Effective Tax Rate on Rental Income
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Global Property Guide research
Nonresident foreigners are taxed only on their German-sourced income. Married couples are assessed and taxed separately.
Income earned by nonresident foreigners is taxed at progressive rates.
INCOME TAX 2014 - INDIVIDUALS
|TAXABLE INCOME, (€)||TAX RATE|
|Up to €8,354||0%|
|€8,354 – €13,470||14%|
|€13,470 – €52,882||14% - 42%|
|€52,882 – €250,731||42%|
|Source: Global Property Guide|
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%).
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.
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 realized by an individual from the sale of property within ten years after acquisition are taxed at the standard progressive income tax rates plus solidarity surcharges. Acquisition costs and improvement costs are deductible from the selling price when computing taxable capital gains.
Real estate tax is levied on real estate in Germany. The tax base is the assessed value of the property. The basic tax rate is 2.6% to 3.5% for Western federal states, 5% to 10% for the Eastern federal states, and 6% for agriculture and forestry.
The resulting base amount is further multiplied by municipal coefficients to calculate for the final tax due, which ranges from 280% to 810%. The multiplier is 460% for Frankfurt, and 175% for agriculture and forestry.
Real estate tax is deductible for income tax purposes if the property is used in a trade or business.
Corporate tax is levied at 15%. In addition, a solidarity surcharge is levied at the rate of 5.5% of the corporation tax. The resulting combined rate is 15.8%.
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