Germany seeks to cut corporate tax rate to 25%

Germany is looking to cap its corporate tax burden at 25 percent as the country seeks to help smaller businesses amid signs the economy is lurching into a recession.

The proposal was made by Economy Minister Peter Altmaier on Thursday as part of a package aimed at supporting the so-called Mittelstand — small and medium-sized businesses that account for nearly 60 percent of the country’s jobs. According to Deloitte, Germany’s overall tax rate on companies is about 30 to 33 percent.

The German government is under increasing pressure to prop up the economy, with export demand hobbled by trade wars and Brexit uncertainty at a time when the country’s manufacturers need to invest in digital technologies to stay competitive. The tax changes could help ease the strain on German companies, but would take time to make an impact.

Germany Seeks to Cut Corporate Tax Rate to 25%
City workers exit Taunusanlage S-Bahn underground railway station during morning rush hour in the financial district of Frankfurt, Germany.

The timing of Altmaier’s initiative is another indication that Merkel’s government is becoming increasingly willing to act to prop up the economy. The DIW institute on Wednesday predicted that German output will probably shrink by 0.2 percent in the third quarter, putting Europe’s largest economy into technical recession. The government is still expecting a recovery toward the end of the year.

The plan isn’t part of the German government’s coalition agreement and would need to gain support from Chancellor Angela Merkel’s junior partner, the Social Democrats, to become reality. Altmaier didn’t specify the impact of the tax cut on government revenue. He said he is in talks with German Finance Minister Olaf Scholz to advance the effort.

As part of his proposal, Altmaier aims to gradually eliminate a tax to pay for reunification projects and make it more attractive for companies to reinvest profits. The tax burden for personal-liability companies is to be capped at 45 percent, while social costs are to be gradually reduced to less than 40 percent by reducing levies for unemployment insurance.

“We want to implement as many of these proposals as possible,” Altmaier said at a presentation in Berlin.

— Birgit Jennen, with assistance from Iain Rogers
Bloomberg News