Germany Summary Guide

Taxation of Business People in Germany

A person is deemed to be tax resident in Germany if they are present in the country for more than 180 days in any tax year, or a continuous period of 180 days in two overlapping fiscal years. Individuals that are deemed tax resident are taxed on their worldwide income, regardless of the source.

Individuals can also be deemed tax resident if they acquire property that they intend to live in for a period that is deemed by the authorities to be more than temporary. It is therefore important to consider this when renting property.

Non-resident individuals are taxed on German-source income only. The individual tax system is, nevertheless, fairly complex. The wage tax (Lohnsteuer ) is deducted at source on employment-related income, while income from other sources (such as self-employment, passive income (rent, investment incomes, etc), and fees for services provided) is covered by the income tax (Einkommensteuer) which must be paid by the taxpayers.

Rates for individual taxpayers are progressive (from 15%-45%), although a ‘solidarity surcharge’ of 5.5% will be included, bringing the effective rate to around 47.5%. Also, in certain locations, a ‘church tax’ of around 9% will be added to the individual’s income tax liability. Social security payments are usually in the region of 19% (withheld from the wages, in the case of an employee); Most types of self-employed people can opt into the state system; some types (artists, publushers, journalists) must join the Artists' Social Fund (Künstlersozialkasse). Deductions are permitted for expenses incurred in the production of income, children, and – under certain circumstances – social security contributions and medical expenses.

Individuals doing business on their own account are usually taxed as individuals rather than as companies (until/unless their operation can be classified as a business, for example if it takes on additional employees, or expands to new premises), at which point trade tax (a local tax imposed at 3.5%, multiplied by a variable factor which usually brings in the total liability in this area at between 7% and 17.5%) may come into play.

The corporate income tax rate is 15%, plus the aforementioned solidarity surcharge of 5.5%, and trade tax (also discussed above), giving rise to an effective CIT rate of 30-33%.

Losses can be carried forward by corporations indefinitely, but can only be carried back for one fiscal year.

Value added tax is imposed at a standard rate of 19% on the majority of goods and services, with around 50 types of goods, and 10 types of service (include medicines, newspapers, books, and magazines, food, water, and certain types of animal) benefiting from a reduced rate of 7%, and farmers facing a further reduced rate of 5.5%.

Germany Summary Guide Contents

Germany Summary

Germany Summary Chart

Germany Residence

Taxation of Business People in Germany

Living and Doing Business in Germany

Business Forms in Germany

Latest Comments

Expat Brit

Hi,

I am facing a dilemma and would like to invite any reader to advise me.

I am a Brit who has lived outside UK since 1993- initially in Belgium (5 years) & subsequently in 4 African countries. After a year outside UK, the UK Inland Revenue confirmed my status as ‘non-resident’ for tax purposes and as I have had no income in UK, I have not completed a UK tax return for many years. I visit UK very rarely, normally for one or two weeks per year.

In May 2011, I was made redundent by my employers, who were downsizing. This coincided with a move to retire in the Netherlands, where I now have official residency (my wife is Dutch). I thought that, at 63 years of age, I would be unlikely to find suitable employment; in fact, I have not tried hard and had resigned myself to permanent (but slightly premature) retirement.

However, to my surprise, I have recently been approached (through a mutual acquaintance) by a company that wishes to use my skills on a project in the Isle of Man. The role, if & when confirmed, would see me working for about 10 days a month in Isle of Man, with about 5-7 additional days per month, working from home. Contract will be for about two years. The firm has asked me to confirm if I would prefer to be paid (and therefore be taxed) in Netherlands or Isle of Man, the idea being that I create a self-employment entity for this employment. I have no data on which to base a response. Given Isle of Man's traditional ‘low tax ‘environment, are there any benefits to declaring an income in IOM? Are there any Isle of Man residency implications? Netherlands takes a tax cut on total world wide income, and, as I have never had any contact with the Dutch authorities, I am reluctant to start such a relationship now. Do I have to declare income in both countries, with a breakdown prorata to the time spent in each jurisdiction? Should I declare income to UK Inland revenue?

If anyone has pertinent advice on these points, I’d be grateful to hear them.

TJM @ Eindhoven, NL

T. Dog

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Jersey vs. Malta??

Hi, I live in South Africa, and along with 2 business partners (one in South Africa and one in Ireland - all South African citizens though) are setting up a company that designs Smart phone applications. As they will be sold on the various platforms (none of which operate out of South Africa)we have to list our company as operating out of Ireland anyway. As such, we have decided to set up our company in the best tax country and are wanting info on whether Jersey or Malta is best? If anyone has some inside info we would really appreciate it!! Thanks!Mary

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Purchasing investment-link insurance for my staff

Would that count as income tax to my staff? And would that count as expense to my company?Michael

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Irish crisis - effects on small business?

Hi all,

Just wondering if anyone 'on the ground', as it were, might be reading and able to help me...I was considering relocating my hairdressing business from the UK to Ireland before the economy started to go properly belly-up...now, not so much.

Are things as bad as they seem over there, or is it being over-hyped by the media? And is the government still keen to support small business people? Cos if not, I'll look elsewhere...

Thanks,Kate

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Living in France contracting to Australian company

I am moving full time to France in Jan 2012 where I will be working as a freelance contract engineer to a number of Australian based companies. It is my choice to move to France not a work requirement. I will be renting my house out in Austrlalia and renting a house while I am in France. I hold both EU & Austrlain citizenshiip. I am married with 2 young children. Approx total family income $100k AUD.
Do I pay tax in France or Australia or both ?
Any help or guidance would be much appreciated.France move

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