TA X R U LE IN G ER M A N Y

Member of group:
Stefanus
Monica
Virginia Olivia
Tirta Elisabeth

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G erm any Tax System

In Germany, taxes are levied by the
federal, state and local governments.
The main taxes payable in Germany are
income tax on every employees income
corporations tax
trade tax on income
value added tax (GST),
inheritance/gift tax and
real estate tax.

 The main sources of German tax law

are : Income Tax Act, Corporations Tax

Act, Value Added Tax Act and Inheritance
and Gift Tax Act.
Over and above these taxes, the German
federal ministry of finance issues
guidelines and decrees. certain levies
must be paid, for example :for health
insurance, unemployment insurance and
superannuation. In addition,

German tax law between residents of

Germany and non-residents for tax
purposes
Resident
A n in d ivid u al is a resid en t of
G erm an y for tax p u rp oses if
th ey h ave th eir d om icile in
G erm an y
If someone have been present in
Germany for over 183 days,
generally considered to be a resident
for tax purposes
A corp oration th at h as n eith er
its p lace of m an ag em en t n or
leg al seat in G erm an y is a n on resid en t.

Non-Resident

A corporation that has neither its

place of management nor legal seat
in Germany is a non-resident.

Taxpayers who are not resident in

Germany are usually not obliged to
file tax returns unless they have
certain income in or from
Germany.

Ex : foreign residents are subject to

German income tax if they have
rental income derived from property
in Germany.

non-resident for tax purposes, you

will generally still be liable to pay
tax on German-sourced income

Taxation of Permanent Establishments

A foreign
enterprise
can do
business in
Germany,
choosing
from various
forms of
organisation
:

1. It can set up a subsidiary

with a legal structure of its

own.
2. It can set up a permanent

establishment
a) as an independent
branch, or
b) as a dependent
permanent establishment.

H ow are the profi

ts ofa perm anent
establishm ent in G erm any taxed?

If a foreign enterprise earns revenues in

Germany from business operations for which it

runs a permanent establishment or has
appointed a permanent representative here,
then these revenues are subject to limited
income or corporation tax.
The taxes levied depend on the legal structure
of the foreign enterprise.
Corporation tax has to be paid on profits
earned at a permanent establishment by a
corporate body.

 Any business which is not a corporate body is not

itself liable to pay either income tax or

corporation tax. The profits are attributed pro rata
to the partners. The partners then each have to
pay income tax on their respective shares in
profits.
The profits earned by a foreign companys

permanent establishment are also subject to trade

tax. This tax is incurred merely by the existence of
the permanent establishment. Trade tax is not
incurred if there is only a permanent representative
present in this country.
Goods and services provided by the business are
subject to German turnover tax (VAT) if the place of
performance is in this country.

 pay tax only on income

earned in Germany

Pay tax on your

worldwide income
and property in
Germany.

NON
RESIDENCE
RESIDENC
E

WHO PAY THE TAXES?

IN CO M E FRO M EM PLO YM EN T

rch
Chu 8tax
9%

Solidarit
y
surchar
ge 5,5%
Income tax

EM PLO YEE (N O N RESID EN T)

Non residents are taxed at a flat rate

of 15% on income from :

-artistic, sporting, entertainment or
similar performances exercised or
exploited in Germany (unless derived
from dependent employment subject
to wage tax)
-license paid for the use of, or the right
to use, rights such as patents,
copyrights, or know how.

D eduction and Relief

-contributions to a statutory pension insurance
-contributions to a statutory health insurance
-contributions
to
private
life,
accident,
unemployment or disability insurance
- costs of professional training for a future
- Alimony
-Donations to registered charities, cultural or
sports organizations
- Church tax paid to an officially recognized
German church
- Children

D eadline Tax Return for

Em ployee

employee

file a
German
income
tax return

31 May

BU SIN ESS PRO FIT

CORPORATIO
N

Residence
corporation

Non resident
corporation

CO RPO RATE TAX IN CO M E

RATE

15%

CALCU LATE CO RPO RATE TAX

IN CO M E
the

annual
financial
statements
(Handelsbilanz) drawn up pursuant to
German generally accepted accounting
principles which must then be modified
under specific provisions of tax law.
These notably include regulations on the
treatment of hidden profit distributions
and restrictions on the deductibility of
business expenses, in particular with
respect to debt financing expenditures.

CO RPO RATE IS SU BJECT TO

M U N ICIPAL TRAD E TAX
Foreign businesses which do not have their
registered
office or place of management in
Germany but receive income which is allocated to
a German permanent establishment are also
subject to trade tax. The basic trade tax rate is
3.5% which is supplemented by the application of
a multiplier fixed by the competent municipality
and that varies from a minimum rate of 200% up
to around 500%. Thus, the effective trade tax rate
ranges from 7% to around 17.5%. As a result,
corporations are subject to CIT (including solidarity
surcharge) and trade tax at a combined rate
between 22.825% and 33.325%

D ED U CTIO N
All expenses are deductible if they

have been incurred as a result of the

companys business operations.
Certain expenses may be disallowed
(e.g. expenses related to exempt
income, income taxes, and interest
paid to the government on late
income tax payments) or may be
deductible only up to a limited
account.

CRED IT TAX
Expenses for traveling from home to office
Relocation expenses (e.g. you moved from India to Germany or

within Germany)
Cost for professional development like professional books,
training, language course etc.
Expenses for professional equipment e.g. Laptop, desktop etc.
Double household (If you have primary household in India where
your family (wife and kids) is staying)
Flight tickets cost to India to meet family (spouse& children) back home
Telephone calls
House Rent paid in Germany
Food expenses for first 3 months of arrival to Germany. (Proof not

required)

There are many more avenues which are mostly applicable for

consultants and other working class, but for practically purposes

not listed here.