Germany published the Law to compensate for inflation through a fair income tax rate and to adapt other tax regulations (Inflation Compensation Act - lnflAusG) in the Official Gazette on 13 December 2022. The main measures include changes to the individual basic allowance and tax brackets, with some adjustments from the original draft of the law:

• The basic tax-free allowance is increased to EUR 10,908 in the 2023 assessment period, with a further increase to EUR 11,604 from the 2024 assessment period;
• The first variable tax rate bracket range is set to EUR 10,909 to EUR 15,999 in the 2023 assessment period, and EUR 11,605 to EUR 17,005 from the 2024 assessment period;
• The second variable tax rate bracket range is set to EUR 16,000 to EUR 62,809 in the 2023 assessment period, and EUR 17,006 to EUR 66,760 from the 2024 assessment period;
• The 42% tax rate bracket is set to EUR 62,810 to EUR 277,825 in the 2023 assessment period, and to EUR 66,761 to EUR 277,825 from the 2024 assessment period; and
• The threshold for the top 45% tax rate is maintained at EUR 277,836.

In addition to the above, measures are also included to increase the child allowance and child benefit and to adjust the solidarity surcharge thresholds for individuals, which is being phased out. As previously reported, the first step in phasing out the surcharge was approved in December 2019, with an increase in the surcharge exemption for individuals to EUR 16,956 for single taxpayers and to EUR 33,912 for collective taxpayers from 2021, as well adjustments in the deduction tax base for monthly, weekly, and daily wage payments. As part of the Inflation Compensation Act, these exemption values are increased to EUR 17,543 and EUR 35,086 in the 2023 assessment period, with a further increase to EUR 18,130 and EUR 36,260 from the 2024 assessment period.

The measures of the Inflation Compensation Act generally enter into force on 1 January 2023, except the measures for the 2024 assessment period, which enter into force on 1 January 2024.