Taxes: German Taxation Law

Taxes: German Taxation Law

German taxation is often regarded as confusing and obscure. Indeed, the complex system of direct and indirect taxes in Germany, from inheritance tax and dog tax to excise duties and VAT, seems rather complicated to Germans and foreigners alike.

Particularly expatriates (expats) need to be concerned with their tax situation.  Once an expatriate has lived and worked in Germany for six months, he/she is usually considered a fiscal resident being required to pay income tax in Germany. In order to avoid double taxation, Germany has entered into tax treaties with over 100 countries. They apply in  a situation in which a resident also has to pay taxes on income in other countries. The Ministry of Finance lists all the countries that have agreed upon such a double taxation treaty with Germany (German only). If an expatriate has multiple sources of income or is self-employed, consulting a tax advisor should be a priority. Proper advice can help minimize the amount of taxes owe by an expat in Germany.

Edificia closely co-operate with Tax Consultants and auditors throughout Germany. Because of the regional difference in taxation it is essential to have the benefit of a network of tax consultants in all of its regions.

The following survey provides a general overview and a better understanding of the German tax-system.


Taxes in Germany

Due to the decentralized (federal) structure of Germany taxes are levied by

  • the Federal Government (Bund),
  • the Regional States (Länder)
  • the Municipalities/Local Authorities (Städte/Gemeinde).

As in most countries there are direct and indirect taxes , of which income tax and VAT are the most important.

When setting up a business in Germany, such enterprise will receive a business identification number by the “Federal Central Tax Office”


Income Tax, Solidarity Surcharge & Church Tax

The rate of income tax in Germany ranges from 0% to 45%. The German income tax is a progressive tax, whereby the average tax rate (i.e., the ratio of tax and taxable income) increases continuously in line with increasing taxable income. The German taxing system warrants that an increase in taxable income does not result in a downturn of the net income after taxation. There is also a threshold of non-taxable income, which is adjusted from time to time.