Income tax: The minimum tax rate will be cut from 22.9 per cent at present to 19.9 per cent at the beginning of next year and then to 17 per cent in 2003 and to 15 per cent in 2005. The basic tax-free allowance, currently set at DM13,499 (£5,434), will be raised in several stages to DM15,011 (£6,048) by 2005.

The maximum tax rate, which currently stands at 51 per cent, will be cut to 48.5 per cent in 2001, to 47 per cent in 2003 and to 42 per cent in 2005. The maximum tax rate will be valid for individuals whose annual taxable income is DM102,000 (£41,071) or more, compared with DM120,000 (£48,324) at present.

Corporation tax: From the beginning of next year, companies will pay 25 per cent on both reinvested and redistributed earnings. They currently pay 40 per cent on reinvested profits and 30 per cent on redistributed profits.

Dividends: Share owners will only pay tax on half the amount they receive in dividend payments.

Trade tax: Companies pay a trade tax, levied on earnings and capital, to local authorities. Up to 80 per cent of German companies take the legal form of general partnerships, who will in future be able to set their trade tax against their income tax bill, effectively exempting them from trade tax.

Tax on sale of shareholdings: From 2002, companies will no longer have to pay tax on earnings they make from the sale of holdings in other German companies. Large parts of German industry are currently owned by banks and insurers who only keep hold of what they regard as non-core stakes so as not to have to pay the current hefty tax rate of 4050 per cent on profits they make from a sale.

The abolition of this tax is expected to revolutionise the way in which business is done in Germany, since the banks and insurers are now expected to offload their non-core industrial holdings, paving the way for German companies to be bought by foreign predators.

Individual entrepreneurs who sell their general partnerships have a basic tax-free amount of DM100,000 (£40,268) on any profits they make from the sale. And once in their lifetime, they can also take advantage of a reduced tax rate if they give up or sell their firm.