The tax system in Germany

The tax system in Germany is pretty straightforward. You pay taxes on consumed goods, property, and worldwide income, when driving a car, owning a dog, receiving an inheritance, playing a tourist, and practicing a particular religion.

Learn what else you can expect from taxes in Germany by reading the following sections:

The tax system in Germany

Everyone residing or conducting business within the German borders must pay taxes on their consumed goods and services, property, income, wealth, and assets. The tax revenue funds public spending in Germany, including healthcare, education, and social security benefits.

In 2024, the government is projected to raise around €427.5 billion in taxes. Most of this will come from income tax, corporate tax, and Value-Added Tax.

Taxes in Germany are separated into those collected by:

• The national government (Bundesregierung)
• Regional states (Bundesländer)
• Local municipalities (Gemeinden), districts (Kreise), and cities (Städte)

The Federal Central Tax Office (Bundeszentralamt für Steuern – BZSt), which is a part of the German Federal Ministry of Finance (Bundesministerium der Finanzen – BMF), oversees the tax system on a national level. Hundreds of regional tax offices (Finanzämter) administer local taxes.

Like most countries, Germany has a progressive tax structure when it comes to personal income tax. That means the more you earn during the fiscal year (1 January to 31 December), the more taxes you pay. In 2024, the top tax rate in Germany is 45%.

While some might feel that German income taxes are high, it could be much worse. According to the Tax Foundation, Denmark (55.9%), France (55.4%), and Austria (55%) have the highest top tax rates in the European Union (EU). The countries with the lowest top tax rates are Hungary (15%), Estonia (20%), and Czechia (23%).

What is new about German taxes in 2024?

Germany’s federal budget was adopted by parliament in February 2024. Highlights and changes to the tax system include:

• The tax-free allowance (steuerlicher Grundfreibetrag) for personal income will increase from €10,908 in 2023 to €11,604 in 2024
• The tax-free limit for sales of special assets (such as gold, jewelry, art, and cryptocurrency) will increase from €600 to €1,000. Assets must be held for at least a year before they are sold.
• The income threshold for eligibility for the Employee Savings Allowance (Arbeitnehmer-Sparzulage) will double. Residents can apply if their maximum taxable annual income is €40,000 (individual assessment) or €80,000 (joint assessment).
• The Temporary VAT Reduced Rate for restaurant and catering services, which was adopted to alleviate the industry during the COVID-19 pandemic, has come to an end. These services must once again charge the standard rate of 19% (rather than 7%).
• Certain social security payouts are adjusted. For example, the childcare benefit (Kinderfreibetrag) will increase from an annual €6,014 in 2023 to €6,384 in 2024. Likewise, the nursing care allowance (Pflegegeld) and nursing care services (Pflegesachleistungen) will rise.
• The energy price cap (Energiepreispremse) expires, and the CO² price will increase

Who pays taxes in Germany?

The German Central Tax Office distinguishes between resident and non-resident taxpayers:

• Resident taxpayers (Steuerpflichtiger) are taxed on their worldwide earnings
• Non-resident taxpayers (nichtansässige Steuerpflichtiger) pay taxes on their income earned in Germany

Under the law, a tax resident is someone who lives more than half of the calendar year (183 days) in Germany. As such, cross-border commuters (Grenzgänger – i.e., those working in Germany but living elsewhere) are considered non-resident taxpayers.

How do taxes work for expats in Germany?

Expat residents pay the same taxes as citizens in Germany, meaning they are taxed depending on their taxpayer status.

Non-resident taxpayers must pay tax on income derived from Germany, and will likely be paying additional taxes elsewhere. To prevent double taxation, Germany has tax agreements (Doppelbesteuerungsabkommen – DBA) with nearly 90 countries, including the Netherlands, France, Italy, and Switzerland.

If you do happen to be taxed twice, you can apply for a refund from either Germany or the other country.

Do I need a tax ID number in Germany?

You must have a tax ID number (Steueridentifikationsnummer or Steuer-ID) to pay taxes in Germany. This 11-digit ID number (Identifikationsnummer – IdNr) will automatically be assigned to you when you register your address in the country.

