Income Taxes
The income tax is a direct tax levied on the income of individuals. This includes earnings from employment, self-employment, capital assets, rental income, and other types of income. The wage tax, an advance payment on income tax, is deducted directly from wages. For corporations, a corporate tax is imposed on the taxable income of corporations (e.g., GmbH and AG).
Consumption Taxes
Consumption taxes are levied on the consumption of specific goods and services. Value-added tax (VAT) is the most well-known consumption tax and is charged on the sale of goods and services. It typically amounts to 19%, while certain essential goods have a reduced rate of 7%. Other consumption taxes include the tobacco tax, which applies to tobacco products, and the energy tax, which is levied on the consumption of electricity, gas, petrol, and other energy sources.
Traffic Taxes
Traffic taxes relate to the acquisition and ownership of assets as well as the use of services. Examples include the property transfer tax, which is incurred when purchasing real estate, and the motor vehicle tax, which must be paid annually for vehicle ownership. Another traffic tax is the insurance tax, which is levied on insurance premiums.
Trade Tax
The trade tax is a special form of income tax paid by companies engaged in commercial activities in Germany. It is imposed on the trade income, with the tax rate determined by the respective municipality. The trade tax rate thus varies according to the location of the business. This tax represents an important source of revenue for municipalities.
Property Tax
The property tax is levied on the ownership of land and real estate and is a local tax. The property tax amount depends on the unit value of the property as well as the assessment rate set by the respective municipality. It is charged annually and is to be paid by the owners, who often pass on the costs to tenants.
Withholding Tax
The withholding tax is a form of capital gains tax applied to income from capital assets such as interest, dividends, and capital gains. It is levied at a flat rate of 25% plus a solidarity surcharge and possibly church tax. The withholding tax is deducted directly at the source, meaning that no separate assessment by the taxpayer is necessary.
Solidarity Surcharge
The solidarity surcharge is an additional charge on income tax, wage tax, and corporate tax, amounting to 5.5% of the respective tax assessed. It was originally introduced to cover the costs of German reunification. Since 2021, the solidarity surcharge is only levied on higher incomes, meaning around 90% of taxpayers are exempt from this contribution.
Church Tax
The church tax is imposed on members of certain religious communities, typically amounting to 8% to 9% of income tax. The rate of church tax varies by federal state. It is withheld directly by the employer and remitted to the church. Tax liability exists only for members of the respective churches; leaving the church ends the tax obligation.