Germany is known for its efficiency, legal certainty—and a highly structured tax system. For expatriates and foreign investors, understanding tax law in Germany is essential to ensure compliance, avoid penalties, and optimise your personal or business tax position. Whether you’re an employee, entrepreneur, or private investor, German tax law affects income, employment, business activity, real estate, and cross-border earnings.
This guide provides a comprehensive overview of the German tax system, focusing on the key aspects relevant to expats and foreign professionals. It covers tax residency, personal and corporate taxes, VAT, double taxation treaties, and compliance obligations—equipping you with the legal knowledge to navigate your tax responsibilities in Germany.
Content
- 1. Legal Framework of Tax Law in Germany
- 2. Who Is Subject to German Tax Law?
- 3. Overview of the German Tax System
- 4. Personal Income Tax for Expats
- 5. Corporate and Business Taxation
- 6. VAT (Value Added Tax)
- 7. Double Taxation Treaties
- 8. Real Estate and Capital Gains Tax
- 9. Inheritance and Gift Tax
- 10. Social Security Contributions
- 11. Tax ID and Filing Obligations
- 12. Working With Tax Advisors
- Conclusion
1. Legal Framework of Tax Law in Germany
Germany’s tax system is governed by multiple statutes, including:
- Income Tax Act (Einkommensteuergesetz – EStG)
- Corporate Tax Act (Körperschaftsteuergesetz – KStG)
- VAT Act (Umsatzsteuergesetz – UStG)
- Tax Code (Abgabenordnung – AO)
- Trade Tax Act (Gewerbesteuergesetz – GewStG)
Tax administration is divided between federal, state, and municipal authorities. The Federal Central Tax Office (BZSt) handles international tax matters, while local tax offices (Finanzämter) manage day-to-day collection and enforcement.
2. Who Is Subject to German Tax Law?
Tax Residency
Under German tax law, you are considered a tax resident if:
- You have a permanent home (Wohnsitz) in Germany, or
- You spend more than 183 days per year in the country
Tax residents are subject to unlimited taxation—meaning they must declare and pay tax on their worldwide income. Non-residents are taxed only on German-sourced income.
3. Overview of the German Tax System
Germany applies a progressive taxation model, with multiple tax categories:
| Tax Type | Who It Applies To | Rate / Details |
|---|---|---|
| Income Tax | Employees, freelancers, individuals | 14%–45%, plus solidarity surcharge |
| Corporate Tax | GmbHs, AGs, UGs, foreign companies | 15%, plus solidarity surcharge |
| Trade Tax (GewSt) | Businesses, freelancers in some cases | 7%–17%, varies by municipality |
| VAT (USt) | Businesses, service providers | 19% standard, 7% reduced rate |
| Capital Gains Tax | Investors, property sellers | 25% flat rate + solidarity surcharge |
| Church Tax | Religious taxpayers (opt-in) | 8–9% of income tax owed |
| Inheritance/Gift Tax | Heirs, giftees | 7%–50% depending on relationship/value |
4. Personal Income Tax for Expats
Income tax applies to:
- Employment income (incl. benefits)
- Self-employment and freelancing
- Rental income and dividends
- Capital gains from securities or property
Tax Rates (2024)
- 0%: Income up to €11,604 (basic allowance)
- 14%–42%: Progressive up to €62,810
- 45%: Top rate for income over €277,826
- +5.5% solidarity surcharge on income tax
Filing Obligations
- Employees usually taxed at source (Lohnsteuer)
- Annual return (Einkommensteuererklärung) required for freelancers, landlords, or those with global income
- Deadline: 31 July of the following year (can be extended via advisor)
5. Corporate and Business Taxation
Corporate Tax
Applies to:
- GmbH, AG, and UG legal entities
- Foreign companies with a permanent establishment in Germany
Rate: 15% + 5.5% solidarity surcharge
Tax base: Net profit after deductions and adjustments
Trade Tax (Gewerbesteuer)
Levied by municipalities:
- Rate: 7%–17% (location-dependent)
- Deductible for corporate tax purposes
- Freelancers are generally exempt
6. VAT (Value Added Tax)
VAT (Umsatzsteuer) applies to:
- Sales of goods and services within Germany
- Importation of goods
- B2B and B2C digital services
Key Points:
- Standard rate: 19%
- Reduced rate: 7% (food, books, transport)
- Businesses must register for VAT and submit monthly or quarterly returns
- Invoices must meet formal criteria under § 14 UStG
Non-resident businesses operating in Germany may be required to appoint a fiscal representative.
7. Double Taxation Treaties
Germany has double taxation agreements (DTAs) with over 90 countries to:
- Avoid dual taxation of income
- Determine taxing rights (residency vs source state)
- Define permanent establishments
- Allow foreign tax credits or exemptions
Common Partner Countries:
- United States
- United Kingdom
- Canada
- Australia
- China
- India
📌 Expats should check how their home country’s DTA interacts with German tax obligations.
8. Real Estate and Capital Gains Tax
Selling Property
Private individuals may be taxed on gains from real estate sales if:
- Sold within 10 years of acquisition
- Not used exclusively as primary residence
Otherwise, capital gains are tax-free.
Investments
Capital gains on shares and securities are taxed at 25% flat rate, plus solidarity surcharge. Exemptions apply to small private gains under certain thresholds.
9. Inheritance and Gift Tax
Germany applies inheritance and gift tax based on:
- The value of the transfer
- The relationship between giver and recipient
- Tax residency of both parties
There are generous allowances for close family (e.g., €500,000 for spouses). International families may be taxed depending on where assets and heirs are located.
10. Social Security Contributions
Although not part of traditional tax law, social contributions are mandatory and deducted from salaries:
- Pension insurance (18.6%)
- Health insurance (~14.6% + additional contribution)
- Unemployment and long-term care insurance
Employers and employees typically share contributions 50/50.
Freelancers and expats on certain visas may be exempt or required to obtain private insurance.
11. Tax ID and Filing Obligations
Upon registration in Germany, individuals receive:
- Tax ID (Steueridentifikationsnummer) – for income tax
- Tax number (Steuernummer) – assigned by local Finanzamt, for filing
Businesses must:
- Register for a VAT ID (USt-IdNr)
- Submit advance tax returns, payroll declarations, and annual statements
Non-compliance may result in penalties, late interest, or audits.
12. Working With Tax Advisors
Due to the complexity of German tax law, working with a Steuerberater (certified tax advisor) is strongly recommended. Services include:
- Tax return preparation and filing
- Cross-border tax planning
- VAT compliance and payroll services
- Representation in audits or appeals
Many advisors offer English-language support for expats and international clients.
Conclusion
Germany’s tax system is thorough, structured, and tightly regulated. For expats and foreign professionals, understanding tax law in Germany is key to avoiding penalties, complying with legal obligations, and optimising your financial position.
Whether you’re paying income tax, running a business, investing in property, or receiving cross-border income, working with qualified professionals ensures clarity, compliance, and peace of mind in one of Europe’s most complex tax environments.
