Germany is one of the most attractive countries in the entire European Union. It is treated as a solid business partner, with numerous potential customers willing to buy goods and services of high value. For this reason, many individuals are planning to change their place of residence, and many companies are also planning to expand their business to Germany. Before that, it is worth familiarizing yourself with the German tax system, so as not to be exposed to the need to incur large costs or fines and penalties from the Federal Central Tax Office.

Residents and non-residents in Germany

In Germany, residents are required to pay taxes on their income from all over the world. Non-residents are subject to taxes on income from Germany. People who stay in this country for more than 6 months a year are subject to a limited tax obligation, which means that there is no possibility of obtaining benefits due to their personal or family situation. The tax system in Germany is much more friendly to married taxpayers.

Income tax for working people

Employee taxes are deducted by the employer. This applies to income tax, health insurance, social insurance, unemployment insurance and solidarity tax. Every year, the Federal Central Tax Office checks whether the tax has been correctly calculated, and in the case of a surplus, it will be refunded. Self-employed persons and freelancers must file their tax returns themselves, unless their limit does not exceed the tax exemption limit of EUR 11,604 per year (2024 amount for single person).

Different tax classes in Germany

Income tax in Germany depends on the rate of the tax class to which the person settling with the Federal Central Tax Office belongs. There are 6 tax classes, the broadest is the class and includes single, married, divorced and non-married persons in civil partnerships. The class can be changed once a year, unless exceptional circumstances occur – then a second change is possible. In this way, you can adjust the tax bracket to your individual living situation. In particular, there are many pro-family benefits available for married people, which is to encourage the establishment of families.

VAT and other types of taxes

In addition to income tax, there is VAT tax in Germany at a standard rate of 19%, which covers most goods and services. German products are subject to a zero VAT rate for intra-Community and international transport. Another type is a trade tax, the value of which is 3.5% times the rate of tax set in the municipality. Other taxes include church tax, motor vehicle tax, dog tax, property sales tax, inheritance and gift tax, as well as capital and capital gains tax made from investment funds. A special tax is also the solidarity surcharge, which was introduced in 1991 to finance public investments in the former East Germany.

Assistance from a specialized tax office

The tax system in Germany is extensive, which is why many companies decide to cooperate with a specialized tax office. This allows you to always act in accordance with current regulations without having to constantly track changes. Thanks to this, they can focus on developing their business and achieve greater work efficiency compared to competitors operating on the market.