Taxes in Germany are levied by the federal government, the 16 states (Länder), and municipalities (Städte/Gemeinden). The system combines direct and indirect taxes and has been reshaped byreunification in 1990 as well as Germany’s membership in theEuropean Union. Today, the largest sources of revenue areincome tax andvalue-added tax (VAT), which together fund a wide range of public services, infrastructure, and social welfare programs.
The constitutional framework is defined by theBasic Law (Grundgesetz), which allocates taxing rights between the federation, the states, and local authorities. Some taxes are collected exclusively at the federal level, such as customs duties and certain excise taxes, while others are shared between levels of government. Municipalities retain the right to levy local taxes, including property tax (Grundsteuer) and trade tax (Gewerbesteuer).
Germany’s tax system covers both residents and, under specific conditions, non-residents with income generated in the country. Corporations, both public and private, are subject to corporate taxation, while exemptions exist for certain non-profit organizations and religious institutions. Additional revenues are derived from real estate transfer tax, inheritance and gift taxes, capital gains tax, theair passenger tax, andmotor vehicle taxes.
In 2024, a single individual with annual gross income below €11,604 (theGrundfreibetrag) pays no income tax in Germany.[1] Above this threshold, the income tax rate starts at 14% and rises progressively to 42% for income above €66,760. A top rate of 45% applies to income above €289.300[2]
Married couples may benefit from income splitting (Ehegattensplitting), in which their combined income is divided equally and taxed as if each spouse earned half. For example, if one spouse earns €60,000 and the other €40,000, the taxable income of €100,000 is split into two portions of €50,000 each. This can reduce the applicable progressive rate compared to taxation as two single individuals.[3]
Self-employed individuals and freelancers are subject to the same progressive income tax rates, but may deduct allowable business expenses. For instance, a freelancer earning €80,000 annually with €20,000 in deductible expenses has a taxable income of €60,000. Standard progressive rates then apply to this adjusted figure.[4]
Corporations in Germany are taxed at a flat corporate income tax rate of 15%. For a company reporting €200,000 in taxable profit, the corporate tax amounts to €30,000. In addition, the solidarity surcharge and municipaltrade tax apply, which vary depending on the municipality and increase the effective tax rate.[5]
The German word for "tax" isSteuer (pronounced[ˈʃtɔʏɐ]ⓘ), derived from theOld High German wordstiura, meaning "support".[6]
According to §3(1) of the German Tax Code (Abgabenordnung), taxes are defined as monetary payments that are imposed by a public authority to generate revenue, without constituting direct consideration for a specific service. The law also notes that generating revenue may be an ancillary purpose.[7]
TheGrundgesetz ("Basic Law") is the German constitution, formally titledGrundgesetz für die Bundesrepublik Deutschland ("Basic Law for the Federal Republic of Germany").[8]
Tax authority in Germany follows the general structure of public administration, which operates at four levels: federal (Bund),state (Land, plural:Länder),district (Kreis, plural:Kreise), andmunicipality (Gemeinde, plural:Gemeinden). Most taxing powers and revenues are concentrated at the federal and state levels.
The fiscal administration (Finanzverwaltung), also known as the tax administration (Steuerverwaltung), is responsible for determining and collecting taxes. TheFederal Central Tax Office (Bundeszentralamt für Steuern, or BZSt) is the federal agency responsible for several areas of tax administration. It was established as a separate authority from theFederal Ministry of Finance in 2006.[9]
TheBasic Law (Grundgesetz) sets out the constitutional principles of taxation in Germany. These include:
Articles 105–107 of the Basic Law regulate how taxing rights are divided between the federation, the states, and the municipalities:[11]
Article 106 of the Basic Law specifies how tax revenues are allocated:
The largest revenue sources areincome tax andvalue-added tax (VAT). Their proceeds are shared between the federation and the states, while municipalities receive a share through state transfers. Article 107 establishes fiscal equalisation (Länderfinanzausgleich), which redistributes revenues between financially stronger and weaker states.
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Germany's fiscal administration is divided into federal tax authorities and state tax authorities. The local tax offices (Finanzamt, pluralFinanzämter) belong to the latter. They administer the "shared taxes" for the federation and the states and process the tax returns. The number of tax offices in Germany totals around 650.
