Tuesday

23rd Apr 2019

Germany to cut company tax to compete with new member states

German Chancellor Gerhard Schröder has announced plans to cut the tax rate paid by businesses in Germany in a bid to stem the flow of companies leaving the country and taking advantage of more favourable rates in Eastern Europe.

The corporate tax rate in Germany would be cut from 25 percent to 19 percent, Mr Schröder told the German parliament on Thursday (17 March).

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According to media reports, he said that Germany needed to keep up with new member states that have lower corporate tax rates.

He also announced a two billion euro investment in transport infrastructure to boost the ailing construction sector in Germany.

The measures come as Germany’s unemployment rate recently topped the psychologically significant five million mark. It currently stands at 5.2 million, figures which Mr Schröder said, "must depress us all".

The Chancellor will on Thursday evening meet opposition leaders in an attempt to forge a cross-party consensus on the best way to tackle Germany’s economic malaise, which, as Europe’s largest economy, affects the entire EU.

A recent report from the Boston Consulting Group showed that many big US firms were considering moving East from Germany to Poland, the Czech Republic or Slovakia, attracted by lower corporate tax rates and lower labour costs.

Slovakia, for example, charges a corporate tax rate of 19 percent. Estonia has a zero percent corporate tax rate for reinvested earnings.

A commission spokesperson welcomed the move, saying that the plans, "are going in the direction of creating more growth and jobs in Europe".

The German leader made clear that the loss of revenue caused by the tax cut would be offset by closing other tax loopholes and would therefore not worsen Germany’s budget deficit situation, which is already over the EU’s maximum permitted level.

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