Taxes in Germany: everything you need to know about them

Taxes in Germany: everything you need to...

There are many different kinds of taxes in Germany. In this article we explain the most important ones.

The German taxation system is based on the German Constitution. Most taxes are imposed based on agreements between individual states and the federal government. Some taxes are levied at the federal level (customs), other are levied by states (excise taxes) or smaller administrative units.

Corporation tax

Corporation tax rate in Germany is 15%. Apart from this tax, corporations also have to pay the solidarity surcharge and the so-called trade tax. The effective tax rate on corporations in Germany is about 30%.

Individual income tax

Income taxes in Germany are progressive – the tax rate increases with an increasing wage. The highest tax rate is 45% and is paid by individuals whose yearly taxable income exceeds 265,327 euros. Individuals whose yearly taxable income is below 14,255 euros don't have to tax their income. The effective tax rate isn't affected solely by income but also by your tax class. Do you not know which class you fall into? You can get some of your taxes back. File a tax return through our simple app. We wrote an article about tax returns in Germany in the year 2020.

Solidarity surcharge

Solidarity surcharge is tax paid by individuals earning more than 62,127 euros. The money collected goes straight to funding better infrastructure, healthcare, education, etc..

Social security contributions

Social security contributions in Germany are one of the highest in Europe and are divided into pension insurance (18,6%), unemployment insurance (3 %), nursing insurance (2,5 %), health insurance (14,6 %). A half of the insurance amount is paid by employers, the other half is paid by the employee. Similar to many other countries - the German insurance too has a ceiling the insurance amount can't exceed. This ceiling changes state to state.

Property tax

The real property tax rate is levied by the federal government as 0,35% from the property's value. Each state sets their own real property taxes on top of the federal one - in some states the rate is 8 times higher than the federal one.

The real property transfer tax is paid by the buyer. The federal tax rate is 3,5% but most states have increased it since.

Property investors have to take into consideration the Spekulationssteuer - speculation tax. If the vendee decides to sell the property within 10 years of purchasing it, they have to tax the gains generated by reselling the property.

Church tax

Churches acknowledged by the state are mostly funded by church tax. This tax is paid only by citizens who are oficial members of those churches. Church tax can be used as tax deduction.

Value added tax

The value added tax is a tax levied by the government on almost all services and products generated in Germany. Some of the most common exceptions are:

  • services provided by certain professional groups (such as doctors)
  • financial services
  • cultural services
  • selling of goods and services if the seller hasn't exceeded the 17,500 euro limit last calendar year or isn't expected to overstep the 50,000 euro threshold within the following year.

The general VAT rate is 19 %. The reduced tax rate is 7%.

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