Germany tax system: audit, reporting and optimization of taxation of German companies and individuals: VAT, income tax and capital gains

Basic taxes (briefly)

Personal tax 14% - 45%
Corporate tax (in detail) Income tax is levied at a rate of 15%. The general income and trade tax rates can be around 30% in Berlin and 33% in Munich.
Capital gains tax. Details Capital gains derived from the sale of a domestic or foreign corporate subsidiary are effectively 95% tax-exempt.
VAT. Details The standard VAT rate is 19%. For some types of goods and services - 7%.
Other taxes Real property tax, inheritance tax, transfer tax, municipal trade tax, social security contribution
Government fee No
Stamp duty No

International tax agreement

Albania, Algeria, Argentina, Armenia, Aruba, Australia, Austria, Azerbaijan, Bangladesh, Belarus, Belgium, Bolivia, Bosnia and Herzegovina, Brazil, Bulgaria, Cameroon, Canada, Chile, China, Colombia, Costa Rica, Croatia, Cyprus, Czech Republic, Côte d'Ivoire, Denmark, Egypt, Ecuador, Estonia, Finland, France, Georgia, Ghana, Greece, Hong Kong, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Kenya, Korea (Republic of), Kosovo, Kuwait, Kyrgyzstan, Latvia, Liberia, Liechtenstein, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Mauritius, Mexico, Moldova, Mongolia, Montenegro, Morocco, Namibia, Netherlands, New Zealand, Norway, Oman, Pakistan, Panama, Paraguay, Philippines, Poland, Portugal, Romania, Russian Federation, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Syrian Arab Republic, Taiwan, Tajikistan, Thailand, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Uzbekistan, Venezuela, Viet Nam, Yemen, Zambia, Zimbabwe
   
Andorra, Anguilla, Antigua and Barbuda, Bahamas, Bermuda, Cayman Islands, Cook Islands, Dominica, Gibraltar, Grenada, Guernsey, Isle of Man, Jersey, Liechtenstein, Monaco, Montserrat, Netherlands Attila, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Saint Maarten, San Marino, Turks and Caicos Islands, Virgin Islands (British)


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Individual Taxation

Residents pay income tax on their worldwide income, while non-residents on income from German sources.

The income of individuals is taxed at progressive rates:

  • 0% on income up to 9,744 EUR;
  • 14% on income from 9,744 EUR to 57,918 EUR;
  • 42% on income from 57,918 EUR to 274,612 EUR;
  • 45% on income from 274,612 EUR.

A 5.5% solidarity surcharge tax is also levied on the amount of income tax. Its rate is being gradually reduced and its tax base is being limited.

Members of officially recognised churches pay church tax at the rate of 8% or 9% depending on the area of residence.

Business income in excess of EUR 24,500 is subject to trade tax. The base rate is 3.5%, but municipalities can increase it multiple times: 2 – 5.5 times.

The 25% rate plus solidarity surcharge tax applies to:

  • Gains from the sale of financial instruments (for example, shares).
  • Dividends.
  • Interest.

Gains from the sale of other assets are taxed at ordinary progressive rates if movable property is sold after less than one year of ownership and if immovable property is sold after less than ten years of ownership.

Corporate Income Tax

Resident companies pay corporation tax on their worldwide income, while non-residents on their German source income.

Corporation tax is levied at the rate of 15%. A solidarity surcharge tax is also paid at the rate of 5.5% of the corporation tax, which results in the effective tax rate of 15.825%.

Business tax (trade tax) is levied at a base rate of 3.5% and at a municipal rate usually ranging between 12% and 20%. The base of this tax is somewhat different from the base for corporation tax.

The total of corporation tax and trade tax rates can be around 30% in Berlin and 33% in Munich.

95% of the company's gains from the sale of investments in other companies is exempt from taxation.

95% of dividends from substantial participation can be exempt from taxation. Substantial participation starts at 10% for corporation tax purposes and at 15% for trade tax purposes.

