Germany
Corporate taxes and other direct taxes
Corporations are subject to unlimited corporate income tax liability if they have either their registered seat or their effective place of management in Germany. In this case, the worldwide income of the corporation is subject to German corporate income tax. Corporations that are not subject to unlimited corporate income tax liability in Germany but receive income from German sources are subject to limited corporate income tax liability on these sources. The corporate income tax rate is 15%. The solidarity surcharge amounts up to 5.5% and is levied additionally on corporate income tax. The total corporate income tax burden amounts to a maximum of 15.825%. In addition, German municipalities levy trade tax if the company has a domestic permanent establishment. The average trade tax burden is 15.225% (2023).
The determination of taxable income is generally based on the result of the income statement under commercial law. However, taxable income often differs from the profit and loss reported in the commercial balance sheet. German tax law provides tax exemptions for certain income, e.g. dividends and capital gains are generally 95% exempt from German corporate income tax (minimum holding ≥ 10%) and trade tax (minimum holding > 15%). The tax losses for a fiscal year can be offset against the profits of the previous year up to an amount of EUR 10 million (loss carryback; EUR 1 million from 2024). Any loss exceeding this amount can be carried forward indefinitely and offset in the following fiscal years (loss carryforward). In subsequent years, the remaining losses can be deducted without limitation up to an amount of EUR 1 million. In addition, a loss offset of up to 60% of the total amount of income exceeding EUR 1 million is possible.
Partnerships are not subject to either income or corporate income tax at the company level, but may be subject to trade tax. The profit of a partnership is subject to either income tax or corporate income tax at the level of the partners.
Germany has concluded double taxation treaties with 136 countries. A withholding tax rate of 25% (15% if the recipient is a corporation) applies to dividends. Interest income is subject to a withholding tax of 25%. A withholding tax of 15% (30% under certain conditions) is levied on royalty payments and other special types of income. The withholding tax rates may be reduced under the applicable Treaty, the EU Parent-Subsidiary Directive or the EU Interest and Royalties Directive.
Level of attention paid by Tax Authority:
VAT and other indirect taxes
The VAT rate in Germany is 19%. A reduced rate of 7% applies to certain basic foodstuffs, books, newspapers, antiques, livestock, hotel accommodation, railway transport services, and certain other items. Banking services and insurance premiums are generally exempt from VAT. If goods are supplied from the EU to non-EU countries, the supply is generally not subject to German VAT (export). Nevertheless, the input tax associated with the goods can be claimed by the domestic company from the tax authority. Goods imported into Germany from a non-EU country are subject to an "import VAT" on entry. Sales of goods within the EU in the B2B sector are tax-free (intra-community supply). Sale of goods to a private person is generally subject to German VAT. In addition to VAT, there are various excise duties on imported goods, as well as real estate transfer tax.
The real estate transfer tax is levied on the selling price or other disposal value of land and or buildings whenever there is a change of ownership. The tax rate is determined by the individual federal states and ranges from 3.5% to 6.5%. The average rate of land transfer tax is 5.63% of the realizable value.
Personal income tax / Social security system
Individuals are subject to unlimited income tax liability if they have their residence or habitual abode in Germany. Nationality is irrelevant for German income tax liability. In this case, the worldwide income of the individual is subject to German income tax. Individuals who are not subject to unlimited income tax liability in Germany but receive income from German sources are subject to limited income tax liability on these sources.
Individuals can earn the following types of income in Germany: Income from business operations, income from self-employed or employed work, income from capital assets, income from agriculture and forestry, income from renting and leasing, and other income. Individuals are subject to a progressive income tax rate of 14% to 45%. A solidarity surcharge of 5.5% is levied in addition to income tax. A basic allowance of EUR 11,604 to secure the minimum subsistence level is exempt from German income tax. In principle, taxable income is calculated as the surplus of income over income-related expenses, or of operating income over operating expenses. Personal expenses can also be deducted under certain conditions. Investment income, e.g. interest and dividends, is generally subject to a separate tax rate of 25%, plus a 5.5% solidarity surcharge.
Income from employment falls within the scope of the German social security system. This system is divided into unemployment, pension, health, nursing, and accident insurance. Social security contributions are usually paid half and half by the employer and the employee. The statutory minimum amount for health insurance is 14.6% and is divided equally. The contribution for pension insurance is 18.6% and is borne equally by the employer and the employee. The sum of social contributions averages 40.45% (excl. accident insurance) of an employee's gross salary.
Wage related taxes
in Germany |
Minimum wage
|
Average wage
in private sector |
| |
in EUR |
|
in EUR |
|
| |
2,160 |
|
4,105 |
|
| Total wage cost |
2,597 |
120.23% |
4,935 |
120.23% |
| Employer´s and other contributions* |
437 |
20.23% |
830 |
20.23% |
| Gross salary |
2,160 |
100.00% |
4,105 |
100.00% |
| Employees' contributions** |
278 |
12.87% |
529 |
12.89% |
| Health insurance |
176 |
8.15% |
334 |
8.14% |
| Personal income tax and solidarity surcharge*** |
1138 |
6.39% |
582 |
14.18% |
| Net salary |
1,568 |
72.59% |
2,660 |
64.80% |
*includes unemployment, pension, health, nursing insurance
**includes unemployment, pension, nursing insurance
***calculation without church tax/ for a single 30 year old and without children