As a result of discussions in 2006 and 2009 between federation and states (the so-calledFöderalismusreform [de;fr]), the Federation also administers some taxes. The competent authority is theFederal Central Tax Office (Bundeszentralamt für Steuern, orBZSt) which is also competent authority for certain applications of tax refund from abroad. Since 2009, the BZSt allocates an identification number for tax purposes to every taxable person.
There is at least oneFiscal Court in everystate (Berlin and Brandenburg, however, share a court located inCottbus). Appeals against the decisions of the Fiscal Courts are heard by theFederal Fiscal Court (Bundesfinanzhof) in Munich.
The common rules and procedures applying to all taxes are contained in the fiscal code (Abgabenordnung) as so-called general tax law. The individual tax laws regulate in which case tax is incurred.
The German Fiscal Code (Abgabenordnung, AO) is divided into nine parts, which essentially reflect the chronological sequence of the taxation procedure. The introductory provisions explain the basic tax concepts that apply to all taxes.
From 2009 onward, every German resident receives a personaltax identification number. Businesses also receive a business identification number (Wirtschaftssteuer-Identifikationsnummer).[12] The competent authority is theFederal Central Tax Office (Bundeszentralamt für Steuern).[13] A taxpayer in Germany gets two types of tax numbers - Tax ID (Steueridentifikationsnummer) and Tax Number (Steuernummer). Tax ID is issued by the Federal Central Tax Office and the Tax Number is assigned by the local tax office (Finanzamt).[14]
According to the latest Revenue Statistics report published by the Organisation for Economic Co-operation and Development (OECD), Germany has seen a significant increase in its tax-to-GDP ratio. In 2021, the ratio stood at 39.5%, up 1.6 percentage points from 37.9% in 2020. This increase is higher than the average for OECD countries, which rose from 33.6% to 34.1% between 2020 and 2021.
Looking at the longer-term trend, Germany’s tax-to-GDP ratio has been steadily increasing since 2000 when it was at 36.4%. In comparison, the OECD average has also risen over the same period, from 32.9% in 2000 to 34.1% in 2021. The highest tax-to-GDP ratio recorded in Germany was in 2021 at 39.5%, while the lowest was in 2004 at 34.3%.[15]
During 2021 Germany was ranked 10th in OECD tax-to-GDP ratio out of 38 OECD countries.
Compared to the OECD average, Germany’s tax structure is distinguished by significantly higher revenues from social security contributions and personal income taxes, profits and gains. On the other hand, Germany has a lower proportion of revenues from corporate income and gains taxes, property taxes, value-added taxes (VAT), and goods and services taxes (excluding VAT/GST). Additionally, Germany does not generate any revenue from payroll taxes.[16]
Community taxes made up the largest share of the total at EUR 626.0 billion, or 82.3 percent. Compared with the previous year, they increased by 15.0 percent or EUR 81.8 billion. The main contributors were taxes on sales (+31.3 billion euros) and income- and profit-related tax types such as corporate income tax (+17.9 billion euros), assessed income tax (+13.4 billion euros) and payroll tax (+9.1 billion euros).Radware Captcha Page
Tax revenue is distributed toGermany's three levels of government: the federation, the states, and the municipalities. All of these are jointly entitled to the most important types of tax (i.e.,value-added tax andincome tax). For this reason, these taxes are also known as shared taxes. Tax revenue is distributed proportionately using a formula prescribed in the German Constitution.
Individuals who are resident in Germany or have their habitual abode there are subject to unlimited income tax liability. Residence is defined as maintaining a dwelling under circumstances indicating a non-temporary stay. Habitual residence is deemed to exist after a continuous stay of more than six months, excluding short interruptions (§9 AO).
Under the principle of world income, all income earned by residents, both in Germany and abroad, is taxable in Germany. Persons without residence in Germany may still be subject to tax if they earn certain types of domestic income (§49 EStG), known as limited tax liability.
