Types of Taxes
German tax law defines about 50 kinds of taxes. The type of taxes a business must pay depends on the nature of its independent business activity (trades, liberal professions, health professions, etc...) and the legal form of the business.
Who pays when?
| Type of tax | Who | When |
| Trade tax | All businesses pursuing activities in industry, commerce, crafts and trades and services (exceptions: liberal professions and agriculture) | Advance quarterly payments; tax return to be filed after the end of the calendar year |
| Corporate income tax | Businesses with the legal form organized as a limited liability company (GmbH), stock corporation (AG), or as cooperatives (Genossenschaft) | Advance quarterly payments; tax return to be filed after the end of the calendar year |
Turnover tax / Value added tax | Every business (exceptions: physicians, physical therapists, etc.) | Typically on the 10th day of the month following an advance payment period (month or quarter) |
| Income tax | Natural persons engaged in gainful activity | Advance quarterly payments; tax return to be filed after the end of the calendar year |
(Source: Federal Ministry of Economics and Technology (Bundesministerium für Wirtschaft und Technologie – BMWi) | ||
Contacts
Tax advisors
People and businesses can enlist the assistance of third parties to fulfill their tax obligations. The following are authorized to provide this kind of support:
People and businesses can enlist the assistance of third parties to fulfill their tax obligations. The following are authorized to provide this kind of support:
- Tax advisors,
- Tax agents,
- Tax consulting firms,
- Lawyers,
- Auditors,
- Auditing firms,
- Accounting firms.
Tax adjudication
If a taxpayer disagrees with a decision by the tax authorities, he or she may assert their claim in court.
Tax and revenue authorities
The tax and revenue authorities are the agencies of the Federal states responsible for taxes and administer real property and transfer taxes, which flow completely or partially to the Federal Government, as well as the taxes payable to the states and certain municipal taxes.
The tax and revenue authorities are also responsible for assessing rateable values, for example for real property or businesses. These rateable values as assessed serve as the basis for various taxes (such as property tax).
Trade tax
This tax applies to the profits earned by a business involved in a trade and its working capital.
Thus, it does not matter who owns the business, who receives the profits from the business, or what the personal circumstances of the business owner are.
Every business registered as a trade and operated within Germany is subject to the trade tax. The tax is calculated based on the taxable trade income.
(Source: Federal Ministry of Finance (Bundesministerium der Finanzen))
Corporate income tax
The corporate income tax is a special kind of income tax for legal entities (especially corporations formed as stock corporations (AG) or limited liability companies (GmbH)), other associations (as long as these are not cooperative enterprises (Mitunternehmerschaften) as defined by the Income Tax Act (Einkommensteuergesetz) and estates.
Like the income tax assessed against individuals, the corporate income tax is calculated based on the income earned by the corporation in a calendar year.
The corporate income tax is a direct tax on persons and entities that cannot be deducted from income. Profits earned through a corporation are therefore counted toward the assessment basis for a company's corporate income tax liability. If the profits are disbursed as dividends, they will also count toward the assessment basis for the income tax (natural persons) or corporate income tax (legal persons) owed by the shareholder.
(Source: Federal Ministry of Finance (Bundesministerium der Finanzen))
Value added tax
The value added tax (also called turnover tax), which includes property and transfer taxes, is a general tax on consumption that applies to all private and public consumption (i.e., goods and services received by end consumers).
There are two rates for the value added tax:
- The general rate of 19%,
- The reduced rate of 7%.
Most transactions are subject to the general rate.
All transactions subject to the reduced rate are listed in Section 12 paragraph 2 of the Turnover / Value Added Tax Act (Umsatzsteuergesetz - UStG). According to the law, the delivery, import and purchase within the EU of nearly every kind of food (exception: luxury foods like lobster and caviar), animal feed, agricultural and forestry products (e.g., meat, fish, eggs), books and magazines are subject to the 7% rate.
(Source: Federal Ministry of Finance (Bundesministerium der Finanzen))
Wage tax
Income tax owed by employees is withheld from the wages paid by the employer; this is called wage tax (Lohnsteuer). The employer must withhold the wage tax from every paycheck.
The basis for such tax withholding is the wage tax card (Lohnsteuerkarte), which is provided by the municipality for every employee in its jurisdiction at the beginning of each calendar year.
On the wage tax card, the municipality certifies the employee's tax bracket and the number of exemptions for dependent children under 18, as well as any religious community to which the employee belongs.
The employee is liable for income tax. However, the employer is responsible for withholding wage taxes and remitting payment to the tax authorities in compliance with all applicable regulations.
(Source: Federal Ministry of Finance (Bundesministerium der Finanzen))
Income tax
The income tax applies to income earned by natural persons. Income taxes are deducted directly from certain kinds of income (such as wage taxes and capital gains tax, interest withholding tax).
Income from the following sources is subject to income tax:
- Agriculture and forestry,
- Trade income,
- Independent contracting,
- Employment,
- Capital assets,
- Rents and leases,
- The other types of income listed in Section 22 of the Income Tax Act (Einkommensteuergesetz) (to cite but one example, the taxable share of statutory pension payments or income from speculative transactions are liable to this tax).
Where income is earned through agriculture and forestry, the practice of a trade, or independent contracting, the profits generated by the respective enterprise are defined as income.
(Source: Federal Ministry of Finance (Bundesministerium der Finanzen))
