Immediate Investment Programme and tax investment incentives
With the Act on an Immediate Tax Investment Programme to Strengthen Germany as a Business Location, the legislature has adopted key tax measures intended to promote corporate investment. Politically, the Act is often referred to as a “growth booster”. It was adopted by the Bundestag on 26 June 2025, and the Bundesrat unanimously approved it on 11 July 2025. It was promulgated in the Bundesgesetzblatt on 18 July 2025; as a general rule, it entered into force on 19 July 2025. The official short title is StInvSofortPG (Act on an Immediate Tax Investment Programme).
The focus is on two provisions in particular: the temporary reintroduction of declining-balance depreciation for tax purposes for movable fixed assets and the gradual reduction of the corporation tax rate. Both instruments are intended to influence investment decisions, bring forward liquidity effects and reduce the tax burden on future profits.
The following article examines the impact of these measures on corporations on the basis of the business-management net present value analysis presented in the original article. It is not concerned with a general tax assessment of all provisions of the Immediate Investment Programme, but with the question of how declining-balance depreciation and the reduction in the corporation tax rate may affect the economic advantage of an investment.
Depreciation as the basis of investment appraisal
Function of scheduled depreciation
Scheduled depreciation records the consumption in value of depreciable, long-lived fixed assets over their expected useful life. According to the conventional understanding, acquisition or production costs are not recognised in full as an expense in the year of payment. Rather, they are allocated to periods on an accrual basis.
In the determination of taxable profit, the focus here is particularly on straight-line depreciation and geometrically declining-balance depreciation. Straight-line depreciation allocates acquisition or production costs evenly over the useful life. By contrast, declining-balance depreciation results in higher depreciation amounts in the early years and lower amounts in later years.
This timing shift in particular is significant for investment decisions. Although the total amount of depreciation remains unchanged over the entire useful life, the point in time at which tax relief is obtained is shifted.
Financial accounting depreciation and imputed depreciation
A distinction must be made between financial accounting depreciation and imputed depreciation. Financial accounting depreciation forms part of external financial reporting and is governed by commercial law and tax law requirements. Imputed depreciation, by contrast, serves internal purposes of cost accounting and performance accounting.
The commercial balance sheet, the tax balance sheet and internal management accounting pursue different objectives. Accordingly, depreciation under commercial law and depreciation for tax purposes may differ. The tax authorities and the prevailing view in legal literature assume that commercial-law depreciation rules do not always have to be mandatorily adopted in the tax balance sheet via the authoritative principle under § 5 para. 1 sentence 1 EStG (German Income Tax Act).
Imputed depreciation is not based on statutory requirements. It is determined according to internal cost-accounting considerations. In many cases, replacement costs rather than historical acquisition or production costs are used as the basis.
Tax liquidity effect
Through pricing and revenue calculations, imputed depreciation can help ensure that liquid funds flow to the company. However, such effects do not depend directly on tax depreciation rules.
The situation is different with declining-balance depreciation for tax purposes. It can shift tax payments over time and thereby change the present value of the tax burden. The decisive advantage is not that more is depreciated overall, but that tax relief may occur earlier.
Content of the StInvSofortPG
Declining-balance AfA under § 7 para. 2 EStG
The Immediate Investment Programme provides for the reintroduction of an elective tax right to apply declining-balance depreciation under § 7 para. 2 EStG. Depreciable movable fixed assets acquired or produced after 30 June 2025 and before 1 January 2028 are eligible.
The declining-balance depreciation rate is limited. It may not exceed three times the straight-line depreciation rate and, at the same time, may not exceed 30%. The specific amount of the permissible depreciation rate therefore depends on the relevant useful life.
The provision is limited in time. According to the legislative objective, it is intended to bring forward investments, improve liquidity during the investment phase and encourage companies to make investment decisions.
Gradual reduction in corporation tax
The second central component of the programme concerns corporation tax. The corporation tax rate remains at 15% for the 2026 and 2027 assessment periods. From 2028, it will decrease gradually:
- 14% in the 2028 assessment period,
- 13% in the 2029 assessment period,
- 12% in the 2030 assessment period,
- 11% in the 2031 assessment period,
- 10% from the 2032 assessment period.
