Tax Deductions
The German tax system offers companies tax deduction possibilities to lower their annual tax burden - subject to certain preconditions being met.
The Growth Opportunities Act provides improved opportunities for companies to carry back losses and depreciate assets.
Loss Carry-Back and Loss Carry-Forward
Losses for corporate income tax purposes can be carried back for one year - limited to a total loss amount of EUR one million.
Losses for corporate income tax can be carried forward with no time restriction. An amount of up to EUR one million loss carry-forward free from any restrictions is possible. For sums in excess of EUR one million, the Growth Opportunities Act increases the available options for companies for the years 2024 to 2027: A maximum 70 percent of taxable earnings exceeding EUR one million can be offset against losses carried forward in previous years. From 2028 onward, the percentage rate will be 60 percent - the equivalent rate for the period before the Growth Opportunities Act came into force.
Deductibility of Interest Payments
Generally, interest payments are fully deductible as operating expenditure. However, some special rules apply for corporate groups. Where the amount of interest payments exceeds the amount of interest earnings for sums more than EUR 3 million, these exceeding interest payments are only deductible up to an amount of 30 percent of the EBITDA (earnings before interest, taxes, depreciation and amortization).
Straight Line Depreciation
Depreciation on movable and fixed assets is calculated on the straight-line method over the asset’s estimated anticipated useful life. Every asset has a different depreciation period, stipulated in a depreciation table (AfA-Tabelle) by the Federal Ministry of Finance. Low value assets –with a net value below EUR 800 - can be depreciated in full immediately.
Accelerated Depreciation - Temporary Policy
For moveable assets acquired or made between April and December 2024, a temporary accelerated depreciation method according to the declining balance method has been introduced by the Growth Opportunities Act. The applicable depreciation factor can be up to twice as high as the currently applicable straight line depreciation rates - capped at a 20 percentage annually. This means that companies enjoy a higher rate of depreciation in the first years of use of the assets, thereby leading to higher deductible expenses.
Fiscal Unity Concept
The German fiscal unity concept allows for profit and loss pooling of different corporations at the level of a dominant (parent) company to determine the overall profit for taxation purposes. To do so, the dominant company must have its place of business management in Germany and must be subject to taxation in Germany. It can either be a German company or a permanent establishment of a foreign (dominant) company in Germany.
The fiscal unity concept covers corporate subsidiaries from Germany or other EU/EEA member states if they have their place of business management in Germany. The dominant company in Germany must hold more than 50 percent of the voting rights of the subsidiary or subsidiaries. In addition, a profit and loss pooling agreement must exist with a duration of at least five years. The agreement has to be registered with the commercial register. Further requirements may apply.
