Finance Committee Approves Annual Tax Act 2026
On 11 November 2026, the Finanzausschuss des Deutschen Bundestages (Finance Committee of the German Bundestag) approved the draft Annual Tax Act 2026 introduced by the Federal Government. In doing so, the Committee made several amendments to the original version. These affect, among other things, the law governing travel expenses, interest on additional tax payments and tax refunds, child tax allowances where a child is resident in another EU country, and tax rules governing certain property disposals.
The government draft was adopted by the Federal Cabinet on 12 August 2026. It is listed in the Bundestag under Drucksachennummer 21/8283 (Bundestag printed paper number 21/8283) dated 30 September 2026. The lead ministry is the Bundesministerium der Finanzen (Federal Ministry of Finance). The draft aims, among other things, to reduce administrative burdens, digitalise tax procedures and prevent abusive arrangements.
Deliberations in the Bundesrat and the Finance Committee
The Bundesrat (Federal Council) considered the draft under Drucksachennummer 447/26 (Bundesrat printed paper number 447/26) dated 14 August 2026. At its 1068th sitting on 25 September 2026, this constitutional body issued its opinion pursuant to Art. 76 Abs. 2 GG (Article 76(2) of the German Basic Law). The Bundestag printed paper includes both this opinion and the Federal Government’s response.
The Finance Committee consists of 42 members and considers matters referred to it by the plenary. Its decision on the Annual Tax Act was preceded by a 90-minute public hearing on 2 November 2026.
Original Travel Expense Rule Dropped
One significant amendment concerns § 9 Abs. 4 Satz 3 EStG (section 9(4), third sentence, of the German Income Tax Act). The government draft had proposed reducing the period for deeming a place to be an employee’s primary place of work from 48 to 24 months for work performed in Germany. The 48-month period was to remain in place for work performed abroad.
The Finance Committee decided not to proceed with this reduction. The existing 48-month period will therefore remain in place for the relevant work performed in Germany as well. At the hearing, experts had highlighted in particular potential disadvantages for professional and fixed-term military personnel, as well as for employees in the construction industry and on infrastructure projects.
Had the originally proposed rule been implemented, the employees concerned would have lost tax benefits such as meal allowances after only two years rather than four. The tax treatment of travel expenses would also have become less favourable. At the hearing, the Bund der Steuerzahler (German Taxpayers’ Association) criticised the proposed reduction as being driven by the Federal Government’s “purely fiscal interest”.
Premiums for Work at Special Times
The draft also includes amendments relating to work performed on Sundays, public holidays and at night. At the public hearing, the Deutscher Gewerkschaftsbund (German Trade Union Confederation) warned that the tax exemption for the corresponding premiums could potentially be restricted.
The possibility that tax-exempt premiums for work performed on Sundays, public holidays and at night could be reduced was also raised during the Committee’s subsequent deliberations. The Committee’s decision does not alter the fact that the legislative process has not yet been completed.
Changes Concerning Interest, Cash and Share Exchanges
The approved draft encompasses numerous individual provisions from various areas of tax law. The proposed measures include:
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From 2027, the interest rate for additional tax payments and tax refunds is to increase from 0.15 per cent per month to 0.3 per cent per month. This corresponds to an increase from 1.8 per cent to 3.6 per cent per year.
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Business expenses are to be non-deductible where the underlying payments were made in cash and exceed the cash payment limit of EUR 10,000.
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Abusive arrangements in connection with share exchanges are to be prevented.
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Tax disadvantages arising from property disposals in connection with a divorce are to be eliminated.
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According to the government draft, the revised rules on VAT grouping under § 2c UStG-E (draft section 2c of the German Value Added Tax Act) are to be introduced on 1 January 2030.
The increase in interest on additional tax payments and tax refunds applies both to amounts that taxpayers must pay to the tax authorities in the cases prescribed by law and to interest refunded to them. The interest rate of 0.15 per cent per month has applied since 2019 and is set to double from 2027.
Full Child Tax Allowances for Children Living Elsewhere in Europe
Another amendment concerns children who are resident in another Member State of the European Union or in a country within the European Economic Area. In future, the parents will be entitled to claim the full child tax allowances when their tax liability is assessed.
Until now, these allowances could be deducted only to the extent considered “necessary and appropriate” in light of the circumstances in the child’s country of residence. The revised rule is based on a judgment of the Court of Justice of the European Union. The Court held, in substance, that reducing family benefits and tax advantages for workers whose children reside in another Member State was contrary to EU law.
Further Deliberations Remain Pending
The Finance Committee’s decision does not mark the end of the legislative process. The Committee has approved the government draft as amended; further deliberations by the competent constitutional bodies are still pending. Unofficially reported dates for completing the process have therefore not been taken into account.
The large number of proposed amendments may affect businesses, investors and private individuals in a variety of tax matters. MTR Legal advises clients on the assessment of tax law issues and their implications for business or private arrangements. Further information is available under tax law advice.
