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29 October 2019

Cli­mate-friend­ly tax leg­is­la­tion

Now that the German government has launched the Climate Action Programme 2030, it’s time to implement the proposals contained in the climate package. The German Finance Ministry is working to make tax legislation more climate-friendly so as to alter the way we think about mobility and energy and bring about a change of direction in these areas.

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The German government is introducing new laws in quick succession to implement the goals set out by the Climate Action Programme 2030. The German Finance Ministry is making a decisive contribution to ensuring that the proposals set out in the climate package are implemented quickly. For example, the Ministry is proposing tax measures that will provide better protection for the climate than has been the case in the past.

Transforming transport: rail travel to become cheaper, flying to become more expensive

As of 1 January 2020, VAT on rail tickets will be lowered (from 19% to the reduced tax rate of 7%), while aviation tax will be increased. This measure is intended to make long-distance rail travel cheaper and therefore more attractive. At the same time, aviation tax will be raised as of 1 April 2020 to reduce the appeal of flying. The German Finance Ministry expects annual revenue from aviation tax to increase by €740 million, which will in turn help finance the VAT reduction on long-distance rail travel.

In order to ensure that the right incentives are created, the tax rate increases will vary according to the type of plane ticket. Thus the tax rate for shorter flights will see a relatively sharp rise of 74% (from €7.50 to €13.03) for flights within Germany, the EU and EFTA that fall within the Band 1 distance category. The tax rates for flights in distance categories Band 2 and Band 3 will each go up by approximately 41% (from €23.43 to €33.01 for flights ranging from 2500km to 6000km; from €42.18 to €59.43 for flights exceeding 6000km). In this regard, Germany is taking far more decisive action than many other EU countries.

It will not be possible to undercut the increased aviation tax with dumping prices, as it will not be permitted to sell flight tickets at prices that are lower than the applicable taxes, charges, levies and fees. This provision is currently being drafted.

Energy transition: green home retrofit programme

The government wants to enable people in Germany to make climate-friendly choices when renovating buildings. This is why it will be providing more financial support for measures to make buildings more energy-efficient. For example, financing will be made available for the installation of new, more climate-friendly heating systems which emit less CO2. From 2026 onwards, the installation of oil heating systems in new buildings will no longer be permitted, which is a great achievement.

As of 1 January 2020, certain measures for green retrofits of owner-occupied housing will be deductible under income tax law, regardless of income. The building must have been constructed at least 10 years previously. Homeowners will be able to deduct costs incurred for individual retrofitting measures such as installing new windows, and for major refurbishments. In sum, homeowners will be able to claim tax deductions for retrofitting costs of up to €200,000 per residential building. The process of applying for the deduction will be simple and unbureaucratic.
The Finance Ministry is currently working on further tax laws to help achieve Germany’s climate targets.