The coalition agreement concluded by the CDU (Christian Democratic Union), the CSU (Christian Social Union) and the FDP (Free Democratic Party) following the recent federal elections contains several taxation measures which are planned for the near future.
One such measure is the German Inheritance and Gift Tax Act (Erbschaftsteuer- und Schenkungsteuergesetz, ErbStG), which was subject to major amendments effective as of 01.01.2009 and is to be amended again in regard to the following aspects:

• The tax rates for siblings and their descendants is to be decreased with rates ranging from 15% to 43%. Under current law, siblings and their descendants are taxed at rates of 30% to 50%.

• Business successions would be facilitated by shortening the time period during which the business must be continued as well as by reducing the employee-retention requirements which must be met at the end of the respective time period. Furthermore, the definition of a small business, which is exempt from the employee-retention requirements, would be widened to a business with up to 20 employees rather than the currently applicable 10-employee threshold and the aggregate wage amount as well as the period of time during which such amount must be sustained would be decreased. The governing coalition will enter into negotiations with the German federal states regarding the regionalization of both tax rates and tax exempt amounts which could lead to tax competition between the various federal states.
For example, prior to the federal elections Bavarian Finance Minister Georg Fahrenschon announced that if the CDU, CSU and FDP formed the governing coalition, Bavaria would decrease its inheritance and gift tax rates radically to make Bavaria more attractive for businesses as well as wealthy individuals from Germany and abroad. By making Bavaria an inheritance and gift-tax haven, he plans to stimulate the growth of jobs, add economic value to the state and increase business tax revenues.
We will keep you posted on the other federal states´ decisions regarding inheritance and gift tax rates.