Germany’s Ministry of Finance has published the draft Annual Tax Act 2026, proposing a broad package of technical tax amendments designed to align domestic legislation with EU law, European Court of Justice rulings, Federal Fiscal Court decisions, and ongoing digitalisation and bureaucracy reduction initiatives.
Germany’s Ministry of Finance has released the draft Annual Tax Act 2026 (Jahressteuergesetz 2026), a wide-ranging legislative package containing numerous technical amendments across the tax system. The proposals are aimed at bringing German law into line with developments in EU law and European Court of Justice (ECJ) case law, responding to rulings of the Federal Fiscal Court (BFH), and advancing measures to support digitalisation and reduce administrative burdens.
The draft includes changes affecting income tax, VAT, tax administration procedures and Germany’s implementation of the global minimum tax rules.
Pillar Two and Minimum Tax Act changes
A substantial section of the draft law is devoted to amendments to the Minimum Tax Act (Mindeststeuergesetz – MinStG) through what the government describes as a “side-by-side package”.
The measures implement administrative guidance developed within the Inclusive Framework on BEPS.
A new Side-by-Side Safe Harbour (§ 81a MinStG) will allow primary and secondary top-up tax increase amounts to be reduced to zero where the ultimate parent entity (UPE) is located in a jurisdiction with a recognised side-by-side taxation regime.
To qualify, a jurisdiction must have a domestic corporate tax rate of at least 20% and must not present a significant risk that the effective tax burden on domestic activities falls below 15%.
The draft also introduces a UPE Safe Harbour (§ 81b MinStG) for jurisdictions that had an appropriate national taxation regime in place and applicable as of 1 January 2026.
In addition, the package will extend the transitional period for the Country-by-Country Reporting (CbCR) safe harbour.
VAT reforms focus on legal certainty
The draft introduces significant changes to Germany’s VAT grouping regime (Organschaft).
Under a new application-based system set out in § 2c UStG, VAT groups will only be recognised when the parent company formally declares the arrangement to the tax authorities. The government says this approach will provide greater legal certainty and reduce the risk of unintended or unrecognised VAT groups.
The legislation also proposes the gradual phase-out of existing consignment warehouse rules under § 6b UStG by July 2029. These provisions are being replaced by the broader One-Stop-Shop (OSS) reporting framework.
Income tax measures
Among the most significant income tax proposals is the introduction of a new provision (§ 6f EStG) establishing a uniform nationwide method for allocating the purchase price of developed real estate between land and building values. The measure is intended to ensure consistent tax treatment across Germany.
The draft also updates rules relating to child benefits and allowances. Following ECJ rulings, child allowances and the educational allowance would be granted in full for children living in EU and EEA member states, regardless of differences in local purchasing power.
For withholding tax on royalties under § 50a EStG, the government proposes procedural simplifications, including raising the threshold for simplified relief procedures from EUR 10,000 to EUR 100,000.
In addition, the Künstlersozialkasse (KSK) will become a reporting body for pension contributions, allowing such expenses to be automatically taken into account as deductible special expenses.
Tax administration and digitalisation
Several measures are aimed at modernising tax administration and reducing bureaucracy.
The draft would increase the interest rate for full interest calculations (Vollverzinsung) under § 233a AO from 0.15% to 0.3% per month from 1 January 2027, reflecting developments in capital markets.
The legislation also clarifies the legal basis for tax authorities to use artificial intelligence in the development and operation of automated tax procedures where necessary to maintain functionality and ensure consistent taxation.
In addition, new provisions would enable and require electronic account seizure procedures at credit institutions, with the objective of lowering administrative costs.
Implementation timetable
While the legislation will generally take effect on the day after promulgation, several measures are scheduled to enter into force at later dates.
Research allowance changes and certain child allowance measures will apply from 1 January 2026.
The interest rate increase, Platform Transparency Act amendments and many VAT-related changes will take effect from 1 January 2027.
The new application-based VAT grouping regime is scheduled to begin on 1 July 2028, while amendments to the Valuation Act (Bewertungsgesetz) will apply from 1 January 2029.