Social Security Contributions

The following social security contributions are levied in Germany:

  • Pension insurance payable at the rate of 18.6% on income up to EUR 85,200 (lower in some federal states). The contribution is paid by the employer and the employee in equal proportions.
  • Unemployment insurance payable at the rate of 2.4% on income up to EUR 85,200 (lower in some federal states). The contribution is paid by the employer and the employee in equal proportions.
  • Health insurance payable at the rate of 15.9% on income up to EUR 58.050. The contribution is paid by the employer and the employee in equal proportions.
  • Long-term care insurance payable at the rate of 3.05% (3.3% for childless individuals over 22 years old) on income up to EUR 58.050. The contribution is paid by the employer and the employee in equal proportions.
  • Occupational injury insurance payable by the employer at rates depending on the sector of the economy.
  • Insolvency insurance payable by the employer at the rate of 0.06% on income up to EUR 85,200.

VAT

The standard VAT rate is 19%.

The rate is 7% for some goods and services.

Inheritance and Gift Tax

This tax is levied at progressive rates from 7% to 50%.

There are non-taxable thresholds (from EUR 20,000 to 50,000 depending on the value of the property and the degree of kinship). Additional non-taxable thresholds are available to spouses.

Property Tax

There are local property taxes levied at the municipal level.

Property Transfer Tax

The transfer of German immovable property is taxed at rates from 3.5 to 6.5% of the transaction value. This tax is also levied on indirect transfers of immovable property through transactions with 95% or more shares in immovable property companies.

This tax is expected to be reduced.

Withholding Tax

Dividends and interest on convertible and profit-sharing bonds are taxed at the rate of 25% (26.375% including solidarity surcharge tax), but companies can apply for a refund of withholding tax paid in excess of the corporation tax rate of 15% (15.825% including solidarity surcharge tax).

Interest paid to non-residents, other than interest on convertible or profit-sharing bonds and over-the-counter transactions, is generally free of withholding tax.

Tax on loans secured by German immovable property is usually not withheld, but is subjected to corporation tax payable at 15% rate (15.825% including solidarity surcharge tax).

Royalties are taxed at 15% (15.825% including solidarity surcharge tax).

Tax rates may be reduced under double tax treaties and EU directives.

CFC Rules

Foreign companies more than 50% controlled by German tax residents are regarded as controlled foreign companies for tax residents who hold an interest (even a small one) in such foreign companies.

The CFC’s income is included in the tax base of a German taxpayer if it qualifies as passive income and is taxed at a rate below 25%.

There are a number of exemptions. In particular, if a CFC is located in the EU/EEA and the taxpayer can prove its real economic activity, the CFC rules may not apply.

Double Tax Agreements

Germany has exchange of information relationships with 116 jurisdictions through:

107 DTC: Albania, Algeria, Argentina, Armenia, Aruba, Australia, Austria, Azerbaijan, Bangladesh, Belarus, Belgium, Bolivia, Bosnia and Herzegovina, Brazil, Bulgaria, Cameroon, Canada, Chile, China, Colombia, Costa Rica, Croatia, Cyprus, Czech Republic, Côte d'Ivoire, Denmark, Egypt, Ecuador, Estonia, Finland, France, Georgia, Ghana, Greece, Hong Kong, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Kenya, Korea (Republic of), Kosovo, Kuwait, Kyrgyzstan, Latvia, Liberia, Liechtenstein, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Mauritius, Mexico, Moldova, Mongolia, Montenegro, Morocco, Namibia, Netherlands, New Zealand, Norway, Oman, Pakistan, Panama, Paraguay, Philippines, Poland, Portugal, Romania, Russian Federation, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Syrian Arab Republic, Taiwan, Tajikistan, Thailand, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Uzbekistan, Venezuela, Viet Nam, Yemen, Zambia, Zimbabwe.

24 TIEA: Andorra, Anguilla, Antigua and Barbuda, Bahamas, Bermuda, Cayman Islands, Cook Islands, Dominica, Gibraltar, Grenada, Guernsey, Isle of Man, Jersey, Liechtenstein, Monaco, Montserrat, Netherlands Attila, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Saint Maarten, San Marino, Turks and Caicos Islands, Virgin Islands (British).

Foreign exchange control

There are no exchange control in Germany.

    Taxes of Germany

    Min. rate for corporate tax ~30%
    Capital gains tax Regular rate
    VAT 19%
    Withholding tax 25%/0%/15%
    Exchange control No
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