There are three levels of taxation in Germany: municipal, state and federal. The system includes both indirect and direct taxes. The main ones are on income and added value (VAT). In addition, the Constitution defines principles of taxation established with respect to payment ability, lawfulness, equality and welfare state.
If you would like to receive more detailed information on the German taxation system, please, contact our local incorporation experts.
Types of taxes in Germany
At the federal level, the country applies taxes:
- at customs;
- on electricity;
- on motor vehicles;
- on beverages;
- on solidarity surcharge or Solidaritätszuschlag.
At the state level the following tax categories are distinguished:
- on inheritance;
- on immovable property;
- on gambling;
- for fire protection.
The federal taxes in Germany include those on real estate, beverages, inns, and pets. Nevertheless, the state budget accumulates the largest revenue from VAT and income taxes.
The German income tax
The income tax in Germany is applicable to both national and international investors. Residents are charged with income tax with respect to their profit generated both in the country and outside its borders while non-residents owe tax on income arising only from Germany.
The tax is relevant for income earned from employment, business operations, capital and other activities. The rate is determined individually and varies in the margins of 0 – 45 percent. Germany has concluded many double taxation treaties so international investors have the benefit of a number of exemptions and reductions.
The German corporate tax
Corporate taxes are collected from companies with respect to their business profits. All companies incorporated in the country are liable for the corporate tax. International businesses with German branches or subsidiaries are subject to the taxation regime applicable to national entities and are entitled to the same reductions and exemptions. At the moment the rate of the German corporate tax is 15 percent. In addition, the income of companies is also subject to trade tax and solidarity surcharges.
If you plan to register a company in Germany, you will need to know more about the tax liabilities of your future business. You can contact our German experts in company establishment for full details on the tax system and the incorporation procedure.