Taxable income is classified into seven categories:
Income tax is levied at progressive rates from 0% to 45%. A top marginal rate of 45% applies to very high incomes (§32a EStG). For married couples filing jointly, theEhegattensplitting method applies: combined income is divided equally between spouses, tax is calculated on half, and the result is doubled. This method generally lowers liability when spouses’ incomes differ significantly.
| Income over (single) | Income over (married) | Marginal rate range | Effective rate |
|---|---|---|---|
| €0 | €0 | 0% | 0% |
| €11,604 | €23,208 | 14–24% | 0–2.25% |
| €17,005 | €34,010 | 24–42% | 2.25–14.56% |
| €66,760 | €133,520 | 42% | 14.56–26.61% |
| €277,826 | €555,652 | 45% | 26.61–44.99% |
Wage tax (Lohnsteuer) is a withholding form of income tax, deducted directly from employees’ wages. Employers also deduct social security contributions. Final liability is determined in the annual assessment, with wage tax credited against it.
Withholding for employment income is based on tax classes (Steuerklassen), which depend on marital and family status. For example, Class I applies to single individuals, Class II to single parents, and Classes III/V or IV/IV to married couples. The choice of class affects only monthly withholding; final liability is independent of it.
Capital income is subject to a flat withholding tax (Abgeltungsteuer) of 25%, plus solidarity surcharge and, if applicable, church tax.
Taxable income is calculated after deductions, including mandatory social security contributions (roughly 20% of gross income in recent years). Employees may also deduct work-related expenses (Werbungskosten) such as tools, commuting costs, and professional clothing. A lump-sum allowance applies automatically to employment income.
A specific home office deduction was introduced: €5 per day worked from home in 2020–2022 (max €600 annually), rising to €6 per day from 2023 (max €1,260).[18]
Certain types of German-source income received by foreign artists, athletes, licensees, and supervisory board members (§49 EStG) are subject to withholding tax under §50a EStG. German payers must withhold the tax and remit it to the BZSt.[22]
Foreign taxpayers may apply for a refund if a double taxation agreement (DTA) reduces German taxing rights, or obtain an exemption certificate in advance.[22]
Non-residents are taxable only on German-source income, such as income from German real estate or from a permanent establishment (§49 EStG). Non-resident owners of German property are subject to income tax on rental income and must file a German return.[23]
Germany has double taxation agreements with about 90 countries, largely following theOECD Model Tax Convention. They cover income and wealth taxes as well as inheritance and gift taxes, and provide for cooperation between tax authorities, including exchange of information.[24]
Employment income is subject to mandatory social security contributions for health, pension, nursing care, and unemployment insurance. Rates are shared equally between employer and employee, and are capped at statutory ceilings which adjust annually.[25]
| Insurance type | Annual income ceiling | Employer share | Employee share |
|---|---|---|---|
| Pension insurance | West: €78,000 / East: €69,600 | 9.3% | 9.3% |
| Unemployment insurance | West: €78,000 / East: €69,600 | 1.5% | 1.5% |
| Nursing care insurance | €53,100 | 0.775–1.275% | 1.275–1.775% (higher rate for childless employees) |
| Health insurance | €53,100 | 7.3% | 7.3% + supplementary contribution (varies by insurer, up to 0.9%) |
Corporation tax is charged first and foremost on corporate enterprises, in particular public and private limited companies, as well as othercorporations such as e.g.cooperatives, associations andfoundations.Sole proprietorships andpartnerships are not subject to corporation tax: profits earned by these set-ups are attributed to their individual partners and then taxed in the context of their personal income tax bills.
Corporations domiciled or managed in Germany are deemed to have full corporation tax liability. This means that their domestic and foreign earnings are all taxable in Germany. Some corporate enterprises are exempted from corporation tax, e.g. charitable foundations, Church institutions, and sports clubs.
As of 1 January 2008, Germany'scorporation tax rate is 15%. Counting both the solidarity surcharge (5.5% of corporation tax) and trade tax (averaging 14% as of 2008), tax on corporations in Germany is just below 30%.
The assessment base for the corporation tax charged is the revenue which the corporate enterprise has earned during the calendar year. Taxable profits are determined using the result posted in the annual accounts (balance sheet andIncome statement) drawn up under the Commercial Code. What is deemed income under tax law sometimes diverges from the way earnings are determined under commercial law, in which case tax law provisions prevail.
