German federal election 2025

The federal election 2025 will decide the future direction of tax policy in Germany. Depending on how the election goes, there could be changes to corporate taxes, income taxes or capital tax.

Campaigning in 2025 is expected to turn heavily on tax policy issues. The focus is on:

• potential introduction of a capital tax
• relief for medium and low income
• adjustments to company taxation, particularly to shore up Germany as a place for business
• tax incentives for sustainable investments to combat climate change
• potential reforms to inheritance and gift tax

The 2025 federal election could be decisive for the implementation and further development of OECD minimum tax in Germany. The tax, which provides for a minimum level of taxation of 15% on international companies, is supported in principle by all the parties, but they differ in their approach to laying out the details. Potential changes could come about from national transposition or additional measures to prevent shifts in tax.

Yes, depending on how the election goes, companies may have to reckon on new tax liabilities. Points under discussion include raising the corporation tax rate, a levy on capital assets and changes to trade tax. At the same time, there are also considerations to create tax incentives for investments in digitalisation and sustainability. Companies should therefore keep a close eye on the parties’ tax manifestos.

There is again a lot of discussion from some parties in the election about introducing a capital tax. The goal is to use high levels of assets more to finance public spending. However, the level and structure this tax would take is contested.  While some parties are clearly demanding it, others are rejecting it, pointing to the potential hindrance to the economy’s growth it would cause. How and whether a capital tax will be introduced after the election remains to be seen.

After the election, forming the government will begin in several steps.

1. Coalition talks: Parties hold initial talks to explore potential coalitions.
   
   
2. Coalition negotiations: If a potential coalition has been arrived at, the parties hold negotiations about the coalition agreement.
   
   
3. Internal approval process: The parties involved must formally approve the coalition agreement.
   
   
4. Election of chancellor: The federal president proposes a candidate to the Bundestag who must be voted in.
   
   
5. Appointment of federal government: After the chancellor has been elected, the federal president appoints the ministers, and the new government enters into office.

If a coalition does not come about, there are various scenarios.

• The Bundestag can try to elect a chancellor with a simple majority who will lead a minority government.
• If a chancellor cannot be found after several rounds of voting, the federal president can dissolve the Bundestag and order new elections.
• The previous government remains in power in an interim capacity until a new government is formed. 

A coalition agreement is a written agreement between the parties that want to form a government. It contains:

• political goals and plans for the parliamentary session
• the government manifesto and plans for legislation
• appointment of the positions of minister among the coalition parties
• financing plans and time-frame for reforms 

It is not legally binding but has a high level of political obligation.

According to the Basic Law, the previous government is supposed to remain in office in an interim capacity until a new government is formed. This means that:

• the previous chancellor and the ministers remain temporarily in office.
• The only thing the interim government may not do is make any wide-reaching political decisions.
• As soon as the new chancellor is elected and the new government has been sworn in, the interim period ends.

What legislation and reforms are implemented depends on the new coalition. The Coalition agreement typically includes plans concerning:

• the economy & taxes (e.g. subsidies for business, tax adjustments)
• social policy (pensions, Bürgergeld, minimum wage)
• climate change & energy (renewables, carbon reduction)
• education & digitalisation (investment in schools and broadband)
• domestic & security policy (migration policy, reform of the police)
• foreign policy & Europe (EU strategies, defence policy)

The actual plans are decided on in the coalition negotiations and presented with the new chancellor’s declaration on the government. Our insights will keep you up-to-date – particularly on tax policy and economic developments after the 2025 election.