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Taxation in Germany

Updated on Monday 03rd April 2017

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Taxation-in-GermanyPaying taxes in Germany

Taxes are levied at federal, state and municipal level in Germany. The German taxation system applies several direct and indirect taxes among which the most important are the income tax and the value added tax (VAT). Also, the German Constitution establishes several taxation principles which apply according to:

  • - the ability to pay,
  • - the equality principle,
  • - lawful taxation,
  • - the welfare state principle.

For detailed information about the taxation system you may contact our specialists in company formation in Germany.

Types of taxes in Germany

The following taxes are applied at 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 property taxes,
  • - gambling taxes,
  • - fire protection taxes.

At municipal level, the German authorities will levy 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.

The German income tax

The income tax applies to both residents and non-residents in Germany. If German residents are applied the income tax on all their incomes earned in and outside the country, non-residents are required to pay the tax on the income arising in the country alone. The German income tax applies to incomes derived from business operations, employment, capital income and other agricultural activities. The tax rate an individual must pay in Germany varies and ranges from 0% to 45%. Also, based on the extended network of double taxation agreements Germany has, foreign investors will benefit from numerous tax reductions or exemptions.

The corporate tax in Germany

German companies are required to pay the corporate tax arising from business profits. All types of German companies are required to pay the corporate tax. Foreign companies with subsidiaries or branch offices in Germany benefit from the same taxation regime and exemptions or reduction as national companies. The current corporate tax rate in Germany is 15%. However, another solidarity surcharge and trade tax applies to the income made by companies.

In case you intend to start the process of setting up a company in Germany, you should be aware of the taxes your future company will have to pay. For complete details about the taxation system and accounting services you may rely on our German consultants in company incorporation.

 

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