Germany has a complex and multi-level taxation system that covers both legal entities and individual entrepreneurs (IEs). Let us consider the main taxes applicable to these categories of taxpayers.
Taxes for legal entities
1. Corporate income tax (Körperschaftsteuer):
- Rate: 15% of the company’s taxable income.
- Solidarity surcharge (Solidaritätszuschlag): 5.5% of the corporate tax amount, which increases the total tax burden to approximately 15.825%.
2. Trade tax (Gewerbesteuer):
- Rate: The basic rate is 3.5% multiplied by a coefficient set by the municipality (Hebesatz), which can vary from 200% to 580%. As a result, the effective rate of trade tax can range from 7% to 20.3%, depending on the location of the company.
3. Value added tax (Mehrwertsteuer, MwSt):
- Rates:
- Standard rate: 19%.
- Reduced rate: 7% applies to certain goods and services.
Taxes for individual entrepreneurs
1. Income tax (Einkommensteuer):
- Rate: Progressive scale from 0% to 45%, depending on the level of annual income.
2. Trade tax (Gewerbesteuer):
- Application: Mandatory for all commercial enterprises, including sole proprietorships, except for freelancers and non-profit organizations.
- Rate: Similar to the rate for legal entities and depends on the location of the business.
3. Value added tax (MwSt):
- Obligations: Individual entrepreneurs are required to register as VAT payers and submit regular declarations if their annual turnover exceeds certain thresholds.
Other taxes and fees
1. Solidarity tax (Solidaritätszuschlag):
- Rate: 5.5% of the amount of income or corporate tax.
- Application: levied to finance the costs of German reunification.
2. Church tax (Kirchensteuer):
- Rate: 8% or 9% of income tax, depending on the federal state.
- Application: levied on members of officially recognized religious communities.
3. Property tax (Grundsteuer):
- Applicability: levied on real estate owners and depends on the cadastral value of the property and local rates.
The German tax system is characterized by progressiveness and diversity of taxes, which requires careful planning and accounting when doing business. It is recommended to consult with professional tax advisors to ensure compliance with current legal requirements and optimize the tax burden.
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