Whendividends are paid to an individual person, capital yield tax at a rate of 25% is charged. Since 1 January 2009, this tax is final for individuals who are residents of Germany. Solidarity surcharge is also imposed on capital yields tax.
When dividends are paid to an enterprise with full corporation tax liability, the recipient business is largely exempted from paying tax on these revenues. In its tax assessment, merely 5% of the dividends are added to profits as non-deductible operating expenses. The same applies if a taxable corporate enterprise sells shares in another company.
Deducting tax from dividends paid by asubsidiary with full tax liability to a foreign parent domiciled in theEU is waived on certain conditions, e.g., the parent company has to have a direct holding in the subsidiary of at least 15%.
Under German tax law, separate companies may be treated as integrated fiscal units for tax purposes (Organschaft). In an integrated fiscal unit, a legally independent company (the controlled company) agrees under a profit and loss pooling agreement to become dependent on another business (the controlling company) in financial, economic and organisational terms. The controlled company undertakes to pay over its entire profits to the controlling company. Another requirement is that the controlling company has to hold the majority of voting rights in the controlled company.
In tax terms, recognition of a fiscal unit means that the income of the controlled company is allocated to the controlling company. This provides an opportunity to balance profits and losses within the integrated fiscal unit.
Entrepreneurs engaging in business operations are subject to trade tax (Gewerbesteuer) as well asincome tax/corporation tax. In contrast to the latter, trade tax is charged by the local authorities ormunicipalities, who are entitled to the entire amount. The rate levied is fixed by each local authority separately within the range of rates prescribed by the central government. As from 1 January 2008, the rate averages 14% of profits subject to trade tax.
The business entity has to file the trade tax return with the tax office, like its other tax returns. Taking any allowances into account, the local tax office (Finanzamt) calculates the trade earnings and then gives the applicable figure for a trade tax assessment to the local authority collecting the tax. The underlying profit base, as well as the book-tax differences for the local trade tax jurisdictions, may differ from that used for the corporation tax. On the basis of the collecting rate (Hebesatz) in force in its area, the local authority calculates the trade tax payable.
One-man businesses and members of a partnership may deduct a large portion of trade tax from their personal income tax bill.
As from 1 January 2008, corporate entities may no longer deduct trade tax from their taxable profits.
Municipalities levy atax on real property (Grundsteuern). The tax rates vary because they depend on the decision of the local parliament. The tax is payable every quarter. In 2018, theGerman Constitutional Court ruled the current property tax as not in line with the constitution. This is because properties are taxed based on their value from the early 1960s (1930s in East Germany), violating the horizontal equity principle.
Transfers of real property are taxable (Grunderwerbsteuer). The vendee and the vendor are common debtors of the tax. In general the vendee has to pay the tax. The tax rate is defined by the individual states. In general the tax rate is 3.5%, but all states except Bavaria and Saxony have increased it since 2011. Most states now have a tax rate of 4.5% or 5%; the highest are North Rhine-Westphalia, Saarland and Schleswig-Holstein with 6.5%.
Real estate investors are also impacted by the speculation tax (Spekulationssteuer). This tax applies to gains generated on real estate investments, if sold less than ten years after purchase. Depreciation deductions of prior years are added to the sales price of the home, to derive a higher taxable gain.[26]
Vendor profit from real estate sales in Germany is consideredcapital gains if the real estate has been held for less than ten years.[27]
For example, if an individual purchased an apartment in 2015 and rented it out, and now wants to sell it for a profit, they would have to pay taxes on their profit if they sell the property before the speculative period ends in 2025.[28]
A single law regulates both inheritance tax and gift tax, requiring the payment of rates from 7% to 50% both on transfers following death and on gifts among the living. In contrast to the U.S.estate tax, the inheritance and gift tax is paid by the recipient of the transfer. The tax rates depend on the amount and on the relationship between donor and recipient. There are also substantial exemption rates, amounting to €500,000 for transfers between married partners and €400,000 for transfers to own (step-)children. Deductions as high as 100% apply to cases such as family houses and the possessions of entrepreneurs.
