Germany: Tax System
In this page: Corporate Taxes | Accounting Rules | Consumption Taxes | Individual Taxes | Double Taxation Treaties | Sources of Fiscal Information
| Corporate Tax (Körperschaftssteuer) | Standard rate is 15% (15.825% including a 5.5% solidarity surcharge). Effective rate including trade tax (assessed independently by each municipality from 7% to 17%) is estimated at about 30-33% |
| Trade tax (Gewerbesteuer) - levied on companies and individuals carrying out commercial activities through a subsidiary or a permanent establishment in Germany. The basis is the adjusted profit for corporation tax purposes | A combination of a uniform tax rate of 3.5% (base rate) and a municipal tax rate (Hebesatz). Rates are between 8.75% and 20.3% (averages between 14% and 17% of income). 25% of all financing costs over EUR 200,000 are added back to taxable income. |
| Windfall tax (applies to companies and organizations in the European Union that operate in the industries of oil, natural gas, coal, and refineries. Specifically, it applies to those who generate a minimum of 75% of their yearly revenue from activities related to the extraction, mining, refining of petroleum, or the manufacturing of coke oven products during the relevant taxation periods in 2022 and 2023) Applies in addition to any taxation charged under the Income Tax Act or the Corporate Tax Act |
tax rate of 33% imposed on the assessment basis, determined as the positive variation between: (i) the taxable income for the applicable tax period calculated in accordance with income or corporate tax regulations, and (ii) 1.2 times the average taxable income generated in the financial years commencing after December 31, 2017 and concluding before the initial tax year of the EU energy crisis solidarity contribution (e.g. this would refer to the years 2018 to 2021 if the financial year is based on the calendar year) |
In general, all expenses incurred in the course of business operations are deductible. Germany offers unilateral tax relief, allowing companies to credit foreign taxes paid up to the amount that is subject to domestic tax or to deduct foreign tax as a business expense. Net operating losses up to EUR 1 million can be carried back one year for corporation tax (for losses incurred between 2020-2023 the limit has been increased to EUR 10 million, in response to the COVID-19 crisis), but this provision does not apply to trade tax. Losses may be carried forward indefinitely up to EUR 1 million plus 60% of current income exceeding that amount. For net operating losses exceeding EUR 1 million, at least 40% of the taxable income is subject to taxation ("minimum taxation" principle). Deduction of net interest expense is generally limited to 30% tax EBITDA.
Start-up and formation expenses are deductible. Bad debts incurred on business activity with unrelated parties are deductible if it is apparent that they are irrecoverable and all attempts to pursue the debt have failed or been abandoned.
Donations to charity organizations that respect certain parameters, whether in cash or in kind, are deductible up to the higher of 20% of otherwise net taxable income or 0.4% of the total of sales revenue and wages and salaries paid during the year.
Paid taxes are deductible, except for corporation tax, trade tax, and the VAT on most non-deductible expenses. Fines and penalties are not deductible. The deductibility of certain royalty payments to related parties has limitations. Payments to foreign affiliates can be deducted, provided the amounts are at "arm’s length".
According to the German Research Allowance Act (Forschungszulagengesetz), a tax-free subsidy of 25% of salaries and wages for certain R&D purposes shall be guaranteed up to a limit of EUR 500,000/year (until 30 June 2026).
The straight-line method is used to calculate depreciation for both movable and fixed assets, based on the asset's estimated useful life. A depreciation table (AfA-Tabelle) established by the Federal Ministry of Finance provides the specific depreciation period for each asset. Assets with a net value below EUR 800 can be fully depreciated right away. For movable assets acquired or produced between 2020 and 2022, a temporary accelerated depreciation method utilizing the declining balance approach has been introduced. The depreciation factor applicable under this method can reach up to 2.5 times the current depreciation rates but is limited to 25% annually.
- Pension insurance: 9.3%
- Unemployment insurance: 1.23%
- Health insurance: 7.3% (the health funds may levy a supplement of 1.6% on average)
- Invalidity insurance: 1.525% (with a surcharge of 0.35% for employees without children)
The upper monthly salary limit varies according to the region (EUR 7,300 in 2023 in the western part of Germany and EUR 7,100 in 2023 in the eastern part of Germany for the pension and unemployment insurance and EUR 4,987.50 for the health and invalidity insurance).
| Germany | OECD | United States | |
|---|---|---|---|
| Number of Payments of Taxes per Year | 9.0 | 10.1 | 10.6 |
| Time Taken For Administrative Formalities (Hours) | 218.0 | 163.6 | 175.0 |
| Total Share of Taxes (% of Profit) | 48.8 | 41.6 | 36.6 |
Source: The World Bank - Doing Business, Latest data available.
