German Corporate Tax Cut is Now Official

Now that the German Senate has given its approval, the corporate tax rate will drop to less than 30 percent beginning next January. Not surprisingly, tax competition was the motivating force. The Tax-news.com story also reveals that Germany will be implementing a lower-rate tax on capital income. The 25 percent rate on interest, dividends, and capital gains will still be too high, but it is an improvement over the current system, which has rates as high as 42 percent:

German lawmakers have given their approval to a key corporate tax reform that will reduce the overall corporate tax burden on companies in Germany by almost 10%, placing the country in the middle of the European corporate tax league table. …

In urging the lawmakers to approve the bill, Peer Steinbrueck, German Finance Minister, argued that the tax cut represents “an investment in Germany as a business location”, making domestic and foreign investments more attractive. …

Germany currently has one of the highest corporate tax burdens in the world, and the business community has long called for rates to be reduced to help breathe life into Germany’s stagnating economy. The new law effectively cuts the corporate tax rate from the current 38.65% to 29.83%. …

The ruling coalition parties have also agreed to introduce a 25% capital gains tax from January 1, 2009. This will replace the current system, whereby capital gains are subject to personal income tax, which can be as high as 42%. This will apply to income from earned interest and dividends, and private investors’ share sales.