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States Approve Tax Package

The Federal Council has approved the Tax Reform Act 2025.

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This picture is clicked inside the hotel and in front, we see a table on which white color cloth is...
This picture is clicked inside the hotel and in front, we see a table on which white color cloth is placed. On table, we see plates, fork, spoon, glass, branches of tree. Around the table, we see chairs and behind that we see the other table which is like green in color and behind that, we see a man wearing black blazer. Next to him, we see the girl standing and behind them, we see door on which exit is written on it and behind that door, we see two men standing.

States Approve Tax Package

The Federal Council has given the green light to the 2025 Tax Amendment Act. This wide-ranging reform includes changes to VAT rates, commuter benefits, and legal protections for volunteers. The new rules will take effect from January 1, 2026, with some measures already sparking debate among regional leaders.

One of the most significant changes is the reduction in VAT for the hospitality sector. From next year, restaurants and cafés will pay just 7% VAT on food sales, down from the current 19%. Beverages, however, remain excluded from this cut. The government expects this adjustment to save businesses and consumers around €3.6 billion annually.

Commuters will also see financial relief under the new law. The tax allowance for work-related travel will increase to 38 cents per kilometre, starting from the very first kilometre driven. This adjustment aims to ease the burden on employees who rely on private transport for their daily commute. The reforms extend beyond taxes. Volunteers working in associations will now benefit from expanded liability protections. These legal safeguards are designed to encourage more people to take on unpaid roles without fear of personal financial risk. The Bundesrat, representing Germany’s federal states, had pushed for compensation to offset revenue losses caused by the reforms. While they rejected proposals for permanent VAT reductions, the council ultimately approved the package. A final vote on the matter is scheduled for December 19, 2025.

The approved reforms will bring tangible changes for businesses, workers, and volunteers from the start of 2026. Restaurants face lower tax bills, commuters receive higher allowances, and unpaid workers gain stronger legal protections. The next step is the Bundesrat’s formal vote in December to finalise the legislation.

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