Germany cuts corporate taxes by 46 billion

It's been just a month since Friedrich Merz's new government took office in Berlin, and today the first package of economic stimulus measures emerged from the Council of Ministers, hoping to inject life into a stagnant economy with no hope of growth for the entire year, according to the latest report from economic institutes. Merz is launching a broad tax relief program worth €46 billion annually to give businesses breathing room and more investment. This is the agreement he reached with his coalition partners, the Social Democrats of the SPD, during the negotiations to form a government. His party, the Christian Democratic Union, included a reduction in corporate tax from 30% to 25% in its election platform, and the SPD included a conditional "Made in Germany" bond, with tax exemptions benefiting companies that invest in the country.

Finance Minister Lars Klinbeil, a Social Democrat, has announced write-offs of up to 30% for companies that purchase real estate assets between the end of June this year and January 2028. It also includes additional exemptions for companies that renew their electric vehicle fleets up to €100,000 , and a gradual reduction in corporate tax until 2029, when it will fall to 25%. These measures could allow companies to deduct up to 75% of their taxes in the same year they make the investment. Furthermore, the draft tax reform bill provides that, when the measure expires, the investment tax for cooperatives will be reduced from 15% to 10%, seeking to provide long-term tax security for companies and help them compete internationally.

Before the measures can take effect, they must be approved by both houses of parliament, and Klingbeil expects a vote before the summer recess in mid-July. "Revitalizing the fragile German economy, which has suffered two consecutive years of recession, is one of the new governing coalition's top priorities," he identified as an objective. This short-term effectiveness is particularly appreciated by German business organizations, which have welcomed the immediate action program.

"Companies need a clear starting signal and certainty in their investment planning before the summer break in July and August," said Tanja Gönner, Director General of the Federation of German Industry (BDI) . "Many SMEs have been struggling for some time," reacted Christoph Ahlhaus, Director General of the BVMW association of small and medium-sized businesses. "The world and competition are not waiting for us, and the speed of implementation will play a key role in the effectiveness of the reforms."

The minister justified the situation by stating that, "after a period of economic stagnation, it is important to significantly increase" the potential of the German economy and is confident that this first stimulus package will help "protect jobs and put Germany back on the path of growth." With these measures, the German government aims to "send a strong signal regarding short- and long-term competitiveness" and once again present Germany as a beneficial place to do business. In this regard, Klingbeil has announced his intention to improve the treatment that the German tax authorities offer to profits and to expand tax incentives for research and development. This corporate tax reduction package is in addition to a massive public investment plan of 500 billion euros in infrastructure over the next ten years and the determination to comply with US demands within NATO to increase defense investment to 5% of GDP , which will undoubtedly have an impact on the German arms manufacturing sector.

Despite all these efforts, German companies are reluctant to invest due to the trade war initiated by Donald Trump. However, Klingbeil sees positive signs following the talks between the seven major industrialized countries of the G7 and is confident that Chancellor Merz's visit to Washington will help calm the waters. In his own conversations, he perceived his American counterpart, Scott Bessent, as "very constructive and solution-oriented," he said.