Income tax in Germany
October 05, 2018
Residents are taxed on their worldwide income. Resident married couples are generally assessed and taxed jointly unless they elect to for separate assessment and taxation. 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 (Einkommenssteuer)
Income is categorized according to the following: (1) income from agriculture and forestry; (2) income from a trade or business; (3) income from independent professional services; (4) income from employment; (5) income from capital investment, and rental income from immovable properties and royalties; and (6) other income.
Taxable income from different categories is calculated separately under different rules. Taxable income from all sources are then aggregated and taxed at progressive rates, with the first €9,000 exempt from taxation.
INCOME TAX 2018 - INDIVIDUALS
|TAXABLE INCOME, (€)||TAX RATE|
|Up to €9,000||0%|
|€9,000 – €54,949||14% - 26%|
|€54,949 – €260,532||42%|
|Source: Global Property Guide|
Residents are entitled to the following allowances:
- Basic allowance: €9,000 for single person and €18,000 for jointly assessed spouses
- Dependent allowance: the following allowances are given for each dependent child
- €2,184 child allowance for each child
- €2,208 child benefits for each child
- €1,320 child care allowance for each child
- Tax relief for single parents: a single person who is head of a one-parent family may deduct an additional €1,308; the deduction is not applicable if another adult lives in the taxpayer´s household
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%)
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 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 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 Taxes (Grundsteuer)
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 0.35%, multiplied by a municipal factor. The effective tax rate is usually between 1.5% and 2.3%.
Real estate tax is deductible for income tax purposes if the property is used in a trade or business.
INCOME TAX (Einkommenssteuer)
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 15.825%.