Including the solidarity surcharge and trade tax, the overall tax burden on corporations will therefore fall to just under 25% from 2032, whereas it currently stands at just under 30%. In the original model, assuming a trade tax multiplier of 400%, a combined tax rate on retained earnings of 29.83% before the rate reduction is used.
In parallel, the tax rate on retained earnings under § 34a EStG will also be reduced in three steps from 2028 to 25% from the 2032 assessment period. According to the legislative explanatory memorandum, this serves to maintain neutrality of the tax burden between partnerships/sole proprietorships and corporations.
Further components of the package of measures
In addition to declining-balance AfA and the reduction in the corporation tax rate, the Immediate Investment Programme contains further tax provisions. These include in particular:
- arithmetically declining-balance depreciation for newly acquired electric vehicles under § 7 para. 2a EStG,
- an increase in the gross list price threshold for the preferential company car taxation of electric vehicles,
- an expansion of the research allowance under § 3 FZulG (German Research Allowance Act).
For business electric vehicles, the depreciation rate in the year of acquisition is 75%. The gross list price threshold for the preferential company car taxation of electric vehicles acquired after 30 June 2025 increases from EUR 70,000 to EUR 100,000. Following an association inquiry, it was also clarified that the 75% depreciation for electric vehicles may cover not only first registrations but also used electric vehicles.
However, these provisions are not the focus of the net present value analysis presented here. The focus remains on declining-balance AfA for movable assets and the reduction in the corporation tax rate for corporations.
Legislative objective and fiscal consequences
Investment promotion after economic stagnation
The legislature justifies the Immediate Investment Programme by reference to the strained economic situation and the objective of strengthening Germany as a business location. Following a phase of weak economic development, the aim is to create investment momentum and unlock growth potential.
The bringing forward of tax relief through improved depreciation options is intended to favour investment decisions. The subsequent reduction in corporation tax is intended to reduce the tax burden on future profits and improve location conditions.
The combination of both measures is particularly significant from an investment appraisal perspective. Earlier depreciation initially provides relief at still higher tax rates. Later profits, against which lower or no depreciation is available, are in some cases already subject to lower corporation tax rates.
Tax revenue shortfalls and burden-sharing
The Act entails significant shortfalls in tax revenue. The legislature expects revenue shortfalls of around EUR 2.5 billion in 2025, EUR 8.1 billion in 2026 and EUR 11.8 billion in 2027. Up to and including 2029, the relief measures add up to a total of almost EUR 46 billion.
The Federal Government will fully assume the municipalities’ revenue shortfalls for the years 2025 to 2029. Compensation will be effected by adjusting the municipalities’ fixed amounts in VAT revenue. The municipal compensation for this period totals more than EUR 13 billion. For the federal states, by contrast, only partial compensation was envisaged.
The agreement on burden-sharing was important for the Bundesrat’s approval. Previously, the Bundestag’s Finance Committee had adopted the programme on 25 June 2025 with amendments to the research allowance. A public hearing took place on 23 and 24 June 2025.
Net present value method as a measure of advantage
Basic assumptions of the model calculation
The net present value method is used to assess advantage. The net present value results from the sum of the net cash surpluses discounted to the investment date less the acquisition or production costs.
In the model, it is assumed that cash surpluses are received at the end of each year. For simplification purposes, depreciation is also taken into account at the end of each year. Tax burdens are treated as cash outflows and tax relief as cash inflows.
In the case of negative tax bases, it is assumed that immediate loss offset is possible because sufficient taxable profits are available. This assumption is essential for the full effect of the accelerated depreciation.
The analysis is expressly limited to corporations, in particular to the level of a GmbH. The effects of possible profit distributions are not considered. Sole proprietors and partners in partnerships remain outside the analysis.
Discount rate and tax burden
A net discount rate of 5% is assumed for discounting. In the model, this interest rate represents the corporation’s required return after taxes.
The tax payment for a period results from the taxable profit multiplied by the combined tax rate. This is composed of corporation tax, solidarity surcharge and trade tax. Before the tax rate reduction, the combined rate is 29.83% assuming a trade tax multiplier of 400%.
