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In article nos. 24 and 31 we reported on changes made in the special depreciation and cash investment subsidies for the new German states pursuant to the 1996 Tax Act. Such subsidies expire under the existing laws at the end of 1998. The system of cash investment subsidies only has now been extended through the year 2004 in modified form by a new law enacted by Parliament on 4 July 1997 following ratification by the Federal Council some time previous.
The Development Areas Act (Foerdergebietsgesetz) with its special depreciation provisions has not been extended and will thus expire according to its present terms at the end of 1998.
The Investment Subsidy Act (Investitionszulagengesetz) currently in effect through 1998 has been extended for an additional six years, i.e. through 2004. However, the amount of the cash subsidies available under the law will diminish after the first three years (end of 2001).
Concentration on investment subsidies (as opposed to special depreciation) is intended to make the effect of the subsidies more transparent. The long subsidy period of six years is intended to enable those qualifying for the subsidies to plan on a fairly long-range basis. The reduction in the amount of the subsidies after three years is to signal their approaching end and the Government's resolve not to permit subsidies to become a permanent institution.
Subsidies will be available in four different areas:
1. Manufacturing businesses, craft/artisanal businesses, small-scale wholesalers and retailers, production-related service industries: investments in moveable fixed assets and improvements to self-used commercial buildings: 10 % (up from 5 %). A 20 % subsidy is available for small and medium-sized businesses. The lease of assets as well as their purchase now qualifies for the subsidy.
2. Renovation of old residential rental property
3. Construction of new residential rental property only in inner-city areas
4. Renovation of owner-occupied residential property
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