New Tax Debate in Germany: Why Business Assets Are Once Again in Focus – and What Entrepreneurs Should Now Consider
The discussion surrounding new or increased taxes in Germany has gained significant momentum in recent months. At the centre of current debates are reform considerations regarding inheritance and gift tax, with business assets once again being discussed controversially from both a political and societal perspective. Corresponding proposals have recently been outlined in the German business press, including the Frankfurter Allgemeine Zeitung.
Reform considerations from the political environment of the SPD aim to fundamentally recalibrate the tax treatment of larger wealth transfers. On the one hand, a lifetime allowance of approximately EUR 1 million for private wealth transfers is envisaged; on the other hand, the existing relief provisions for business assets are to be significantly curtailed.
In this context, it is being discussed in particular to limit the preferential treatment of business assets in the future to an absolute maximum amount of approximately EUR 5 million per acquisition. Above this threshold, larger business assets would be subject to regular taxation, in some cases accompanied by deferral arrangements of up to 20 years, provided that jobs are preserved. Overall, these measures would result in a noticeably higher tax burden for larger business assets compared with the current legal framework.
Business Assets Between Fairness and Location Policy
The political guiding principle behind these reform approaches is clear: large fortunes are expected to contribute more to the financing of the public sector, and the tax burden is to be distributed more fairly. This objective is legitimate and enjoys broad societal support. At the same time, however, the central question arises as to whether business assets can be equated with purely private financial or consumption assets.
Businesses represent productive capital. They secure jobs, enable innovation, generate ongoing tax revenues and social security contributions, and contribute significantly to economic stability. Increased taxation in the context of inheritance may therefore inhibit investment, complicate succession planning and, in unfavourable cases, force companies to be sold or broken up in order to finance tax liabilities.
Tax Increases: More Fairness – but at What Cost?
Proponents of reform point out that the existing relief provisions for business assets are very far-reaching and, in individual cases, lead to significant unequal treatment. Economic studies also argue that a moderate reduction of privileges may be justifiable, provided that jobs and business continuity are not jeopardised.
What ultimately matters, however, is the specific design of such measures. While tax increases may generate additional revenues in the short term, they can weaken investment incentives, entrepreneurial initiative and capital formation in the long term. Excessive taxation of substance risks undermining the value creation base on which social security systems, collectively agreed wages and public services depend. Social fairness in the long run presupposes a strong real economy – not its gradual erosion.
In practical implementation, liquidity and financing issues become particularly relevant. Under current law, section 28a of the German Inheritance Tax Act (ErbStG) constitutes a key relief instrument for the transfer of business assets exceeding EUR 26 million. Upon application, inheritance tax attributable to privileged business assets may be remitted if the acquirer demonstrates that they do not have sufficient available assets to settle the tax liability. Available assets are deemed to include 50 % of non-privileged assets, regardless of whether such assets existed prior to the transfer or were transferred together with it. For business assets of up to EUR 26 million, current law allows, depending on the composition of the business assets, for a full exemption without regard to the acquirer’s available assets. The abolition or restriction of these provisions – as currently contemplated in the reform debate – would have significant consequences, particularly for transfers to asset-poor successors.
Legislation, Constitutional Law and Time Pressure
German constitutional law sets strict limits on retroactive taxation; genuine retroactivity is generally impermissible. In practice, however, tax reforms frequently operate with cut-off dates or de facto anticipatory effects from the moment political intentions are announced.
At the same time, a landmark decision of the Federal Constitutional Court on the constitutionality of the existing relief provisions for business assets is expected in the near term. Regardless of the specific outcome, it can be assumed that the legislator will react promptly and introduce adjustments. This uncertainty alone significantly increases the planning and decision-making pressure on entrepreneurs.
Further Tax Policy Perspectives: Tightening More Likely Than Easing
Beyond the current inheritance tax debate, it must be assumed that tax policy discussions in Germany are far from concluded. In addition to further adjustments to inheritance and gift tax, the reintroduction of a wealth tax or comparable substance-based taxes is regularly debated. In view of high public expenditure, demographic developments and growing social policy obligations, much suggests that the tax framework for wealthy individuals and entrepreneurs will become more restrictive rather than more favourable over time. Tax relief is politically difficult to implement and often not sustainable.
Foundation Solutions as a Strategic Response
Against this background, long-term and legally robust structuring solutions are gaining in importance. It must be taken into account that tax tightenings generally attach to the acquisition event itself and therefore affect both natural persons and foundations as acquirers. The strategic advantage of early structuring therefore lies less in avoiding taxation than in securing the tax framework applicable at the time of transfer.
A timely contribution of business assets can result in later tightenings – such as restrictions on relief provisions or the abolition of mitigating mechanisms – not applying retroactively. This effect is not merely temporary but may extend across generations, as foundations are typically designed for permanence.
Liechtenstein foundations, in particular, offer additional structural advantages in this context: they are not subject to German substitute inheritance tax and therefore not exposed to periodic re-taxation at thirty-year intervals, as is the case for domestic foundations. Future tax tightenings therefore do not automatically take effect at regular intervals. Even if a structuring is implemented only after new rules have entered into force, this may still prove advantageous across generations, as the tax burden typically arises only once.
What matters is not the circumvention of statutory provisions, but rather the forward-looking organisation of assets within the existing legal framework – with the aim of long-term stability, planning certainty and entrepreneurial continuity.
FS+P AG: Structure, Foresight and Legally Sound Implementation
Together with its network partners, FS+P AG, based in Liechtenstein, advises entrepreneurs, families and asset holders on national and international wealth and succession planning. A particular focus lies on assessing new tax policy developments – especially in the area of inheritance and wealth tax – and on the legally secure, long-term structuring of business and private assets. From the perspective of a long-term-oriented wealth planner, the objective is not short-term tax optimisation, but stability, predictability and the preservation of entrepreneurial performance in the interests of society, employees and future generations.