In Germany there is no specialcapital gains tax. Only under certain conditions gains fromprivate disposal may be taxed. Since 1 January 2009 Germany levies a final tax (Abgeltungsteuer) amounting to 25% plus 5.5% solidarity surcharge. This may take effect like a capital gains tax for resident persons e.g. disposal of shares. TheAbgeltungsteuer replaces the earlierhalf revenue procedure [de] that had been in effect in Germany since 2001.
Recipients residing abroad can be relieved through exemption from tax deduction or reimbursement of already withheld and remitted capital gains tax in a written application procedure.
Relief can also be obtained through the data carrier procedure (DTV). The DTV is only suitable for financial institutions that regularly submit a large number of applications for reimbursement of German capital gains tax (KapSt) and solidarity surcharge (SolZ) on behalf of their customers residing abroad.[29]
As a matter of principle, all services and products generated in Germany by a business entity are subject tovalue-added tax (VAT). The German VAT is part of theEuropean Union value added tax system.
Certain goods and services are exempted from value-added tax by law; this applies for German and foreign businesses alike.
For example, the following are exempted from German value-added tax:
The rate of value-added tax rate generally in force in Germany is 19%.[31] A reduced tax rate of 7% applies e.g. on sales of certain foods, books and magazines and transports.
Due toCOVID-19, the government accepted a lowering to 16% (reduced: 5%) from 1 July 2020 until 31 December 2020 for the rates.[32] The overall intended effect of the reduction, stimulating the economy, was marginal[citation needed][33] and further diminished by the costs of adjusting prices (which not all businesses did), changing sales and billing systems, and doing that twice in such a short time.
Within ten days of the end of each calendar quarter, the business entity has to send the tax office an advance return in which it has to give its own computation of the tax for the preceding calendar quarter. The amount payable is the value-added tax it has invoiced, minus any amounts of deductible input tax. Deductible input tax is the value-added tax which the entrepreneur has been charged by other business entities.[citation needed]
The amount thus calculated has to be paid to the tax office through an advance. This means that the amount due must be paid in full before the next fiscal quarter. Larger businesses have to file the advance return every month. For entrepreneurs who have only just taken up professional or commercial operations, the monthly reporting period likewise applies during the first calendar year and in the year after that.[citation needed]
At the end of the calendar year, the entrepreneur has to file an annual tax return in which it has again calculated the tax.[citation needed]
Entrepreneurs whose turnover (plus the value-added tax on it) has not exceeded EUR 17,500 in the preceding calendar year and is not expected to exceed EUR 50,000 in the current year (small enterprises), do not need to pay value-added tax. However, these small enterprises are not allowed to deduct the input tax they have been billed.[citation needed]
Travelers from non-EU member states can shop VAT-free in Germany. To be eligible for VAT exemption, you must meet the following conditions:
Personal luggage includes items that you carry with you when crossing the border, such as hand luggage or items in a vehicle you use, as well as checked hand luggage. Forwarded or shipped baggage does not qualify.
Since 1 January 2020, only purchases with an invoice amount of 50.01 euros or more can lead to a VAT exemption for the supplying retailer.Since the customs administration only confirms the export by a person resident in a third country, a stamp imprint does not make any statement about an associated tax exemption for the trader that he can pass on to his customer.[34]
The 50 EUR value limit will be abolished when an automated confirmation of the export of goods by a person resident in the third country is possible. An IT system intended for this purpose is currently under development, but a specific date for commissioning cannot yet be named.[34]
According to the source the following are exempt from the tourist tax exemption:
An important thing to mention is that one's nationality is irrelevant, only the place of residence is decisive. For example, a Swiss citizen who lives in Germany cannot shop here tax-free.
A tax is imposed on the owners of motor vehicles. It is levied depending on the type of vehicle (car, motorcycle, commercial truck, trailer, motorhome, etc.). The tax is due annually after the registration of the vehicle.
