Taxation in Germany: English Tax Guide for Expats and Businesses
Taxation in Germany can be challenging for expats, foreign employees, freelancers, founders and international companies. This English guide explains the main German taxes, filing obligations, tax rates, VAT rules, withholding taxes, real estate taxes and double-taxation issues in a practical way.
German Income Tax Calculator
German taxes at a glance
Germany has federal, state and municipal taxes. For most individuals and businesses, the most relevant taxes are income tax, wage tax, corporation tax, trade tax, VAT, solidarity surcharge and real estate taxes.
| Tax | Who is affected? | Key point |
|---|---|---|
| Income tax | Individuals, freelancers, sole proprietors, partners | Progressive tariff from 0% to 45%. |
| Wage tax | Employees | Withheld monthly by the employer as prepayment of income tax. |
| Corporation tax | GmbH, UG, AG and other corporations | 15% for assessment periods up to 2027. |
| Trade tax | Commercial businesses | Municipal tax; 3.5% base rate multiplied by local multiplier. |
| VAT | Entrepreneurs making taxable supplies | Standard rate 19%, reduced rate 7%. |
| Solidarity surcharge | Higher-income individuals, corporations, capital income | 5.5% of the relevant tax base, with relief for many individuals. |
| Real estate transfer tax | Purchasers of German real estate | 3.5% to 6.5%, depending on the federal state. |
Tax residence and tax liability in Germany
Individuals are generally subject to unlimited German income-tax liability if they have a residence or habitual abode in Germany. Unlimited tax liability usually means that worldwide income must be declared in Germany, subject to double-taxation treaty rules and foreign tax relief.
| Situation | German tax consequence | Typical example |
|---|---|---|
| Residence or habitual abode in Germany | Unlimited income-tax liability | Employee, freelancer or entrepreneur living in Germany. |
| No German residence, but German-source income | Limited income-tax liability | Rental income from German real estate or performance income in Germany. |
| Cross-border case | Treaty analysis required | Employee working partly in Germany and partly abroad. |
Tax registration, returns and deadlines
Most German tax registrations and declarations are now handled electronically, especially via ELSTER. Freelancers and businesses must submit a tax registration questionnaire. Employers must also register for payroll-tax purposes if they hire staff.
| Obligation | Deadline / frequency | Practical note |
|---|---|---|
| Annual income tax return | Generally 31 July of the following year if no tax adviser is involved | Tax-advised returns usually have a later statutory deadline. |
| Tax-advised returns | Generally the last day of February of the second following year | Earlier requests by the tax office remain possible. |
| Income-tax prepayments | 10 March, 10 June, 10 September and 10 December | Can be adjusted if expected profit changes. |
| VAT advance return | Usually monthly or quarterly; due by the 10th after the period | Permanent deadline extension may be available. |
| Payroll tax return | Monthly, quarterly or annually depending on payroll tax amount | Employers withhold and pay wage tax to the tax office. |
German income tax 2026
German income tax is levied on taxable income. The tariff is progressive: the marginal rate increases as taxable income rises. For married couples or registered civil partners filing jointly, the splitting method normally doubles the thresholds.
| Taxable income | Tariff zone | Marginal effect |
|---|---|---|
| Up to €12,348 | Basic allowance | 0% |
| €12,349 – €17,799 | First progression zone | Progressive formula starting around 14% |
| €17,800 – €69,878 | Second progression zone | Progressive formula up to 42% |
| €69,879 – €277,825 | Top rate zone | 42% |
| From €277,826 | High-income surcharge zone | 45% |
The seven German income categories
- income from agriculture and forestry,
- income from trade or business,
- income from self-employment,
- employment income,
- capital investment income,
- rental and leasing income,
- other income, such as pensions.
Payroll tax and German tax classes
Wage tax is not a separate final tax for most employees. It is a withholding mechanism for income tax. The employer withholds wage tax each month using the employee’s electronic wage-tax features.
| Tax class | Typical use |
|---|---|
| I | Single, divorced, permanently separated or limited-tax-liability employees. |
| II | Single parents who meet the statutory requirements. |
| III / V | Married couples or civil partners with significantly different wages. |
| IV / IV | Standard class for married couples or civil partners with similar wages. |
| IV factor method | Alternative for couples who want a more balanced withholding during the year. |
| VI | Second or further employment relationship. |
Solidarity surcharge
The solidarity surcharge is an additional surcharge on income tax, corporation tax and certain withholding taxes. The rate is 5.5% of the relevant tax base. Since the partial abolition for many individuals, numerous employees no longer pay solidarity surcharge on wage tax, while corporations and many capital-income cases remain affected.