In addition, self-employed workers (Freiberufler/Freiberuflerin) and businesses must have a freelance tax number (Steuernummer) to administer and monitor their VAT liability. The tax authorities will provide you one when you register your company in Germany. Businesses that export to other EU countries must also have a VAT ID number (Umsatzsteuer-Identifikationsnummer – USt-IdNr).

Types of tax in Germany

When living in Germany, you’ll come across several types of taxes. Some, like real estate property tax (Grundsteuer), are charged at the municipal level, while others are paid nationally. Below is an overview of each type.

German income tax

All residents in Germany pay income tax (Einkommensteuer) on their earnings from the previous year (1 January to 31 December). Taxable income can include:

• Your salary and other income from employment (e.g., bonuses)
• In kind employee benefits (geldwerter Vorteil)
• State benefits and pensions
• Business profits
• Interest on savings or investments
• Property, wealth, and royalties
• Received rent (if you rent out your property)

German employers and pension providers typically withhold a percentage of your gross monthly salary or pension as payroll tax (Lohnsteuer). That way, when it’s time to file a tax return, you won’t be stuck with a hefty bill.

Social security

Salaried workers and pensioners in Germany must make mandatory social security contributions, depending on their residence status. Employers and pension providers will deduct these payments directly from your monthly salary.

In 2024, the social security contribution rates are:

• Public health insurance (Krankenversicherung) – 15.8% (employers and employees both pay 7.9%)
• Long-term care insurance (Plegeversicherung) – 3.4% (employers and employees both pay 1.7%), though this could be lower if you have more than one child
• Pension insurance (Rentenversicherung) – 18.6% (employers and employees both pay 9.3%)
• Unemployment insurance (Arbeitlosenversicherung) – 2.6% (employers and employees both pay 1.3%)

Freelancers do not have to pay the mandatory contributions. However, they won’t be able to receive state benefits if they haven’t made any payments.

You can read more about social insurance and contributions in our article on Social security in Germany.

Corporate tax

Companies based in Germany pay both national and municipal taxes (Körperschaftsteuer) on their business earnings. 

In 2024, the total combined corporate tax rate is 29.9%, much higher than in other EU member states. Germany’s economy and finance ministers have proposed tax reform, though it is unclear what form this would take and when it is supposed to go into force.

In addition to corporate tax, businesses may need to pay capital gains tax on the sale of business assets, trade tax, and dividend tax (more on this below).

Eligible companies and self-employed workers may offset certain tax credits and allowances against their corporate tax bills. These include municipal tax credits, and research and development credits (Forschungszulage).

Value-Added Tax

Value-Added Tax (Umsatzsteuer – USt, or more commonly, Mehrwertsteuer – MWSt) applies to the sale of most goods and services.

The standard VAT rate in Germany is 19%, though a reduced rate of 7% is available for certain everyday goods (Waren des täglichen Bedarfs). These include art, books, cultural services, (some) foods, hotel stays, magazines, and newspapers.

Certain goods and services are VAT-exempt and pay a 0% tax rate. These include financial services, deliveries within the EU, and insurance premiums.

Can you get a refund on VAT?

Visitors from outside the European Union may be eligible for a VAT refund on selected purchases in Germany. To reclaim VAT, you’ll need to have bought the items from a retailer that participates in the refund program. It’s worth noting that not every store participates; affiliated retailers generally display a sticker on their door.

You must inform the store owner at the time of purchase that the merchandise will be exported to a country outside the EU. You will then get a special export invoice (Ausfuhr- und Abnehmerbescheinigung). Please note that some retailers use the refund scheme as a private Tax-Free Shopping Service. In these cases, you’ll be issued a Tax-Free Shopping Check.

More information about reclaiming VAT can be found on the website of the German Central Customs Authority (Bundeszollverwaltung – ZOLL).

VAT for businesses and freelancers

Companies and freelancers making €22,000 (gross) in one financial year, or whose earnings are likely to exceed €50,000 in the next financial year, are liable for VAT in Germany. The amount must be clearly shown on the invoice.

Import and export taxes

Typically, anyone who imports products into Germany has to pay import duties and VAT. Excise items (e.g., alcoholic drinks, fuel, medicines, and tobacco products) are also subject to excise duties and other levies.

For more information about import and export duties, visit the ZOLL website.

