Are you thinking about doing business in Germany? Learn about the taxation in Germany. It is worth knowing it in order to plan your budget properly. We discuss the types of taxes in Germany below.
We invite you to read and contact our specialists.
Table of Contents
- Taxation in Germany – Income Tax (Lohnsteuer)
- Taxation in Germany – Solidarity Surcharge (Solidaritätszuschlag)
- Taxation in Germany – Church Tax (Kirchensteuer)
- Taxation in Germany – Business Tax (Gewerbesteuer)
- Taxation in Germany – Personal Income Tax (Einkommensteuer)
- Taxation in Germany – Value Added Tax (Mehrwertsteuer)
- Taxation in Germany – Corporate Tax (Körperschaftsteuer)
- Taxation in Germany – Who Is Subject to Taxation?
- Taxation in Germany – Taxes for Entrepreneurs
- Taxation in Germany – Summary
- Frequently Asked Questions About Taxation in Germany
Taxation in Germany – Income Tax (Lohnsteuer)
Lohnsteuer, i.e. income tax in Germany is progressive. Depending on gross income and tax class, rates range from 14% to 45%. The tax class determines the tax-free amount and the method of calculation.
| Class I | Single people, widows/widowers for at least two years, divorcees, separated couples, and married individuals whose spouse resides outside the EU. |
| Class II | Single parents raising children. |
| Class III | Married people and widowed people up to one year after the death of their spouse. Additionally, married people, one of whom is unemployed or resides in one of the countries of the European Union. |
| Class IV | Other spouses, not qualifying for any other tax class. |
| Class V | People with a spouse qualifying for class III. |
| Class VI | People employed in more than one job. |
Taxation in Germany – Solidarity Surcharge (Solidaritätszuschlag)
The solidarity surcharge is 5.5% but does not apply to gross income below 73 800 € per year. For married couples or those in Tax Class III, the threshold increases to 151 990 € per year due to joint settlement.
Taxation in Germany – Church Tax (Kirchensteuer)
The church tax in Germany ranges from 8% to 9% of income tax, depending on the state. In Bavaria and Baden-Württemberg, the rate is 8%, while in the other federal states it is 9%.
Individuals belonging to a recognized religious community are required to pay this tax. To avoid it, one must formally leave the church (a process known as apostasy).
Taxation in Germany – Business Tax (Gewerbesteuer)
Entrepreneurs setting up a business in Germany in the form of Gewerbe (the equivalent of a Polish sole proprietorship) are subject to business tax (Gewerbesteuer). One of the benefits of this system is the high tax-free amount of 24 500€. This means that the tax is only charged on income exceeding this amount.
The rate of business tax depends on the location of the company’s headquarters. The Gewerbesteuer is determined by local authorities (Hebesatz). This means that rates can vary in various regions. This affects the final tax burden for entrepreneurs.
Additionally, Germany imposes a progressive personal income tax (Einkommensteuer). The rates range from 0% to 45%, depending on the income level. It is worth noting that business tax can be partially deducted from income tax. This provides significant relief for entrepreneurs.
Taxation in Germany – Personal Income Tax (Einkommensteuer)
This tax applies to natural persons and is calculated based on annual income. As mentioned above, the tax rate is progressive. The higher the income, the higher the percentage of tax.
The current rates are:
- 0% for income up to approximately 11 000 € (tax-exempt amount).
- 14% to 42% depending on income brackets.
- 45% for incomes exceeding 277 826 € annually (2024 threshold).
Taxation in Germany – Value Added Tax (Mehrwertsteuer)
It is a tax that applies to most goods and services. The standard rate is 19%, while for selected products, such as food or books, there is a reduced rate of 7%. Entrepreneurs whose turnover does not reach 22 000 EUR per year are exempt from it.
Taxation in Germany – Corporate Tax (Körperschaftsteuer)
Corporate income tax in Germany is 15%.In addition, a solidarity surcharge of 5.5% on the amount of income tax is imposed. This results in an effective rate of approximately 15.825%.
Companies must file an annual tax return by 31 July of the year following the tax year. During the tax year, companies must pay quarterly tax advances. This helps to spread the tax burden and ensures the company’s liquidity.
Taxation in Germany – Who Is Subject to Taxation?
According to German tax law, any individual who:
- Resides in Germany for at least 183 days in a year,
- Has their centre of personal or economic interests in Germany,
- Earns income in Germany through employment or operating a business,
is required to file taxes with the German tax office (Finanzamt).
Taxes apply to both German citizens and foreign nationals working in Germany. For companies setting up business in Germany, taxation is strictly regulated by commercial and tax law.
Taxation in Germany – Taxes for Entrepreneurs
Entrepreneurs planning to set up a business in Germany should carefully analyze the applicable taxes. Germany offers favourable conditions, particularly for high-tech and export-focused industries.
Basic taxes that entrepreneurs must pay include:
- corporate tax (Körperschaftsteuer)
- Business tax (Gewerbesteuer)
- VAT (Mehrwertsteuer) – depending on the nature of the business.
Taxation in Germany – Summary
The German tax system is one of the most advanced and developed in Europe. It is important to understand it before starting a business or working in the country. Proper preparation and using available tax reliefs can significantly reduce financial burdens. This will improve the financial efficiency of your business.
Do you want to learn more about taxation in Germany or plan to start a business there? Contact our team of experts and get professional advice!
Frequently Asked Questions About Taxation in Germany
What are the tax rates in Germany?
Income tax rates are progressive. They start at 0% (for income under 11 000 EUR) and reach 45% (for the highest income, above 277 826 EUR per year).
Do natural persons have to file tax returns in Germany?
Yes, most individuals must file tax returns, especially if their income exceeds the tax-free threshold or they claim deductions.
Do foreigners working in Germany also have to pay taxes?
Yes, everyone who stays in Germany for more than 183 days a year is subject to tax in Germany.
What is the tax-free amount?
This is the part of income that is not subject to taxation. In 2024, it is around 11 000 EUR per person.
How does the tax relief system work in Germany?
Germany offers various relief options. They include child benefits (Kindergeld), work-related expense deductions (Werbungskosten), and insurance deductions.
How to settle the solidarity tax?
The solidarity tax is 5.5% of the income tax amount. It applies to individuals and companies with higher incomes.
Is it possible to file taxes online in Germany?
Yes, Germany offers the ELSTER system. It allows you to submit your tax returns online in a convenient and fast way.
Can I use the help of a tax advisor?
Yes, the services of a Steuerberater (tax advisor) are popular in Germany, especially for self-employed people.
Can I change my tax class?
Yes, in some situations, such as a change in marital status, you can change your tax class. The application must be submitted to the tax office.
Do self-employed people in Germany have different tax obligations?
Yes, self-employed individuals must pay income tax advances and VAT if applicable.