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Newsletter | Articles German Upper House Approves 2008 Business Tax Reform German lawmakers have approved the government’s 2008 business tax reform. The bill, which is one of the key projects of Chancellor Angela Merkel's coalition government, slashes nominal taxes on corporate income to just below 30 per cent. Although the cut in nominal taxes, which is the equivalent to corporate tax, is good news, it is still not enough to compete with Ireland and the United Kingdom. German Finance Minister Peer Steinbrück said the reform will make Germany more attractive as a business location, boosting employment. He said: “This is an investment in Germany as a business location. And in particular it aims to strengthen the tax base and makes domestic and foreign investments more attractive. With this 9 per cent cut of nominal taxes to slightly below 30 per cent, we finally get into the midfield of tax burdens compared with other European countries. This business taxation reform is a contribution to boost Germany’s growth potential and the attractiveness of Germany as an investment location.” The ministry expects companies to receive net tax relief of EUR4.99 billion annually once all measures have come into force. The bill will cut total tax on earnings to 29.83 per cent from 38.65 per cent currently. The overall tax rate combines corporate and local taxes, as well as the solidarity tax for rebuilding eastern Germany. The nominal tax-rate cut is expected to cost roughly EUR30 billion, of which around EUR25 billion will be financed by a broadening of the tax base, such as making it harder for companies to move profits abroad and by taxing their interest expenses. The bill also includes the introduction of a 25 per cent capital gains tax from January 1, 2009, which will replace the current practice of subjecting capital gains to personal income tax, which can be as high as 42 per cent.