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Germany: Living There - Tax Issues

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Living There

INDIVIDUAL TAXATION

Residents are taxed on their worldwide income. Married couples are generally assessed jointly unless they elect to be assessed separately. Children’s income are not included in their parents’ income but taxed separately.

German tax residents who have unlimited tax liability, are eligible to claim standard annual deductions and allowances.

INCOME TAX

Income earned by residents is taxed at progressive rates, with the first €7,664 exempt from taxation.

Solidarity Surcharge

In addition to the income tax itself, a solidarity charge of 5.5% is also imposed on the levied income tax (i.e., not the taxable income), i.e. where the income tax rate is 25% the effective solidarity surcharge rate is 5.5% x 25% = 1.375% and the effective income tax rate amounts to 25% + 1.375% = 26.375% (not 25% + 5.5%).

Church Tax

For resident individuals belonging to the Roman Catholic Church, German Protestant-Lutheran Church, Reformed Church or Jewish parishes, a Church Tax of 8% to 9% is also imposed.

RENTAL INCOME
Rental income is taxed at progressive rates. Owners can deduct any expenses from the gross receipts, which were incurred to produce, maintain and safeguard that income. Depreciation is generally set at 2% for existing houses, for newly built houses at 3% for the first eight years. (In the past some depreciation rates were higher).

Investments done for maintenance of the property cannot be deducted in the year when they were done if they exceed 15% of the purchase price. They have to be added to the depreciable value of the property instead.

CAPITAL GAINS
If the property was held for more than ten years, gains incurred from the sales of property do not attract capital gains tax.

Otherwise, capital gains from the sale of property realized by an individual within ten years after acquisition are taxed at the standard progressive income tax rates plus solidarity surcharges (unless the property is occupied by the owner himself). Acquisition costs and improvement costs are deductible from the selling price when computing taxable capital gains.

PROPERTY TAX

Property Taxes (Grundsteuer)

Municipalities impose an annual tax on land/ property. The tax is levied on the assessed value of the property using the basic federal rate of 0.35%. The amount of which is further multiplied by ‘multipliers’ to calculate for the final tax due. This multiplier varies by municipality but the average multiplier for residential properties is 1.5%.

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