Taxation in Germany

Taxation in Germany is one of the most important aspects when deciding to move to start a business here. Discover below how individuals and companies are taxed in Germany and rely on our local specialists for support in tax-specific matters.

Who must pay taxes in Germany?

The following:

• natural persons, citizens/residents and non-residents;
• companies, local and foreign.

NOTE: Individuals will pay personal income tax, while companies pay corporate tax.

For complete details about the taxation system and accounting services, you may rely on our experts in company formation in Germany.

What are the main taxes to pay in Germany?

The following taxes are applied at the federal level in Germany:

• customs taxes,
• electricity taxes,
• motor vehicles taxes,
• beverages taxes,
• a solidarity surcharge (Solidaritätszuschlag).

The taxes applied at state level can be divided into:

• inheritance taxes,
• real estate transfer taxes,
• gambling taxes,
• fire protection taxes.

At municipal level, the German authorities will levy the trade tax, a real estate property tax, beverage, pets and inns taxes. However, the largest incomes to the state budget are generated by the income tax and the value added tax.

How do taxes apply in Germany?

Taxation in Germany is based on the principle of residency. Specifically:

• residents (natural persons and companies) are subject to taxes on their worldwide income;
• non-residents will be taxed on the income generated in Germany.

What types of income are taxed in Germany?

The following:

• employment;
• self-employment;
• business;
• investment;
• real estate-associated income;
• inheritances/gifts.

What is the tax base for individuals in Germany?

The tax applies to the total income (net income) after deductions, lump sums, social security, and other special expenses are deducted from the tax base.

IMPORTANT: The personal income tax in Germany applies progressively at class level.

What are the individual tax classes in Germany?

There are 6 classes, as follows:

Class 1: singles, divorces, widows, permanently separated spouses;

Class 2: single people who care for their children and benefit from the single-parent allowance;

Class 3: married people with at least one spouse who does not have an income, are recent widowers, or are in Class 5;

Class 4: married people earning income in Germany;

Class 5: married people, where at least one of the spouses enters the Class 3 category;

Class 6: people with more than one employment contract.

What are the personal income tax rates in Germany?

The following:

• 0% for an annual income of up to EUR 12,348;
• 14% to 42% for an annual income ranging from EUR 12, 349 to EUR 69,878;
• 42% for an annual income of more than EUR 69,879 and up to EUR 277,825;
• 45% for an annual income of more than EUR 277,826.

How are companies taxed in Germany?

German companies are imposed the corporate tax as follows:

• a 15% rate levied on corporate profits;
• a 5.5% solidarity surcharge;
• a trade tax of 3.5% multiplied by the local municipality.

Our German company formation agents can help you set up a business.

What is the tax year in Germany?

The tax year is January 1^st to December 31^st.

Contact us for more information about the taxation system in Germany.