German cabinet agrees draft law to boost startups

By Maria Martinez and Christian Kraemer

BERLIN, Sept 10 (Reuters) - Germany's cabinet on Wednesday agreed a draft law to improve financial conditions for small businesses and startups, as well as a tax break for commuters and restaurants.

More capital was also to be directed into infrastructure projects and renewable energy, the draft law seen by Reuters showed.

The plans are part of the government's efforts to revive Europe's biggest economy after two years of contraction.

"Young, innovative companies are an engine for investment, growth and good jobs," German Finance Minister Lars Klingbeil said, adding that the law created "better financing conditions for smaller companies and startups".

Around four times as much has been invested in startups in the U.S. as in Germany since the beginning of 2023, said Germany's startup association, which welcomed the new law.

The tax framework for venture capital will be revised to support startups and initial public offerings, the draft law said.

The minimum nominal value of shares will be cut to one cent from the current one euro to align with international standards, while some audit, reporting and notification requirements will be abolished.

The law also includes the option of using English-language prospectuses when issuing securities to facilitate EU-wide distribution.

The cabinet also gave the green light to a tax amendment bill that will expand the commuter allowance to 38 cents per km from 30-38 cents currently, and cut value-added tax next year on food in restaurants to 7% from 19%.

Germany's DEHOGA hotel and restaurant association welcomed the decision.

"Whether and to what extent price reductions are possible depends largely on how costs continue to develop," said DEHOGA head Ingrid Hartges, noting the increase of the minimum wage and rises in food, beverage and energy prices.

According to the draft, the measures would lead to tax revenue shortfalls of 4.8 billion euros ($5.6 billion) in 2026.

For the years 2027 to 2030, annual shortfalls of between 5.7 billion euros and 6.1 billion euros were expected.

"The permanent reduction in restaurant VAT is a defeat for fiscal common sense," said Friedrich Heinemann from the Leibniz Centre for European Economic Research ZEW. "Basically, this is all financial populism."

($1 = 0.8548 euros)