Tax Deductions for Business in Germany
Essential Tax-Deductible Business Expenses Explained
A business in Germany pays taxes on its profit: the difference between its revenues and its deductible expenses. Understanding tax deductions for business in Germany is therefore essential for any entrepreneur looking to minimize their tax burden. The German tax system offers numerous legitimate opportunities to reduce taxable income through tax-deductible business expenses in Germany. This guide covers the most important categories of tax-deductible expenses that apply in Germany in 2026.
Our company, Nexus-Europe GmbH, assists foreigners with starting and developing their own business in Germany and moving to Germany through business immigration or the EU Blue Card. Over 20 years of operation we have helped more than 7,000 customers.
Work Equipment and Low-Value Assets in Germany
Business expenses in Germany include costs for work equipment such as computers, office furniture, tools, and specialist literature. These are considered fully tax-deductible business expenses in Germany if they are used almost exclusively for business purposes (at least 90%).
A particularly valuable rule for tax deductions in Germany concerns low-value assets. Items with a net purchase price of €800 or less can be fully deducted in the year of purchase. For example, if you buy a new laptop for €750, you can claim the entire amount as a business expense immediately. More expensive items must be depreciated over their expected useful life according to official depreciation tables.
Business Travel and Meal Allowances in Germany
When employees travel for work, tax-deductible business expenses in Germany include transportation costs, accommodation, and meal allowances. For private car use on business trips, you can claim €0.30 per kilometer.
Meal allowances depend on the duration of absence:
- More than 8 hours, also on arrival/departure days: €14 per day
- 24 hours or with overnight stay: €28 per day
For example, on a three-day business trip, the meal allowance would be €14 for arrival day, €28 for the full day, and €14 for departure day (a total of €56). All expenses must be properly documented with receipts.
Please note that the above numbers apply to business trips within Germany. For trips abroad other numbers may apply depending on the destination.
Home Office Tax Deductions for Business in Germany
Since 2023, tax deductions for business in Germany include a home office allowance of €6 per day for each day spent working from home. This is capped at €1,260 per calendar year (210 working days). The allowance is available even without a dedicated home office room.
Client Entertainment and Business Meals in Germany
Business expenses in Germany can include costs for entertaining clients, but strict rules apply. Business meals are only 70% deductible. To claim this deduction, you must create a special receipt (Bewirtungsbeleg) and document the date, location, participants, and business reason for the meal. General entries like "client meeting" are insufficient, you need specific details such as "contract negotiations for project X." The restaurant receipt must also list food items separately.
Business Gifts in Germany
Gifts to business partners are tax-deductible business expenses in Germany up to a net value of €50 per recipient per year. This is not a tax-free allowance but a strict limit. If the value exceeds €50 by even one cent, the entire amount becomes non-deductible. Strict documentation for such tax deductions for business in Germany is required, including recipient details and amounts, recorded separately from other business expenses.
Insurance and Pension Contributions in Germany
Self-employed individuals can deduct 100% of contributions to the Rürup pension (basic pension) as special expenses. For 2026, the deductible maximum is €30,826 for single individuals (and double the amount for married couples). Health and long-term care insurance contributions can also belong to tax deductions in Germany, provided they cover basic healthcare.
Managing Director Salary: A Special Tax-Deductible Business Expense in Germany
The salary paid to a managing director (Geschäftsführer) of a GmbH or UG is a tax-deductible business expense in Germany that reduces the company's taxable profit. Unlike a dividend, which is paid from after-tax profit, a managing director salary is treated as a personnel expense and reduces the GmbH's tax base for both corporate income tax (15%) and trade tax .
Real Example: If a GmbH pays its managing director an annual salary of €80,000, the company's taxable profit is reduced by that amount. The GmbH saves approximately 30% in corporate and trade tax on this sum (roughly €24,000), while the managing director pays personal income tax on the salary at their individual progressive rate .
Key requirements for deductibility:
- Arm's-length principle (Fremdvergleichsgrundsatz): The salary must be appropriate and comparable to what an unrelated third party would receive for the same role. The tax office uses the annual BBE salary survey as the primary benchmark .
- Written employment contract: The salary and all benefits must be agreed in writing and in advance. Retroactive agreements are not recognized .
- Formal execution: The contract must be actually carried out as agreed .
The hidden profit distribution trap (vGA): If a managing director's salary is excessive, the excess portion is reclassified as a hidden profit distribution (verdeckte Gewinnausschüttung, vGA) and is NOT deductible. This triggers double taxation: the amount is added back to the GmbH's profit AND taxed at the shareholder level as investment income. The combined burden often exceeds 50%.
Investment Deduction (IAB) in Germany
For tax deductions for business in Germany, the Investment Deduction (Investitionsabzugsbetrag) is a powerful tool. Under Section 7g of the German Income Tax Act, you can deduct up to 50% of planned investment costs from your current year's profit, even before making the purchase. For instance, if you plan to buy equipment for €10,000 next year, you can deduct €5,000 this year, reducing your taxable income immediately. This deduction is available to businesses with profits not exceeding €200,000.
Depreciation of Assets in Germany
Business expenses in Germany include depreciation (Abschreibung) on fixed assets like vehicles, machinery, and real estate. For movable assets acquired between July 2025 and December 2027, an accelerated depreciation method applies, allowing up to 30% per year (three times the straight-line rate). This creates higher tax deductions for business in Germany in the early years of asset use.
Interest Payments in Germany
Interest payments on business loans are generally fully deductible as operating expenses. For corporate groups, special rules apply: if interest payments exceed interest earnings by more than €3 million, the excess is only deductible up to 30% of EBITDA.
Documentation for Tax Deductions in Germany
To claim any tax-deductible business expenses in Germany, proper documentation is essential. The tax office scrutinizes certain categories carefully, including client entertainment, business gifts, and work clothing. Ordinary clothing like suits and shirts is not tax-deductible, even if worn exclusively for work, as it could also be used privately. Only genuine work clothing such as protective gear, uniforms, or clothing with company logos qualifies. For some categories, special documents may be required, such as a special receipt (Bewirtungsbeleg) for client entertainment and business meals.
All receipts and invoices must be retained for eight years, and since January 2025, B2B transactions in Germany require compliance with e-invoicing regulations.
Understanding tax deductions for business in Germany is key to minimizing your business's tax burden while staying compliant with German tax law. Tax-deductible business expenses in Germany cover a wide range of business activities. The key to success is thorough documentation and understanding the specific rules that apply to each deduction category. By leveraging these tax deductions in Germany, you can significantly reduce your taxable income and improve your business's financial health. Remember that business expenses in Germany must always be clearly business-related, properly substantiated, and, in some cases, meet certain requirements and thresholds.
If you are navigating the complexities doing business in Germany and moving to Germany through business, Nexus-Europe GmbH is here to provide expert guidance and reliable support for every step of your journey.