefits. The shift to a credit model for import VAT collection is particularly relevant for foreign businesses, as it simplifies cash flow management and reduces compliance costs.

Next Steps

While the coalition agreement outlines ambitious tax reforms, it remains to be seen how quickly and to what extent these plans will be implemented. Key measures, such as the reduction in corporate tax rates, appear more likely to be prioritized and enacted swiftly. However, the final details of the legislation will determine the actual impact on businesses. Given the current global economic challenges, expectations and hopes for decisive action by the coalition parties are high. Foreign businesses and investors should closely monitor developments and remain prepared to adapt their strategies as the legislative process unfolds.

For further insights or tailored advice, please contact our team of tax professionals.

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[1] https://www.deutschland.de/en/topic/politics/coalition-treaty-new-federal-government-germany-overview.

[2] Line nos. 263-265 of the Coalition Agreement, https://www.csu.de/common/csu/Koalitionsvertrag_2025_Verantwortung_fuer_Deutschland.pdf.

[3] https://www.bundesregierung.de/breg-en/federal-government/coalition-agreement-482268.

[4] Line nos. 1432-1434 of the Coalition Agreement.

[5] Line nos. 1430-1431 of the Coalition Agreement.

[6] Line nos. 1438-1440 of the Coalition Agreement.

[7] Line nos. 1456 of the Coalition Agreement.

[8] Line nos. 1450-1455 of the Coalition Agreement.

[9] Line nos. 1501-1503 of the Coalition Agreement.

[10] Line nos. 2591-2592 of the Coalition Agreement.

[11] Line nos. 205 of the Coalition Agreement.

[12] Line nos. 203-204 of the Coalition Agreement.

[13] Line nos. 3885-3900 of the Coalition Agreement.

[14] Line nos. 1404 of the Coalition Agreement.

[15] Line nos. 346-347 of the Coalition Agreement.

[16] Line nos. 1448 of the Coalition Agreement.

[17] Line nos. 1497-1499 of the Coalition Agreement.

[18] Line nos. 1496-1497 of the Coalition Agreement.