BDO analyzes planned 2027 income tax reform in Germany

BDO AG Wirtschaftsprüfungsgesellschaft, a German auditing and advisory firm, has provided an analysis of the German government's proposed Income Tax Reform Act 2027 (Einkommensteuerreformgesetz 2027), which was submitted to the Bundestag on September 28, 2026.

The proposed legislation includes several significant changes, such as increases to the basic personal allowance, child allowances, and the standard deduction for employees. Adjustments to child benefits and the income tax rate schedule are also part of the plan. According to BDO's assessment, the presented changes align with the previously known draft without substantial revisions.

The reform also proposes an increase in the maximum base salary for tax-privileged supplements for Sunday, holiday, and night work. Specifically, the maximum base salary for Sunday and holiday supplements would rise from the current EUR 50 to EUR 75. The limit for night work would remain at EUR 50. BDO notes that this disparity could create additional administrative and demarcation challenges in payroll and social security.

Furthermore, the proposal aims to tighten taxation for higher incomes. The 45% marginal tax rate would apply from a lower income threshold than before, and a new 47% tax rate is introduced for the highest earnings. Concurrently, the flat tax rate for employers on "mini-jobs" (low-wage employment) would increase from 2% to 5%. BDO suggests this will make these forms of employment more expensive for employers.

BDO's analysis also covers reductions in the tax deductibility of craft services and a specific rule for the allocation of business tax for data centers. The firm highlights that the new allocation key for data centers, based 90% on electrical capacity rather than wages, could significantly alter local tax revenues.