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Welcome to the German tax section of iCalculator. In this section you can find detailed information about tax and finances in Germany with supporting online calculators. On this page we provide an introduction to the tax system in Germany including Personal Income Tax (PIT) and Corporation Income Tax (CIT) and a German Income Tax Calculator which can be used to calculate income tax, social security and church taxes etc. which form part of the typical payroll deductions in Germany.
The Federal Republic of Germany, commonly known as Germany is a European country situated between the Baltic and North Seas. Located in Central - Western Europe, it is the second most populous state of Europe after Russia and the most populous member state of the European Union.
German is the official language of Germany and with official currency as the Euro, Germany has the largest national economy in Europe, which is a highly developed social market economy. Rich in timber, salt, ignite and potash, the economy of Germany is big on service sector as well with almost 70% of GDP coming from the service sector.
The country has various tax regimes that we will be discussed throughout this article. Let's start with a brief look at the tax authorities of Germany and their responsibilities.
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The Federal Central Tax Office abbreviated as BZSt (German: Bundeszentralamt für Steuern) is the tax authority of Germany. It is responsible for various kinds of tax administration and collection of taxes in Germany. With approximately 2,200 employees working currently for BZSt, it was founded on January 1, 2006.
You may find out more About BZSt here.
The BZSt was created under its parent agency The Federal Ministry of Finance. The Website for Ministry of Finance can be accessed by clicking the following link: The Federal Ministry of Finance
Now, let's take a look at various kinds of taxes that are levied on the individuals in Germany.
The Tax year for Individuals is the same as the calendar year from 1 January to 31 December.
If you are filing a tax return individually, they generally are due by 31st July of next year, following the tax year end. If you are earning any income other than employment income, you will be required to make advance payments on a quarterly basis. These payments will be due in March, June, September, and December. Penalties and fees are applied for late payments and failure to comply.
Germany has source based tax system. This means if you are a resident in Germany, you will be charged on your worldwide income and if you are a non resident you will be charged only on income that is a German source based. You will be allowed to file a joint tax return with your partner if you are married or living together as a civil partner.
Your employment income will be considered taxable if it falls under any of the following income categories: Employment, Business, agriculture and forestry, independent profession, capital investment, rents and royalties, Other personal income.
Personal income tax is levied at progressive rates based on earning thresholds, the tax rates and reviewed annually with the current and historical income tax rates for Germany available here.
A solidarity surcharge is applied on personal income tax in Germany. This surcharge is levied for the improvement of the economic situation in the five new eastern states and is charged at 5.5% for all individual income types. In addition to that, a church tax at the rates of 9% (9% in some cases) is levied on your income if you are a member of officially recognized churches.
If you are an Individual entrepreneur, you will be taxed under personal income tax. This is applied to net income from professional activities and is paid on a quarterly basis.
Capital gains from the disposal of your immovable assets, and shareholdings are taxed at a flat rate of 25%, you can calculate capital gains tax due in Germany using the German Capital Gains Tax Calculator.
You may be taxed on the net rental income after allowable deductions. Rental income from that is earned from a foreign source are generally exempt if the property is located within the EU / EEA territory.
Your earned income from dividends and interest on the bonds would be subject to a tax at 25% plus a solidarity surcharge. These taxes are generally withheld at the source. Expenses related to investments are not eligible for deduction, however, there is an allowance of 801,00 € and 1.602,00 € per taxpayer (single and joint respectively).
Property tax is charged on the registered value of the property owned by an individual. This is charged at a flat rate of 0.35% by the municipality in Germany.
Gift and Inheritance tax rates vary between 7% to 50% with many exemptions. Inheritance of business properties can be tax free under certain conditions.
You may be provided with personal allowances and for your children, including some other deductions that are subject to restrictions.
This concludes the personal tax section, let's know about the taxes that are levied on corporations.
The tax year is generally the calendar year though you may opt for a different tax year that should not exceed 12 month period. You are required to file your corporate returns generally by July 31st (in case of calendar year as tax year) electronically.
Resident companies are subject to CIT on worldwide income and a non-resident companies are subject to CIT only on Germany-source based income.
A flat corporate income tax rate is 15% plus a surtax of 5.5% applies to the resident and non-resident companies on the profits after the deduction of business expenses. You can calculate corporation tax online using the German Corporation Tax Calculator. In addition to this the municipal trade tax is added at the rate ranging between 14% and 17%, municipal trade rates canbe found under the Corporation Tax Calculator and in the German corporation tax rates for 2021.
Let's have a look at some of the deductions that are allowed for taxable corporate income.
There are many kinds of deductions available for corporate tax calculations given they meet the defined criteria; this includes participation exemption. In addition to this, tax incentive programs are available for SMEs.
Income from dividends and interest are taxed at 26.375%, including surcharge relief of 50% of the with a possibility of tax relief of up to 40% for nonresident companies. Rates may be reduced under a tax treaty.
The withholding tax is paid for the royalties to non-resident companies at 15.825% including surtax.
This is assessed annually on ownership of immovable property. This levied at the rate of 0.35%. This is applied by municipalities on the value of the property multiplied by a municipal coefficient.
You will be subject to real estate transfer tax that ranges between 3.5% to 6.5% of your properties based in Germany. It is also applicable to the property-owning companies, on indirect transfers on acquisition of at least 95% of the shares.
This is levied on your income by commercial activities as an entrepreneur that is done through a subsidiary or a nonresident commercial PE (permanent establishment) at a minimum rate of 7%. The rates of Municipal trade tax vary between 14% and 17% of income.
Employers are subject to a mandatory contribution towards social security in Germany up to 50% of wage related social security. Additionally, Employers are required to withhold the wage tax and remit it directly to the tax authorities.
Contributions are towards, nursing and healthcare, pension insurance, and unemployment as per below rates:
Custom duties are levied on the allowable products that are imported products at rates that range from 0% to 10%. Goods imported from EU countries are generally custom free.
The German Tax calculator is a free online tax calculator, updated for the 2021 Tax Year. Simply enter your annual salary to see a detailed tax calculation or select the advanced options to edit payroll information, select different tax states etc.
As an employer you need to consider the holistic legal and morale employment costs associated with employing a new staff member is Germany. The table below provides the true costs of employment for the annual salary entered.