Taxpayers are required to maintain their books in Germany, although electronic bookkeeping may be transferred abroad if prior approval is obtained from the tax authorities.
Large and medium-sized entities (corporations and certain partnerships) must prepare their annual financial statements, together with a management report, within three months from the end of the financial year. For small entities, the period is extended to up to six months and a management report need not be prepared. Small entities are entities that do not exceed two of the following three criteria for at least two consecutive financial years on their balance sheet dates: net turnover of EUR 12 million, total assets of EUR 6 million and an annual average of 50 employees. Listed companies and companies that have issued debt securities as domestic issuers additionally have to prepare a half-yearly financial report covering the first six months of the financial year.The financial statements and the management report of large and medium-sized entities need to be audited by a statutory auditor before they can be adopted by the board or the shareholders. All companies, except certain partnerships, are obliged to publish their financial statements and their management report without delay after presenting them to the shareholders, but not later than 12 months from the end of the financial year, by submitting them electroncally to the electronic federal gazette. For listed companies and companies that have issued debt securities as domestic issuers, the time limit for publication is four months from the end of the financial year. Half-yearly financial reports generally must be published within two months after the end of the reporting period and be submitted to the electronic company register. Penalties are imposed if the deadlines are not met.
There is no VAT registration threshold, as all taxable persons that carry out taxable transactions in Germany have to register for VAT purposes. In the event that the revenue did not surpass EUR 22,000 in the previous calendar year and is not anticipated to exceed EUR 50,000 in the ongoing calendar year, the enterprise has the option to choose the special scheme for small businesses, exempting them from VAT levied by tax authorities. However, non-resident companies that provide taxable goods or services in Germany must register, regardless of their income level.
In general, preliminary VAT returns are filed on a monthly or quarterly basis by the tenth day of the following month. Each taxpayer must file an annual return for each calendar year. To obtain a VAT refund, a company must have a tax identity number.
The tax administrations of each German Federal State (Länder) have published application forms for deferment of tax.
| Personal Income Tax for single taxpayers | Progressive rate from 14% to 45% |
| From EUR 0 to EUR 10,908 | 0% |
| From EUR 10,909 to EUR 62,810 | Geometrically progressive rates between 14% and 42% |
| From EUR 62,810 to EUR 277,825 | 42% |
| Above EUR 277,826 | 45% |
| Personal Income Tax for married taxpayers | |
| From EUR 0 to EUR 19,968 | 0% |
| From EUR 19,969 to EUR 117,192 | Geometrically progressive rates between 14% and 42% |
| From EUR 117,193 to EUR 555,651 | 42% |
| Above EUR 555,652 | 45% |
| Solidarity Contribution is added as a mandatory surcharge | 5.5% of the amount of the income tax No solidarity surcharge is levied any longer for individuals filing separately and having an income tax burden up to EUR 17,543, and for married filing jointly taxpayers with an income tax burden of up to EUR 35,086. If the aforementioned thresholds are exceeded, a sliding scale is applied |
| Church Tax (applicable to resident members of certain officially recognised German churches) | 8 or 9% of the annual income tax liability. It varies according to the district of residence |
| Trade Income Tax (levied on business income) |
For individuals and partnerships a tax-free amount of EUR 24,500 generally applies Each municipality is responsible for the final tax assessment |
Actual expenses for child care can be deducted up to a maximum of EUR 4,000 per year/child (for children under 14 years or for handicapped children).
Deductions are provided for parents and children with low income (documentary evidence of low income is required), up to EUR 9,984; and for children older than 18 who are being educated in Germany or certain foreign countries, up to EUR 924 per year. A lump-sum deduction of EUR 36 for a single person or EUR 72 for married couples is provided without the need for proof.
Employees working from home who don’t have a separate office room in their home can claim a flat rate of EUR 6 per day spent working from home and entrepreneurs can claim this lump sum as a business expense (capped at EUR 1,260/year).
Losses not offset in the year in which they occur can either be carried back to the previous year up to EUR 1,000,000 (increased to EUR 10,000,000 for 2020, 2021, and 2022 in response to the COVID-19 crisis) or carried forward indefinitely.
- Pension insurance: 9.3%
- Unemployment insurance: 1.2%
- Health insurance: 7.3% capped at EUR 58,050 annually including the employer's share (the health funds may levy a supplement of 1.2% on average)
- Invalidity insurance: 1.525% (1.875% for childless individuals, beginning with age 23).
In general, self-employed individuals are not obliged to pay mandatory social security contributions.
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Latest Update: November 2023
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