Growth Opportunities Act: New impetus for economic growth and tax relief

Federal Finance Minister Christian Lindner (FDP) attracted attention on July 12, 2023 with his draft for the so-called new Growth Opportunities Act. The tax package that has been drawn up provides for an annual tax relief of six billion euros for entrepreneurs and is intended, among other things, to improve Germany's competitiveness and ensure more investment.

New growth opportunities - what exactly are we talking about?

The new tax package provides for a total of 50 tax policy measures to help provide more scope for investment and innovation by entrepreneurs. In addition, superfluous tax bureaucracy is to be reduced and a comprehensive digitalization driven forward. However, the core element of the new Growth Opportunities Act is primarily about premiums for entrepreneurial investments in the context of climate protection. According to the Ministry of Finance, the key points of the draft are in line with the content of the coalition agreement of the coalition government. Accordingly, the final draft is to be presented to the cabinet in mid-August, with a possible entry into force planned for 2024.

The contents of the new tax package in detail

In general, the measures are aimed at exempting small businesses from VAT liability, setting up a digital register of donations and offering a simpler calculation of payroll tax for tariff employees. In addition, the creation and storage of electronic invoices is to be made legally binding as part of digitization efforts. But what measures are the Growth Opportunities Act about in detail? We present the four most important initiatives in more detail.

1. investment premiums

According to the Ministry of Finance, the aim is to promote a faster transition to climate neutrality. There will be an additional financial incentive for companies that want to improve their energy and resource efficiency as part of a specified energy-saving concept: Until 2027, entrepreneurs who invest in these measures as part of the energy-saving concept will receive 15% of the investment made back, regardless of their profit. However, the maximum amount is limited to 30 million euros.

2. research funding

Previously, only personnel costs were eligible for funding when it came to research and development. This is now to be extended to include proportionate investment costs in future. In future, up to 70 percent of the total contract value will be eligible for funding.

3. offsetting of losses

The loss carry-back makes it possible to offset a loss against the previous year's profits, which in turn leads to a reduction in the tax burden for the previous year. This option is now to be extended to a period of up to three years, while the previously temporarily increased limit of ten million euros is now to apply permanently.

Restrictions on loss carryforwards are also to be lifted between 2024 and 2027 in order to increase the willingness of entrepreneurs to take entrepreneurial risks and thus support the German economy.

4. bureaucracy

In addition to more extensive tax relief, Lindner plans to reduce various bureaucratic hurdles. These include simplifying reporting procedures and accounting obligations as well as the electronic transmission of data instead of paper forms. These measures should help to reduce the administrative burden and make processes more efficient and digital.

Reactions

Reactions to Lindner's tax package have been mixed at times. Although the climate protection measures are welcomed in principle, Andreas Audretsch, deputy leader of the Green Party, criticizes the Growth Opportunities Act as "blanket tax gifts without a target".

However, far-reaching support comes from industry players, including the German Engineering Federation: "Here, help is provided simply, unbureaucratically and fairly across the board, and SMEs are not left alone with their risks."

It remains to be seen whether Lindner's initiative will be accepted by the cabinet. However, the Growth Opportunities Act is not expected to come into force until 2024 at the earliest.