The income of natural persons is subject to the income tax law. The entire global income of natural persons with their place of residence or habitual residence in Germany must be included (unlimited tax liability).
Natural persons who do not have their place of residence or habitual residence in Germany generally are subject to German taxation for certain income from a source in Germany (limited tax liability). This means that natural persons resident abroad must state such local income.
To avoid double taxation, Germany has concluded double taxation agreements with a large number of other states.
German income tax is a progressive tax. The tax rate therefore depends on the corresponding income.
In addition to income tax, a 5.5% solidarity surcharge is applied to income tax. Persons who belong to an officially recognised religious community are subject to the corresponding church tax. This is based on the income tax according to the corresponding religious community.
Capital gains are generally subject to a flat rate withholding tax as deduction at source. The standard tax rate is 25% plus solidarity surcharge and church tax, if applicable. There is an option right for capital gains to be taxed by the income tax rate. For this, a most-favored test (Günstigerprüfung) is required.
The income of capital companies is generally taxed according to the corporate tax law. The standard corporate tax rate is 15 %, plus 5.5% solidarity surcharge.
Trade tax is a local tax for commercial income. The tax rate depends on the region in question. On average, trade tax is 17 % of the income.
Generally natural persons may set off trade tax against income tax (at no more than the amount of income tax). Natural persons can profit from the corresponding tax relief by using this set-off.
There is a tax exempt amount for natural persons and partnerships of 24.500 € for trade tax.
Current Tax Rates in Germany
|Basic tax exempt amount of persons subject to unlimited tax liability||8.820 € (basic table)
17.640 € (splitting table)
|Initial tax rate||14 %|
|Maximum tax rate||42 %
53.666 € (basic table)
107.332 € (splitting table)
|Solidarity surcharge||5,5 %|
|Church tax||8 % or 9 % depending on federal state|
|Wealth tax||45 %
from 256.304 € (basic table)
from 512.608 € (splitting table)
|Corporate tax||15 %|
|Flat rate withholding tax on capital gains||25 %|
As of: 01/2017
The basic table applies to single person assessment (unmarried and divorced). The splitting table usually applies to joint taxation (spouses).
These explanations should give an overview of income taxation. They are not conclusive.