Economic Growth Acceleration Act: Germany’s Third Stimulus Package Provides Tax Relief

01/28/2010

Berlin - Germany’s third economic stimulus package provides targeted tax relief for both companies and employees. Effective since January 1, 2010, the Economic Growth Acceleration Act seeks to quickly and effectively achieve growth and stimulate employment by means of a targeted tax policy.

To achieve this goal, a variety of measures have been enacted. Qualified companies benefit from a higher exemption limit for taxes on interest payments. Interest above the new limit can also be deducted for up to five years through so-called carryforwards. Deductions for losses and new investments have also been made favorable for businesses.

In addition to these measures, share transfers and company successions have been streamlined. For share transfers within associated corporations, the use of tax losses and tax loss carryforwards are now allowed under certain conditions. Restructuring processes themselves will also be exempted under the real estate transfer tax. For company successions, the minimum mandatory holding period has been reduced from seven to five years including the minimum wage sum for this period. Additionally, the inheritance tax burden of Tax Class II (siblings and children of siblings) has been reduced.

The act also implements a change to depreciation laws that increases options for some assets. For low-value fixed assets up to EUR 410, an immediate depreciation option can be selected. This complements the previously mandatory option, which allowed for all goods between EUR 150 and 1000 to be considered a compound item and depreciated over five years.

A welcome change for the tourism industry is a reduction of the value added tax rate of 7 percent for short-term accommodation.

Together with a reduction of the income tax burden and recent health insurance reforms, these measures have favorable effects on both employees and employers. Companies benefit from attractive investment conditions and consumers have been empowered by a reduction in their tax burden, further strengthening the German market from both sides. Together with the first two economic stimulus packages in 2009, Germany has executed its largest program to boost economic performance since the postwar years and has remained a stable and attractive investment environment throughout the economic crisis.