Corporation tax, trade tax and partnerships
Corporation tax
German corporations such as a GmbH, UG or AG are subject to corporation tax if their statutory seat or place of management is in Germany. The corporation-tax rate is 15% for assessment periods up to 2027. From 2028, the rate is scheduled to fall gradually until it reaches 10% from 2032.
Trade tax
Commercial businesses are subject to trade tax. The tax base is the trade income after statutory additions and reductions. The base tax rate is 3.5%; the municipality applies its local multiplier. Individuals and partnerships benefit from a trade-tax allowance of €24,500.
Partnerships
German partnerships such as GbR, OHG and KG are generally transparent for income-tax purposes. The partnership determines the tax base, but income tax is levied at partner level. Trade tax may still be levied at partnership level if the activity is commercial.
VAT in Germany
German VAT applies to taxable supplies of goods and services by entrepreneurs. The standard VAT rate is 19%; the reduced rate is 7% for certain supplies, such as many food items and books.
| Topic | Rule | Practical effect |
|---|---|---|
| Standard rate | 19% | Applies to most supplies. |
| Reduced rate | 7% | Applies to selected goods and services. |
| Small-business rule | €25,000 previous-year turnover and €100,000 current-year turnover threshold | No VAT shown on invoices, but no input-tax deduction. |
| VAT ID | Required for many EU cross-border B2B transactions | Issued by the Federal Central Tax Office. |
| Recapitulative statement | Required for certain intra-EU supplies | Generally filed electronically with the BZSt. |
| Reverse charge | Tax liability may shift to the recipient | Common in cross-border B2B cases and selected domestic cases. |
Withholding tax and Section 50a EStG
Germany levies withholding tax on certain payments to non-resident taxpayers. Typical cases include royalties, copyright payments, artistic performances, sports performances and certain supervisory-board fees.
| Income type | Typical German rule | Relief option |
|---|---|---|
| Royalties and rights | Withholding under Section 50a EStG may apply. | Double-taxation treaty relief or exemption/refund procedure may be available. |
| Artists and athletes performing in Germany | German withholding tax often applies. | Treaty provisions and BZSt relief procedure must be checked. |
| Supervisory-board remuneration | Special withholding rules may apply. | Professional advice recommended. |
Real estate taxes in Germany
German real estate can trigger property tax, real estate transfer tax, income tax on rental profits and, in some cases, capital gains taxation.
| Tax | When it applies | Rate / basis |
|---|---|---|
| Property tax | Annual tax on German real estate | Municipal assessment based on property-tax rules and local multiplier. |
| Real estate transfer tax | Purchase of German real estate | 3.5% to 6.5%, depending on the federal state. |
| Income tax on rental income | Rental property in Germany | Taxable rental profit after deductible expenses. |
| Private sale taxation | Private real estate sales within the statutory speculation period | Exemptions and owner-occupation rules must be checked. |
Advance tax ruling
For planned transactions, taxpayers may request a binding advance ruling from the competent tax authority. This can provide legal certainty before a transaction is implemented. A fee may apply; if the value in dispute is below €10,000, no fee is charged.
Double taxation and tax treaties
Germany has a broad network of double-taxation treaties. Treaties can allocate taxing rights between Germany and another state, reduce withholding taxes and provide methods to avoid double taxation, such as exemption or foreign-tax credit.
Common cross-border issues
- tax residence and treaty tie-breaker rules,
- employment days in Germany and abroad,
- permanent establishments,
- rental income from German property,
- dividends, interest and royalties,
- exit taxation and relocation cases.
Investment incentives and grants
The old-style statutory investment allowance for eastern German grant regions should not be presented as a general current incentive without further review. Today, business incentives are usually assessed through current programmes such as GRW regional aid, KfW financing, R&D tax incentives and state-specific grants.
Practical checklist: taxes in Germany
- Determine whether you are tax resident in Germany.
- Check whether you have unlimited or limited tax liability.
- Register with the tax office if you start a business or freelance activity.
- Clarify whether you are a freelancer or a commercial business.
