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topGerman Tax Reform

New tax laws in Germany should make the country more business friendly for both European and American companies. The reforms, passed after last-minute wrangling by Chancellor Gerhard Schröder, introduces sweeping changes in German tax law. Among other things, the law:

• Reduces the top personal tax rate to 42% from 51%

• Reduces the corporate tax rate to 25% on retained earnings and 30% on distributed profits, from 40%

• Eliminates tax on sale of shares by corporations

• Reduces taxes on dividends to half the personal income tax rate.

This reform is expected to lead to the disentanglement of German industries, many of whom have held each others shares since the 1940s due to unfavorable capital gains tax rates, and to an increase in mergers and acquisitions.