The Bundesrat, Germany’s upper house representing the federal states, has approved the 2025 tax amendment law, clearing the path for a package of measures that promise significant, though potentially controversial, shifts in the nation’s fiscal landscape. The legislation, focusing on the hospitality sector, commuting expenses and volunteer liability, culminates a protracted and often contentious negotiation between the federal government and the states.
A key element of the law introduces a substantial reduction in value-added tax (VAT) for restaurants and catering establishments – excluding beverage sales – set to decrease from the current 19% to 7% starting January 1, 2026. The federal government estimates this change will generate annual relief of approximately €3.6 billion for businesses and consumers. While proponents herald this as a lifeline for struggling hospitality businesses recovering from pandemic-era lockdowns and rising inflation, critics within the states have voiced concerns about the disproportionate burden placed on their budgets to offset the revenue loss.
Furthermore, the law raises the commuter allowance – known as the “Pendlerpauschale” – to 38 cents per kilometer, retroactive to the first kilometer travelled, from January 1, 2026. Previously, the allowance only applied from the 21st kilometer, effectively favoring longer commutes. This alteration constitutes a notable shift in policy, potentially impacting employee compensation and incentivizing longer daily travel.
Beyond these financial adjustments, the amendment expands liability privileges for volunteers in non-profit organizations, a provision designed to bolster and protect the extensive volunteer network crucial to German society. This provision highlights a broader political objective: to safeguard the future of civic engagement amidst increasing legal risks.
The approval, reached without resorting to the mediation committee, represents a delicate compromise after lengthy disagreements. The states had previously emphasized the potential fiscal strain on their own budgets, raising questions about the long-term sustainability of the tax relief and whether the benefits are adequately distributed. The decision to bypass the mediation committee suggests a reluctant acceptance of the federal government’s priorities, prompting speculation about potential ramifications for state-level financial autonomy and future negotiations surrounding tax policy. Ultimately, the long-term impact of the law will hinge on its actual effect on state finances and the overall health of the German economy.