The analysis abstracts from the question of whether, in a specific company, a borrowing rate, deposit rate or blended rate after taxes should be used. This point is not examined further in the model.
Base case without growth booster
Straight-line AfA over ten years
In the reference case, an investment of EUR 1 million in a depreciable movable fixed asset is considered. The useful life for tax purposes is ten years. Depreciation is straight-line, so that EUR 100,000 is taken into account for tax purposes each year.
The cash surplus before taxes is EUR 140,000 in each period. After deducting the annual depreciation, the tax base is EUR 40,000 per year. At a combined tax rate of 29.83%, this results in a tax burden of EUR 11,930 per period.
The net cash surplus after taxes is therefore EUR 128,070 per year. Over the useful life, the sum of the depreciation corresponds to the acquisition costs of EUR 1 million.
Negative net present value in the reference case
Discounting the annual net cash surpluses at 5% results in a present value total of EUR 988,923. After deducting the acquisition outlay of EUR 1 million, a net present value of minus EUR 11,077 remains.
Under the model assumptions, the investment would therefore not be advantageous. A management team making a rational decision would not implement it in the base case. This reference case forms the basis for analysing the changes brought about by declining-balance AfA and the subsequent reduction in the corporation tax rate.
First variation: declining-balance depreciation
Timing shift in depreciation amounts
In the first case variation, only the depreciation method for tax purposes is changed. Instead of straight-line AfA, declining-balance AfA at 30% is applied. The useful life remains unchanged at ten years.
The declining-balance depreciation amounts are significantly higher in the first years. In the first year, EUR 300,000 is depreciated, EUR 210,000 in the second year and EUR 147,000 in the third year. In later years, the depreciation amounts decrease accordingly.
The switch to straight-line depreciation becomes advantageous when the straight-line depreciation rate based on the remaining useful life is higher than the declining-balance rate. At a declining-balance depreciation rate of 30%, this is the case from a remaining useful life of three years. In the model, the switch therefore takes place at the beginning of the third-to-last year of use.
Tax relief in early periods
The sum of the depreciation remains unchanged at EUR 1 million even with declining-balance AfA. Only the timing allocation is changed.
In the first periods, very high depreciation amounts are set against the cash surpluses. As a result, the model initially produces tax losses and corresponding tax relief. In later years, the depreciation amounts are lower than under straight-line AfA, so that the tax burden is then higher than in the reference case.
The advantage therefore does not arise from a permanently lower tax base, but from bringing forward the tax relief.
Positive net present value due to interest effect
When declining-balance AfA is applied, the net present value in the model rises from minus EUR 11,077 to EUR 15,148. The improvement amounts to EUR 26,225.
The investment, which was not advantageous in the base case, thus shows a positive net present value for the first time under the model assumptions made. The decisive factor is the interest effect: tax relief in earlier years has a higher present value than later additional tax burdens due to discounting.
Declining-balance AfA can therefore fundamentally change the investment decision. However, this applies only within the underlying assumptions, in particular where there is sufficient opportunity to use early tax losses promptly.
Second variation: reduction in the corporation tax rate
Expansion of the model calculation from 2027
In the second case variation, the gradual reduction in corporation tax is additionally taken into account. In the model, the investment is made in January 2027. All other assumptions remain unchanged.
For the years 2027 to 2036, the combined tax rates are adjusted. The corporation tax rate is initially 15%, falls by one percentage point each year from 2028 and is 10% from 2032. In the model, this results in decreasing combined tax rates from 29.83% in 2027 to 24.55% from 2032.
The depreciation amounts continue to correspond to declining-balance AfA with a later transition to straight-line depreciation.
Interaction of interest effect and rate effect
The tax rate reduction brings two effects together. On the one hand, depreciation is brought forward in time, so that tax relief occurs earlier. On the other hand, later tax payments arise at lower tax rates.
In the model, the tax relief in the first years is still realised at higher tax rates. The later additional tax burdens arising as a result of lower depreciation amounts are in some cases already subject to reduced tax rates.
