Tax Amendment Act 2025

On December 19 2025, the German Federal Council passed the 2025 Tax Amendment Act  in a version amended by the Finance Committee. The act is intended to implement further changes discussed in the coalition agreement (see BDO Insight dated April 10, 2025). These were already specified on May 28, 2025, in the emergency program for Germany adopted by the coalition committee. The act also contains further tax law changes to be implemented in the short term.

The following measures are planned:

Income Tax

The reference to the revised EU de minimis regulation in the context of special depreciation for new rental housing construction under Section 7b of the German Income Tax Act (Einkommensteuergesetz, EStG) is to be updated and made dynamic; this is also intended to avoid further amendments to the law upon future revisions of the regulation.
The commuting allowance is to be increased to 38 cents for journeys between home and work from the first kilometer traveled as of January 1, 2026; this also applies to taxpayers who can claim double household expenses. The supplementary “mobility bonus” for taxpayers with lower incomes, which applies from the 21st kilometer of travel, is to be made permanent.

The actual expenses incurred for the use of accommodation can be claimed as accommodation costs for maintaining two households. A new feature is that a maximum amount of EUR 2,000 has now been introduced for an apartment abroad, which corresponds to twice the domestic amount. The maximum amount for the apartment abroad does not apply if a company apartment must be used for work purposes or if its costs have been recognized as necessary for the purposes of the rent subsidy under Section 54 of the Federal Remuneration Act. The regulation applies from the 2026 assessment period and was added to the legislative process by the Finance Committee of the Parliament.

The Finance Committee also added the additional consideration of trade union contributions as income-related expenses. Such contributions to trade unions as contributions to professional associations and other professional organizations whose purpose is not directed toward economic business operations will be taken into account as income-related expenses in addition to the employee lump sum, the lump sum for pension payments, and the lump sum for other income starting in the 2026 assessment period.

To adjust for inflation, the maximum amount of the donation deduction for contributions to political parties will be increased from EUR 1,650 to EUR 3,300 (EUR 6,600 for joint assessment) from the 2026 assessment period onwards. However, according to Section 10b (2) sentence 2 EStG, a special expenditure deduction for donations to political parties can only be considered if they have not been granted a tax reduction under Section 34g EStG. The maximum amount applicable here will be increased from EUR 825 to EUR 1,650 (EUR 3,300 for joint assessment).

Starting in the 2026 assessment period, the trainer allowance is to be raised from EUR 3,000 to EUR 3,300 and the volunteer allowance from EUR 840 to EUR 960 (Section 3 no. 26 and no. 26a EStG). In addition, bonus payments from the German Sports Aid Foundation (Stiftung Deutsche Sporthilfe) awarded for placements at the Olympic or Paralympic Games will be tax-exempt from the 2026 assessment period onwards in accordance with a new no. 73 in Section 3 EStG.

Contrary to its previous case law, the German Federal Fiscal Court (Bundesfinanzhof, BFH) had ruled that a company event within the meaning of Section 40 (2) sentence 1 no. 2 EStG also exists if it is not open to all members of a company or part of a company. The BFH justified this by stating that the criterion of a “company event” in Section 40 (2) sentence 1 no. 2 EStG corresponds to the legal definition in Section 19 (1) sentence 1 no. 1a sentence 1 EStG. Terms used in different provisions of the same law must, in principle, be interpreted uniformly. The law now expressly clarifies that the flat-rate option for wages paid on the occasion of company events only applies if participation in the company event is open to all members of the company or part of the company.

VAT

From January 1, 2026, the VAT on food in the catering industry (restaurant and catering services, except for the sale of beverages) is to be permanently lowered to the reduced tax rate of 7 %.

The new Section 21b of the German Value Added Tax Act (Umsatzsteuergesetz) introduces a special provision for the use of Centralised Clearance for Import (CCI) with regard to import VAT.

German Tax Code

Electronic notification of the non-forwarding of an application for input tax refund by the Federal Central Tax Office (BZSt) will become the norm from January 1, 2026. This will eliminate the current requirement for approval by the domestic entrepreneur.

In addition, the act provides for further amendments to the Tax Code (Abgabenordnung, AO) regarding non-profit law from the 2026 assessment period onwards:

• increase of the exemption limit for taxable economic business operations from EUR 45,000 to EUR 50,000 (Section 64 (3) sentence 1 AO),
• increase of the exemption limit for the obligation to use funds promptly from EUR 45,000 to EUR 100,000 (Section 55 (1) no. 5 Sentence 4 AO),
• waiver of sphere allocation of income for corporations with income below EUR 50,000 (Section 64 (3) sentence 2 AO),
• introduction of e-sports as a new charitable purpose (Section 52 (2) sentence 1 no. 21 AO),
• construction and operation of photovoltaic systems as a tax-neutral activity in the case of non-profit corporations (Section 58 no. 11 AO).

Research allowance

The update to the reference in the Section 9 (5) of the Research Allowance Act (Forschungszulagengesetz) is intended to implement the provisions of the new de minimis regulation on research allowances.