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German Growth Opportunities Act ‘lite’ - What has remained?

In the following section we provide an overview of the amendments made to the Growth Opportunities Act within the framework of the outcomes agreed as a result of mediation. First of all, we set out the provisions that were adopted with some adjustments. These are then followed by a list of measures that, when compared with the previous draft of the legislation, were deleted without replacement.

Prolonged negotiations

In the course of the legislative procedure, intensive political discussions between the German federal and state [Länder] governments led to the Mediation Committee having to work out a new compromise on the Growth Opportunities Act, on 21.2.2024, and to pass it without the votes of the CDU/CSU. The new draft legislation was then approved by the Bundestag [lower house of German parliament] already on 23.2.2024; now, the Growth Opportunities Act still has to be passed by the Bundesrat [upper house of German parliament] at the session scheduled for 22.3.2024. If the approval of the CDU/CSU still fails to materialise in the Bundesrat then the Mediation Committee may have to deliberate again, or a completely revised version of the draft legislation might be necessary. The CDU/CSU continue to make their approval for the Growth Opportunities Act conditional on the cancellation of the planned elimination of tax subsidies for diesel fuel in agriculture.

Please note: Some of the measures that were originally included in the Growth Opportunities Act were implemented in 2023 already via a separate legislative procedure within the framework of the Secondary Credit Market Act (Kreditzweitmarkt). This includes, in particular

  • the consequential tax changes in the wake of the coming into force of the Act on the Modernisation of Partnership Law, 
  • the reform of the interest barrier rule and its adaptation to the requirements of the Anti-Tax Avoidance Directive (ATAD) as well as 
  • a tax waiver on the natural gas emergency aid in December 2022.

What remains - Measures revised by the Mediation Committee

(1) Loss carryforward - The portion over and above the basic loss amount of €1m (individual tax assessment) or €2m (joint tax assessment) that may be carried forward for offsetting for income tax purposes as well as for corporation tax purposes will be increased for the 2024 to 2027 assessment periods to 70% of the overall amount of income (prior to the Mediation Committee: 75%). The current percentage limit of 60% will be applicable once again as of the 2028 assessment period.  

(2) Declining balance method of depreciation - A distinction has to be made here between depreciation for buildings and the declining balance method of depreciation for long-term movable assets. The latter was previously limited to acquisitions and production carried out up to 31.12.2022. Now, it will also be possible to use the declining balance method of depreciation for assets acquired after 31.3.2024 (prior to the Mediation Committee: 30.9.2023) and before 1.1.2025. During this extended period, the applicable percentage that may be charged will be, at most, 2 times that of a straight-line depreciation percentage and may not exceed 20% (prior to the Mediation Committee: 2.5 times and a maximum of 25%). Charging declining balance depreciation of 5% (prior to the Mediation Committee: 6%) will be made possible for buildings that are used for residential purposes and that were constructed by the taxpayer themself or acquired at the end of the year of construction. The conditions require that the start of construction or the conclusion of an obligatory purchase agreement will have to have taken place after 30.9.2023 and before 1.10.2029.

(3) Special depreciation - The special depreciation pursuant to Section 7g(5) of the Income Tax Act (Einkommenssteuergesetz, EStG) will be increased from the previous level of 20% to 40% (prior to the Mediation Committee: 50%).

(4) Reduced payroll tax rate - Currently, there is a payroll tax deduction option available that enables a reduced tax rate to be claimed for certain types of remuneration pursuant to Section 34(1) EStG, however, from 2025 it will only be possible to claim this in the context of a tax assessment (prior to the Mediation Committee: 2024).

(5) Application for tax assessment - A new feature in the legislation that will be introduced is a tax assessment for employees that have restricted tax liability in Germany and that receive remuneration that has to be taxed at a reduced rate. This option should be available from the 2025 assessment period (prior to the Mediation Committee: 2024).

(6) Preliminary VAT return - Businesses whose VAT liability for the preceding calendar year was no more than €2,000 will, from 2025 (prior to the Mediation Committee: 2024), be able to obtain an exemption, from their local tax office, from the obligation to submit preliminary returns and make advance payments.

(7) Research allowances - There are plans for an increase in the share of eligible costs as defined in the German Research Allowance Act from the current 60% to 70% from now on. Furthermore, the increase in the maximum assessment base, which was hitherto time limited, will become permanent and will be fixed at €10m (prior to the Mediation Committee: €12m). These changes shall apply from the day after the promulgation of the Growth Opportunities Act (prior to the Mediation Committee: from 1.1.2024).

Provisions that will no longer feature in the legislation - Measures deleted without replacement

Disappointingly, the remaining measures are merely a lite version of the original proposal, as the following list of points that were deleted without replacement demonstrates. There will no longer be 

  • the introduction of an investment premium for climate change mitigation in the amount of €30m for domestic (German) enterprises,
  • an extension to the loss carryback period to three years and, at the same time, an increase in the maximum amount to €10m (individual tax assessment) or €20m (joint tax assessment) for the 2024 and 2025 assessment periods,
  • an increase in the amount limits from €800 to €1,000 for low-value assets that can be depreciated immediately as well as from €1,000 to €5,000 per asset for those that can be included in compound items; the planned reduction in the reversal period for compound items from five years to three years was likewise deleted without replacement,
  • the introduction of an exemption limit in the amount of €1,000 for income from letting and leasing,
  • an increase in the blanket allowances for additional expenses for meals,
  • an increase in the tax-exempt amount for company events from €110 to €150,
  • an increase in the subsidy rate for the tax incentives for energy-related renovation measures as defined in Section 35c(1a) EStG from 20% to 30%,
  • a reduction in the average rate for farmers,
  • the earlier phasing out of the time-limited reduced taxation of gas and heating supplies,
  • the introduction of a reporting obligation for domestic (German) tax structures as well as
  • the abolition of the range alternative for hybrid passenger cars where rental and leasing payments are added back for trade tax purposes.
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