German Federal Council Approves Tax Amendment Act 2025

The German Federal Council passed the 2025 Tax Amendment Act on December 19, 2025, following amendments by the Finance Committee. The act aims to implement further changes discussed in the coalition agreement, providing short-term tax law adjustments.

Significant changes are planned for income tax. The commuting allowance will increase to 38 cents per kilometer from January 1, 2026, for journeys between home and work, including for those claiming double household expenses. The "mobility bonus" for low-income taxpayers, applicable from the 21st kilometer, will become permanent. A new cap of EUR 2,000 has been introduced for accommodation costs when maintaining two households abroad, with exceptions for work-related company apartments. Contributions to trade unions will be recognized as income-related expenses starting in the 2026 assessment period.

The maximum deductible amount for donations to political parties will double to EUR 3,300 (EUR 6,600 for joint assessment) from the 2026 assessment period onwards, adjusted for inflation. The maximum amount for special expenditure deductions for these donations will also increase. Maximum amounts for trainer and volunteer allowances are raised, and bonus payments from the German Sports Aid Foundation for Olympic or Paralympic placements will become tax-exempt from 2026. Legislation clarifies that flat-rate wage taxation for company events only applies if attendance is open to all company members.

Regarding Value Added Tax (VAT), the reduced rate of 7% for food in the catering industry (excluding beverages) will become permanent from January 1, 2026. A new Section 21b of the VAT Act introduces specific provisions for the use of Centralised Clearance for Import (CCI) concerning import VAT.