[Translate to fr:] Tax System
[Translate to fr:] Overview
German tax are rates are competitive in comparison with other countries. The peak tax rate for personal income is principally 42 %. The corporation tax applicable to corporations stands at 25 %. It is planned to further simply tax law and reduce rates.
In comparative statistics, Germany has average nominal tax rates for companies, but international investors quickly discover that the actual tax burden in Germany is much lower, because companies can take advantage of numerous exception an depreciation rulings.
The Important Taxes for Investors
The German tax system is very balanced. The most important taxes are the income tax levied on every citizen’s income, and the company taxes based on corporations revenues. There are also other taxes such as excise taxes on mineral oil or tobacco, for example, as well as sales tax, real estate transaction tax, and the trade tax charged directly by the municipalities.
[Translate to fr:] Every citizen who has a main place of residence in Germany or lives primarily in Germany is liable to pay income tax. If an individual spends more than six months of the year in Germany, Germany is regarded as the main place of residence. In this case the individual principal is obliged to pay tax on all income earned around the world, regardless of whether this comes from wages of salary, interest, or dividend payments. Citizens who live abroad all or most of the time have limited tax obligations. In these cases, only domestic income and investment income must be taxed.
The tax rate progresses linearly form the lowest rate of tax up to the highest rate. EUR 7,664.00 per year currently is fully exempt form income tax. The first EUR above this line is taxed at 15 %. The tax rate then increases in small steps up to the maximum rate of 42 %, which is applied to earnings of EUR 52,152.00 or more. The tax rate for taxable income exceeding EUR 200,000.00 is 45 %.
As a result of the unification of the Federal Republic of Germany and the German Democratic republic in 1990, Germany took on enormous financial responsibilities. A solidaridary surcharge was therefore introduced in 1995 to finance German unification. The surcharge is 5,5 % on the income tax amount assessed.
[Translate to fr:] Companies in Germany are usually taxed on two levels. Corporations such as the stock corporation (AG) and limited liability company (GmbH) are subject to corporation tax, which is levied by the federal government. In addition, cities and communities impose a municipality charge, the trade tax.
There is a standard corporation tax rate of currently 25 % for both a company’s retained (undistributed) profit and its distributed profits.
However, if profits are distributed to shareholders, the shareholders must in turn pay income tax on these profits. The “half-income system” is used to reduce this double taxation burden. In this procedure, the shareholder only has to pay further taxation on 50 % of the dividends and profit payouts. As a result, after payout to the shareholder, only this 50 % is subject to income tax, whereas the other half remains tax-free.
The solidarity surcharge is also levied on corporation tax.
[Translate to fr:] All business operations acting in Germany are subject to trade tax. Business operations include independent activities that aim to achieve profits over the long term, and thus also include corporations, in particular. Independent freelancers such as doctors, architects, lawyers, or artists are exempt from the charge. For natural persons running a business and for partnerships there is a tax-free allowance of EUR 24,500.00. For profit generated above this level, the tax burden is graduated from between one and five percent. A tax rate of % 5 applies for all corporations.
The tax is calculated on the basis of the operating profit, which is determined based on the company´s profit using a legally specified calculation method.
However, the actual level of trade tax depends significantly on the municipality in which the business operations are located. Each municipality must define a municipal multiplier (Hebesatz), by which the trade tax determined according to the statutory tax rate is multiplied. This multiplier is at least 200 % by law, and in conurbations in particular, can rise to more than 400 %.
The entrepreneur can offset around half the trade tax against the personal income tax due of the entrepreneur. The tax itself is also regarded as an operating expense and its therefore profit-reducing and tax-reducing.