With cars, the tax is different for gasoline and diesel engines. Diesel powered cars are taxed higher. The tax amount also depends on the emissions class (Euro 1 – Euro 6), whether a diesel car has a soot particle filter, and the initial date of vehicle registration.
| Initial registration | Taxation based on | Tax free CO2 threshold |
|---|---|---|
| – 30 June 2009 | displacement in cc | – |
| 1 July 2009 – 31 December 2011 | displacement in cc + CO2 emission | 120g/km |
| 1 January 2012 – 31 December 2013 | displacement in cc + CO2 emission | 110g/km |
| 1 January 2014 – | displacement in cc + CO2 emission | 95g/km |
Purely electric vehicles are exempt from taxes for at least five years after initial registration.[35]
Standard reliefs and work-related expenses:
Standard marital status reliefs, the tax obligation of spouses is determined using a division method.
Results: Due to progressive income taxation and disparate income levels, this method reduces the tax burden for couples compared to individual assessments, benefiting the household economically. The greatest benefit of income splitting occurs when one spouse has no taxable income, diminishing as spouses' incomes become more similar. This approach ensures that both earners face equal average and marginal tax rates, regardless of how income is distributed between them.
In 2022, tax credits are available as follows: EUR 2,628 for the first and second child, EUR 2,700 for the third child, and EUR 3,000 for the fourth and subsequent children. Parents are granted an increased tax allowance of EUR 2,810 for child support and an additional EUR 1,464 for care and educational expenses, totaling EUR 4,274. These amounts are doubled for jointly assessed parents and for single parents not receiving alimony from the other parent. If the tax credit is less than the allowance based on these figures, the tax allowance supersedes the tax credit. It is presumed that a single parent will always benefit from the doubled allowances.
In 2022, families with children also receive a one-time bonus of EUR 100 per child, which does not reduce the basic income support for jobseekers. For higher-income households, this bonus will be deducted from the child tax allowance. As of 1 January 2015, single parents are entitled to a standard additional allowance of EUR 1,908 (previously EUR 1,308), increased by EUR 240 for each additional child in the home.
Since 2020, the standard tax allowance for single parents was raised to EUR 4,008, initially as a temporary response to pandemic-related challenges through 2020 and 2021, and made permanent from 2022 onward to support single-parent families.
Reliefs for social security and life insurance contributions
Deductions include social security and future provisioning expenses (e.g., life insurance), capped according to specific limits. Since 2005, the deduction process is:
Since 1 January 2010, employees’ annual contributions to statutory health insurance (excluding sickness benefits, assumed to be 96% of total health contributions) and long-term care insurance are deductible from the tax base. If these contributions do not exceed EUR 1,900/3,800 (single/married), additional deductions are allowed for unemployment insurance and other insurance premiums up to this limit.
An increased lump-sum deduction of EUR 1,200 for work-related expenses per employed individual (until 2021: EUR 1,000). Expenses exceeding this amount are fully deductible (no ceiling). A "home office" deduction was introduced for 2020 and 2021, allowing EUR 5 per day for exclusive home working, capped at EUR 600 per year (120 working days). This deduction will continue into 2022 and is considered within the general lump-sum deduction for work-related expenses.
A lump sum allowance of EUR 36/72 (singles/couples) for special expenses, such as tax accountancy. Actual expenses exceeding this allowance are fully deductible if substantiated by the taxpayer.
Relief for citizens dealing with rising energy costs
A one-time lump-sum energy price allowance of EUR 300 for all working taxpayers in 2022, taxable but not reduced by social security contributions.
Existing depreciations e.g. for certain private housekeeping expenses and for small and medium-sized enterprises have been enhanced. A decliningdepreciation for movableassets has been reintroduced for two years (2009–2010). Businesses are allowed to carry back losses and to claim refund of paid corporation/income tax.[36] As a result, they get liquidity improvement. From 2010-01-01 on the VAT tax rate concerning hotel accommodation is reduced from 19% to 7%.[citation needed]
In Germany,tax evasion is punishable as a criminal offense under Section 370 AO and can be punished with a prison sentence of up to five years or a fine. In particularly serious cases - such as evaded taxes in excess of €50,000 - the penalty is six months to ten years' imprisonment in accordance with Section 370 (3) AO. The tax authorities often use so-called penalty tables to determine the penalty for tax evasion, in which a penalty is assigned to a certain amount of evasion, for example a fine or prison sentence. The Federal Court of Justice has made it clear that a six-figure evasion amount is generally subject to a custodial sentence, even if this is suspended.[37]