- Choose the correct VAT treatment, including small-business rule or regular taxation.
- Set up bookkeeping and invoice processes before issuing invoices.
- Plan tax prepayments and keep liquidity reserves.
- Check payroll-tax obligations before hiring employees.
- Review withholding-tax duties before paying non-resident artists, athletes or licensors.
- For cross-border cases, review the applicable double-taxation treaty.
- For companies, calculate corporation tax, solidarity surcharge and trade tax together.
- File returns on time or appoint a tax adviser before the deadline.
Need help with a German tax return or business registration?
We assist expats, freelancers, employees, founders and foreign companies with German tax returns, VAT registration, payroll tax, withholding tax, cross-border issues and communication with the German tax office.
FAQ: Taxation in Germany
Who is tax resident in Germany?
Individuals are generally tax resident if they have a residence or habitual abode in Germany. A stay of more than six months can be relevant for habitual abode.
What is the German income tax rate in 2026?
The 2026 income-tax tariff starts with a €12,348 basic allowance. The rate then rises progressively, reaches 42% from €69,879 and 45% from €277,826 for single taxpayers.
When is the German tax return due?
If no tax adviser is involved, annual income tax returns are generally due by 31 July of the following year. Tax-advised returns usually have a later statutory deadline.
What is the German VAT rate?
The standard VAT rate is 19%. A reduced rate of 7% applies to selected supplies, such as many food items and books.
What are the German small-business VAT thresholds?
Since 2025, the small-business VAT rule generally refers to €25,000 previous-year turnover and €100,000 current-year turnover.
Do companies pay corporation tax in Germany?
Yes. German corporations such as GmbH and UG pay corporation tax. The rate is 15% for assessment periods up to 2027, plus solidarity surcharge and usually trade tax.
What is trade tax?
Trade tax is a municipal tax on commercial business income. It is based on a 3.5% tax base multiplied by the local municipal multiplier.
Does Germany tax foreign income?
German tax residents are generally taxed on worldwide income, but double-taxation treaties and foreign-tax credit or exemption rules may avoid double taxation.
Related topics
Downloads and calculators
Download Checklist: Tax Return Germany (PDF)
Download Checklist: Tax Return Germany (PDF)
Use the calculator above for German income tax and progression-clause scenarios.
Sources and legal basis
- Sections 1, 1a, 2 and 32a German Income Tax Act (EStG) – income-tax liability, income categories and 2026 tariff.
- Sections 8 and 9 German Fiscal Code (AO) – residence and habitual abode.
- Section 149 AO – annual tax return filing deadlines.
- Section 37 EStG – income-tax prepayments on 10 March, 10 June, 10 September and 10 December.
- Sections 38 to 42g EStG – wage tax and payroll-tax withholding.
- Section 32d and Sections 43 et seq. EStG – taxation and withholding of capital income.
- Section 50a EStG – withholding tax for non-resident taxpayers.
- Sections 50c, 50d and 50g EStG – withholding-tax relief, treaty relief and EU interest/royalty relief.
- Solidarity Surcharge Act 1995 (SolzG 1995), especially Sections 1 and 4 – solidarity surcharge.
- Section 23 Corporation Tax Act (KStG) – corporation-tax rates.
- Sections 2, 7, 9 and 11 Trade Tax Act (GewStG) – trade-tax base, reductions, allowance and 3.5% tax base rate.
- Sections 1, 4, 12, 13b, 14, 18 and 19 German VAT Act (UStG) – taxable supplies, exemptions, VAT rates, reverse charge, invoices, VAT returns and small-business rule.
- German Real Estate Transfer Tax Act (GrEStG), especially Sections 1 and 11 – real estate transfer tax and 3.5% statutory rate; state rates may differ.
- German Property Tax Act (GrStG) – annual property tax.
- Section 89 AO and Tax Ruling Ordinance (StAuskV) – binding advance rulings and fees.
- German double-taxation treaties and EU directives on parent-subsidiary, mergers and interest/royalties.
- GRW regional aid framework, KfW financing programmes and R&D Tax Allowance Act (FZulG) – current investment incentives to be checked case by case.
This guide provides general information only and does not replace individual tax advice. Dieser Beitrag stellt keine individuelle steuerliche Beratung dar und ersetzt nicht das Gespräch mit einem Steuerberater.
