Part 1 – of the contributions to the measures of the immediate investment programme
Germany is set to become an attractive destination for investors again after more than two years of economic stagnation. This goal is being pursued with the German federal government’s immediate investment programme (Investitionssofortprogramm), which was adopted in mid-July (BGBl. 2025 I no. 161 of 18 July 2025). The following measures will be implemented:
- Gradual reduction of the corporation tax from the current 15% to 10% by 2032, starting on 1 January 2028,
- a corresponding reduction in the retained earnings tax rate in three stages from the current 28.25% to 25% by 2032,
extension of the research allowance, and
- electric vehicles will be further subsidised (our series on green mobility for employers is also interesting: Part 1 and Part 2), in particular through the introduction of an arithmetic-degressive depreciation for newly purchased electric vehicles.
In addition to the above steps, the option of declining-balance depreciation for (all) movable fixed assets, which expired on 31 December 2024, will not only be reintroduced but also made significantly more attractive. This measure, referred to in the draft as an ‘Investitions-Booster’, aims to increase the profitability of investments and improve companies’ liquidity, particularly during the sensitive phase immediately after an investment.
The mechanism of the Investitions-Booster
Under the new Sec. 7 para. 2 of the German income tax act (Einkommensteuergesetz, “EStG”), companies will have the option of depreciating movable assets acquired between 1 July 2025 and 31 December 2027 on a declining balance basis instead of on a straight-line basis. The depreciation rate may be up to three times the straight-line rate, but may not exceed 30% in total.
While under the straight-line method, the investment costs are depreciated evenly over the useful life, under the declining balance method, the depreciation decreases from year to year. The declining balance method calculates depreciation by applying a fixed percentage to the residual book value at the start of a financial year. For purchases made during the financial year, the depreciation allowance is reduced by 1/12 for each full calendar month before the end of the financial year.
This results in higher depreciation amounts in the first few years, significantly reducing the tax burden on companies and strengthening their liquidity in the years immediately following acquisition. From a certain point in time, switching to straight-line depreciation is permitted and advisable.
Example calculation:
A company purchases an asset worth €100,000. According to the depreciation table, the straight-line depreciation rate is 10% of the acquisition cost per year for an asset with a useful life of ten years. If the new declining balance method is applied by the company, the depreciation rate is three times higher, i.e. 30% per year. From the eighth year onwards, however, straight-line depreciation becomes more advantageous than declining balance depreciation, so the depreciation method changes.
| Degressive depreciation | Straight-line depreciation | Advantage/ disadvantage due to investment booster | ||||
| Year | Depreciation | Residual book value | Year | Depreciation | Residual book value | Depreciation |
| 1 | €30,000.00 | €70,000.00 | 1 | €10,000.00 | €90,000.00 | + €20,000.00 |
| 2 | €21,000.00 | €49,000.00 | 2 | €10,000.00 | €80,000.00 | + €11,000.00 |
| 3 | €14,700.00 | €34,300.00 | 3 | €10,000.00 | €70,000.00 | + €4,700.00 |
| 4 | €10,290.00 | €24,010.00 | 4 | €10,000.00 | €60,000.00 | + €290.00 |
| 5 | €7,203.00 | €16,807.00 | 5 | €10,000.00 | €50,000.00 | ./. €2,797.00 |
| 6 | €5,042.10 | €11,764.90 | 6 | €10,000.00 | €40,000.00 | ./. €4,957.90 |
| 7 | €3,529.47 | €8,235.43 | 7 | €10,000.00 | €30,000.00 | ./. €6,470.53 |
| 8 | €2,745.14 | €5,490.29 | 8 | €10,000.00 | €20,000.00 | ./. €7,254.86 |
| 9 | €2,745.14 | €2,745.14 | 9 | €10,000.00 | €10,000.00 | ./. €7,254.86 |
| 10 | €2,745.14 | €0.00 | 10 | €10,000.00 | €0.00 | ./. €7,254.86 |
The example clearly shows that, with the declining balance method of depreciation, €35,990 more can be depreciated in the first four years after acquisition until, in the fifth year, the effect is reversed due to the lower remaining book value, at which point the advantage is ‘used up’. From the eighth year onwards, the depreciation method changes in the example, as straight-line depreciation calculated from the residual book value is then more advantageous than retaining the declining balance method.
Make the most of the Investitions-Boosterr by using and combining it strategically
Of particular interest is the fact that the declining balance method of depreciation can be combined with the special depreciation allowance under Sec. 7g para. 5 EStG to support small and medium-sized enterprises. While the special depreciation allowance under Sec. 7g para. 5 EStG is subject to certain conditions, it is particularly useful during the start-up phase of a company. The special depreciation allowance under Sec. 7g para. 5 EStG allows a further 40% of the investment costs to be depreciated within five years. Depending on the asset acquired, this means that up to 70% of the investment costs can be written off in the year of acquisition.
Whether and how the new declining balance depreciation can be used to best effect for your company, which combination options are available, and whether it is worthwhile switching to straight-line depreciation, depends on several factors, such as profit, liquidity planning, and the timing and amount of the investment.
Get in touch if you want to make the most of the investment booster for your company.
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The above information is for informational purposes only and does not constitute legal or tax advice.
Our legal trainee Freeke Tasman contributed to the preparation of this article.
For further information, please contact:
Dr. Rolf Schmich, Partner, Bird & Bird
rolf.schmich@twobirds.com