As a result, not only does the present value of later tax payments fall because of the passage of time, but their nominal amount also decreases due to the lower tax burden.
Further increase in net present value
Including the reduction in the corporation tax rate, the net present value in the model rises to EUR 36,506. Compared with the first case variation involving only declining-balance AfA, this represents a further improvement.
The overall effect is based on the interaction between accelerated depreciation and later rate relief. The two-step approach designed by the legislature becomes visible in the model calculation: liquidity relief occurs early, while later taxable profits are taxed at a lower level.
This advantage requires the useful life of the asset to be long enough for the reduced tax rates to actually become relevant during the depreciation period.
Significance of useful life
Highest relative effect at ten years
The advantage of declining-balance AfA also depends on the useful life of the asset. Up to and including a useful life of ten years, the 30% cap generally applies because three times the straight-line depreciation rate is higher.
From a useful life of eleven years, three times the straight-line depreciation rate falls below the 30% limit. The permissible declining-balance depreciation rate is then below 30%.
The difference between declining-balance and straight-line AfA increases for useful lives of four to ten years. It reaches its maximum at ten years. For longer useful lives, this difference decreases again. The model therefore assumes a useful life of ten years.
No statement on the commercial balance sheet
The model calculation concerns the tax perspective. Potentially divergent objectives of the commercial balance sheet are not examined. Nor is it assessed whether and to what extent deferred taxes would have to be recognised in the commercial balance sheet.
Effects on imputed depreciation in cost accounting and performance accounting are also expressly not assumed. In the model, the tax-motivated declining-balance depreciation therefore remains limited to the level of tax payments.
Limits of the model effect
Required use of losses
The full effect of accelerated depreciation occurs only if the resulting tax relief can be used promptly. This requires either sufficient taxable profits or the availability of loss offset options.
For corporation tax purposes, these include in particular tax group arrangements, loss carryback and, to a limited extent, loss carryforward. For trade tax, tax group arrangements and, to a limited extent, loss carryforward are particularly relevant.
If losses cannot be used promptly, the net present value advantage may decrease. This is because tax relief then arises earlier in purely computational terms, but does not have an immediate liquidity effect to the same extent.
No complete investment guarantee
The model calculation shows a possible improvement in advantage under certain assumptions. It does not replace an assessment of the specific investment, the actual financing, the individual trade tax multiplier, the earnings situation or the loss offset options.
The tax changes may positively influence investment decisions. However, they do not guarantee that every investment is economically advantageous.
According to research by Handelsblatt dated 13 August 2026, the empirical interim assessment of the investment booster after around one year of operation has so far been cautious. According to that research, the hoped-for revival in investment has largely failed to materialise. This assessment concerns the macroeconomic effect and does not alter the tax mechanisms presented in the model.
Overall assessment for corporations
The analysis shows that declining-balance AfA can increase the net present value of an investment because tax relief is shifted to earlier periods. Although no more than the acquisition or production costs are depreciated over the entire useful life, the present value of the tax relief increases.
The gradual reduction in the corporation tax rate can intensify this effect. Tax relief initially occurs at higher tax rates, while later additional tax burdens are lower due to reduced tax rates. This combines a positive interest effect with a positive rate effect.
In the model under consideration, straight-line depreciation leads to a negative net present value. Under the assumptions made, declining-balance AfA makes the investment advantageous for the first time. When the reduction in the corporation tax rate is additionally taken into account, the net present value rises again.
At the same time, it remains important to note that the specific effect depends on numerous parameters. These include in particular the useful life of the asset, the timing of the investment, the trade tax multiplier, the earnings situation of the corporation and the ability to use tax losses promptly.
Tax classification and need for advice
The Immediate Investment Programme significantly changes the tax framework for corporations. Declining-balance AfA and the gradual reduction in corporation tax can influence investment appraisals and alter existing decision-making models. However, the effects shown in the model depend materially on the specific circumstances of the company.
For companies, investors and high-net-worth individuals with questions on the tax classification of investments, depreciation models or corporation tax consequences, MTR Legal Rechtsanwälte offers individual advice in tax law. Further information can be found at Legal advice in tax law.
