Global Property Guide

Financial Information for the Residential Property Buyer


Rental income tax is high in Germany

Last Updated: May 18, 2017

INDIVIDUAL TAXATION

Nonresident foreigners are taxed only on their German-sourced income. Married couples are assessed and taxed separately.

INCOME TAX (Einkommenssteuer)

Income earned by nonresident foreigners is taxed at progressive rates.

INCOME TAX 2015 - INDIVIDUALS

TAXABLE INCOME, (€) TAX RATE
Up to €8,652 0%
€8,652 – €13,669 14%
€13,669 – €53,665 14% - 42%
€53,665 – €254,446 42%
Over €254,446 45%
Source: Global Property Guide

INCOME TAX 2016 - INDIVIDUALS

TAXABLE INCOME, (€) TAX RATE
Up to €8,652 0%
€8,652 – €52,881 14% - 42%
€52,881 – €250,730 42%
Over €250,730 45%
Source: Global Property Guide

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%).

RENTAL INCOME
Germany modern design housesRental 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 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.

PROPERTY TAX


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%.

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 TAXATION

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 15.8%.

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