Germany

Flag Tax of Germany

Corporate tax

Rate

The standard corporate tax rate of Germany is 15%. The actual effective tax rate ranges between 30-33%, which includes the trade tax and solidarity tax. The solidarity tax which is 5.5% is imposed to help the merger of two Germans. The tax is levied on corporations as for individuals, subject to the conditions specified in the law. Company profits consists of business and trading income, passive income as well as capital gains. Certain business expenses may be deducted in computing taxable income.

Taxation of dividends

Dividends from a German resident corporation, both resident and foreign corporations are effectively 95% tax exempt.

Capital gains

Capital gains from the sale of domestic or foreign corporate subsidiary is effectively 95% tax exempt, as long as the company received is taxable in Germany. Capital gains not exempt is taxed at the ordinary corporate tax rate of 15%.

Losses

Losses can be carried forward indefinitely and carried back 1 year. However a minimum taxation rule apply. Losses can be offset against profits of up to EUR 1 million without any restrictions. If the income exceeds EUR 1 million, only 60% may be offset against loss carry forwards. A partial or complete forfeiture of all the tax loss carry forwards may be applied if a single shareholder has a direct or indirect change of ownership of more than 25% / 50%. If a single shareholder owns directly or indirectly 100% of the shares of the transferring and receiving company, carry forwards will not be forfeited.

Withholding tax

Dividend is taxed at 25% withholding tax plus a surcharge of 5.5% of the tax due, with a possible 40% refund for nonresidential corporations, effectively giving a rate of 15.825%.

If the dividends qualifies under the EU parent-subsidiary directive, no tax is levied on the dividend in question.

In general there is no taxation levied on interest, except interests on deposits with German banks, financial institutions or certain hybrid instruments, this is tax on a flat rate of 25%.

Royalties to non-residents corporations are subject to a 15% withholding tax(15.825% including the surcharge). The rate can be reduced under the EU interest and royalty directive, provided the request is granted by tax authorities in Germany, or if there is a tax treaty in effect. Non residential individuals are taxed at a rate of 30%(31.65% including the surcharge).

 

Individual tax

General

Individuals living or regularly residing, having a domicile status in Germany is considered a resident for tax purpose. Individuals is taxed on their worldwide income. Nonresidents are just taxed on their income from German sourced work. Effectively this means that if an individual spends more than 6 months he or she is considered a resident. Domicile status can be presumed if an individual has a permanent accommodation at disposal in Germany, even if the individual doesn’t use it.

Taxable income

Taxable income for an individual is considered to conclude employment, trade or profession, agriculture and forestry, capital, rent or leasing or similar income. Income from private investments, including capital gains is taxed at a rate of 25%(26.375% including surcharge).

Income of up to EUR 8,004 is tax exempt. If the income ranges between EUR 8,005-52,881 the tax rate is 14%. Income ranging between EUR 52,882-250,730 is taxed at 42%. Income at EUR 250,731 or over is taxed at 45%.

Rates

Progressive tax rates is levied on income tax, which can be of up to 45%. Church tax of 8% – 9% is levied throughout Germany.

Capital Gains

If an individual sell a real estate or rights to a private property, the individual is subject to a tax but only if the taxpayer owner the property for less than 10 years. Sales of other assets held less then a year, is taxed at the normal tax rate of 25%(26.375% including surcharge).

Sale of shares is subject to taxation on the entire capital gains, a flat 25%(26.375% including surcharge), regardless of how long the holding period was, but only if the holding was less than 1% in a company. If the individual held a direct or indirect position of 1% or more within the last 5 years, only 60% of the capital gains from the sale is taxable at the normal rates of 25%(26.375% including surcharge).

Deductions

Expenses necessary for the purpose of acquiring income may be deducted from the tax base. Personal allowance for the taxpayer and his/her children is available. Certain deductions is subject to restrictions, such as social security contributions, medical expenses and insurances.

Real Estate

Individuals are subject to a municipal tax rate in which the real estate is located. The 0.35% tax rate of the property value is levied, multiplied by the municipal coefficient.

Net Worth Tax

There exist no net worth tax in Germany.

Inheritance Tax

In general tax rates for inheritance and gifts ranges from 7% of up to 50%, with certain tax exemptions available. If it’s a business property / asset, under certain conditions may the inheritance of a business property be 85% of up to 100% tax exempt.

Social Security

Employed individuals contributes to the social security. The individuals employer contributes 50% of the total contribution.

VAT

VAT applies to all sales of goods, services and imports. The VAT is 19%. A lower rate of 7% is taxed for convenience goods and services such as food, newspapers or public transports. Certain services like as banking, healthcare and non-profit work are VAT exempt.

Goods traded between different EU member states are subject to acquisition tax, which corresponds with the VAT tax rate of that country. Companies trading goods from a Non-EU member state are liable to an import VAT called import turnover tax. This tax rate equals the VAT rate of 19% or 7% and is paid to the German customs authority.

 

Other

Tax year. Calendar year.

Tax treaties. German currently has 91 treaties.

Filing requirements. Electronic quarterly preliminary VAT return, must be filed at latest the 10th day of the following month and pay the tax due. If the taxation for the previous calendar year of the company exceeds EUR 7,500, monthly preliminary returns must be filed. A refund will be paid back if the input tax exceeds the VAT.

Registration (for VAT purpose). In general German companies must register for VAT purposes. Germany applies a registration turnover threshold of EUR 17,500 from previous calendar year as well as an estimated turnover of EUR 50,000 of the current calendar year. Nonresidents supplying goods or services in Germany must also register for VAT.

 

Links

Tax authorities. Federal Ministry of Finance, Ministry of Finance of the German Lands.

Consulate

Local Tax Resources

Chamber of commerce

(Online realtor/stock exchange)