Taxes in Germany
Taxes in GermanyUpdated on Wednesday 23rd November 2022
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Taxes in Germany are applied at a federal government level (Bund), the state level (Lander) and at a municipal level (Stadte/Gemeinden). Germany has direct and indirect taxes which are applicable to natural persons and businesses. Our team of German attorneys can offer an in-depth presentation on the general taxes imposed here.
Income tax for residents in Germany
German residents pay an income tax on all earnings inside or outside the country. This tax is based on the principle of world income. The tax is applied considering the seven types of activities from which a person can obtain his or her income: agriculture and forestry, business operations, self-employment work, working as an employee in a company, capital income, letting property and other incomes. The German income tax is progressive, ranging from 0% to 45 %.
Non-residents are also liable for paying an income tax if they obtain earnings on the German territory, such as income from real estate in Germany.
Germany has signed double taxation agreements with almost 90 countries in order to sustain the business environment and to promote bilateral commercial relationships.
Business taxes in Germany
When opening a company in Germany, entrepreneurs must consider the taxation regime in this country. Starting with 1st of January 2008, the corporation tax in Germany is 15%. Taking into account the solidarity surcharge (5.5% of the corporation tax) and the trade tax (averaging at 14 % starting 2008), the tax on corporation in Germany reaches almost 30%.
For information regarding the various types of companies available in Germany and the taxation system applicable to them, businessmen can address to our team of German lawyers.
Corporation tax in Germany
The corporation tax is paid by companies, such as public and private limited enterprises, cooperatives, associations and foundations. Sole proprietorships and partnerships are taxed based on the personal income system. Charitable foundations, churches and sports club are exempt from paying the corporate tax.
Trade tax in Germany
The trade tax (Gewerbesteuer) is levied on companies with business operations. Unlike the corporation tax, the trade tax is charged by the local authorities or municipalities. The rate is set at local authority under the rates established by the government at an average rate of 14%. However, the local legislation imposes a variety of trade taxes, set up in accordance with the region. For example, as a general rule, the trade tax is imposed at a rate ranging between 14% to 16%, but it can also be imposed at a rate of 7% in the case of companies registered in economically challenged regions of the country, but it can also be imposed at the rate of 17% in larger cities of the country. For example, in an important German city, Munich, the trade tax is applicable at the rate of 17.1%.
In smaller towns, the trade tax is imposed at the rate of 12%.
Our lawyers will offer provide assistance for setting up a business in Germany and will also inform about all taxes that needs to be paid when opening a company.
Value Added Tax in Germany
All services and products are subject to Value Added Tax in Germany (VAT) and it is set at 19%. There are exceptions like sales of certain foods, books and magazines, flowers and transportation that are taxed with 7% VAT. At the same time, medical services, as well as dental services, are imposed with the reduced VAT rate.
There are also goods and services exempt from VAT, such as: export deliveries, intra-Community supply of goods, services provided by certain professional groups such as doctors, financial services like loans, letting real estate in the long-term, cultural services provided to the public like public theatres, museums, services provided by certain institutions which offer general education or vocational training, services provided voluntarily.
VAT in Germany is paid by the end consumer, who acquires certain goods and services. Further on, the companies will incur a certain sum from the respective purchases which must be collected and transferred to the local tax authorities in Germany.
VAT can be transferred in Germany in one of the following ways:
• monthly basis;
• quarterly basis;
• yearly basis.
The manner in which a company must transfer the VAT is mainly determined by the turnover registered by the business.
Real estate property tax in Germany
The real property tax is applied by the municipalities and it varies depending on the local parliament and on the type of property that is being sold. There is also a real estate property transfer tax, case in which the seller is required to pay a tax after selling the respective property.
The real estate tax in Germany is imposed taking into consideration two types of taxes, applicable to property used in forestry and agriculture, and another tax, imposed to construction sites which will become real estate properties or buildings.
The value of the tax is established in accordance with the rules and regulations imposed by the German Assessment Code.
The value of the tax is established between 0,28 to 1%. The tax varies in accordance with the location of the respective property and to its destination (commercial or residential property).
Aviation Tax in Germany
Starting with 2011, passengers flights departing from Germany are subject to the aviation tax, the amount being set up depending on the distance.
The regulations related to the German aviation tax are available under the German Aviation Tax Act.
At the level of 2016, the German authorities imposed three main levels of taxation, depending on the region in which the flight are programmed.
Thus, domestic flights, flights within the European Union (EU) space, EU candidate countries, flights in the European Free Trade Association region, are imposed with a tax of EUR 7.38.
Flights to other countries which are not included in the above mentioned situations and which are situated at a maximum 6,000 kilometres away from Germany are imposed with an aviation tax of EUR 23.05.
Our accountants in Germany can offer more in-depth information about corporate tax compliance and the submission of the company’s annual financial statements. Our services include, but are not limited to bookkeeping and the preparation of the annual financial statements. We can also answer questions about other taxes on corporations and individuals upon request.
Our lawyers will provide legal assistance in setting up a business in Germany and will offer legal advice on the taxes due when registering a company. They can also assist with legal information for the payment of other taxes imposed to commercial activities in Germany. Please contact our law firm in Germany for further information.