German property tax

When you buy or sell property in Germany, such as a home or commercial real estate, you are liable for real estate transfer tax (RETT – Grunderwerbsteuer). This varies between 3.5–6.5% of the sale price, depending on the federal state you’re moving to.

Property owners must also pay an annual property tax (Grundsteuer) to the municipality. The amount of the tax differs based on the property type, value, and the local tax rate (between 0.26–1%). The local governments use the revenue to finance public services, such as schools, daycare centers, swimming pools, libraries, and infrastructure.

In 2025, the German property tax structure will undergo reform to create more equality.

Road and vehicle tax

Vehicle owners must pay an annual motor vehicle tax (Kraftfahrzeugsteuer) based on the engine size and CO² emissions. This tax typically costs €100–130 per year. 

The government provides this vehicle tax calculator to determine your yearly tax.

Environmental tax

Germany’s environmental taxes include those levied on aviation, carbon emissions, energy consumption (e.g., fuel and electricity), and motor vehicles. The country also taxes mineral resources through a water withdrawal levy, wastewater charge, and mining royalty.

At the same time, the manufacturing, agriculture, and forestry industries can benefit from tax breaks for electricity, heating oil, and gas. The service sector and private households, on the other hand, are more heavily taxed.

To help reach its goal of climate neutrality by 2045, Germany has set the carbon price at €40 per ton in 2024. The price is expected to rise to €50 in 2025.

A much-debated plastic tax on single-use packaging is set to take effect in 2025.

Tourist tax in Germany

Local governments may charge tourists from outside their borders (including German citizens) a room or lodging tax for staying the night at a commercial business, like a hostel or hotel. The German term for it differs per region; for instance, it could be called Übernachtungsteuer (overnight stay tax), Bettensteuer (bed tax), Beherbergungsteuer (lodging tax), or Tourismusbeitrag (tourism contribution). 

Each locality may impose its own tax rates and regulations. For example, Berlin and Cologne (Köln) charge 7.5% of the room price, while Dresden and Frankfurt want €2 per person per night.

Similarly, selected regions may levy a daily spa tax (Kurtaxe) when you want to visit a spa or resort. These taxes differ per region as well, ranging from €2.90 to €4.50.

Tax on capital gains and wealth

Capital Gains Tax (Abgeltungsteuer) is a levy you must pay when you sell, get compensation, or get income from capital assets. Taxable items in Germany include:

• Dividends and interests
• Income from investment funds
• Sales of company shares and stakes

Capital gains are taxed at a flat rate of 25%.

If you sell real estate that you owned for less than 10 years, you are also liable for capital gains tax. The sale of property that has been in your possession for longer is exempt.

High-earners in Germany are liable for a 5.5% solidarity surcharge (Solidaritätszuschlag – Soli). In 2024, this levy is charged when your income, capital gains, and corporate tax bill is over €18,130 (for individual assessments) or €36,260 (for joint assessments).

Inheritance and estate taxes

After someone’s death, you are liable for tax on any inheritance you receive (Erbschaftssteuer). Similarly, if you are gifted something, you must pay Schenkungssteuer.

Inheritance tax rates are consistent throughout Germany, ranging from 7% to 50%. They apply to savings, property, and other valuable assets.

Several allowances and exemptions are available, depending on your relationship with the deceased. For example, close relatives (e.g., spouses and children) have a higher tax-free allowance than more distant relatives. As such, a spouse or (grand)child won’t pay any tax on a €500,000 inheritance, but a sibling, niece, or nephew would pay a rate of 25% (after their tax-free allowance of €20,000).

You can read more about tax rates and allowances in our article on Inheritance tax in Germany.

Other taxes in Germany

Dog licenses

Regular dog owners must register their pets with their local tax office and pay for a dog license (Hundesteuer). Service dogs, such as guide dogs for the blind and visually impaired, are exempt.

The license usually costs between €90–150 per year but may be higher if you have more than one dog. The municipality can use these funds to finance dog parks, for example. 

Visit your local tax office’s website for more information on dog licensing, including fines for nonpayment.

Church or worship tax

German residents who officially declare themselves Protestant, Catholic, or Jewish may be liable for church tax (Kirchensteuer) or worship tax (Kultussteuer). The federal states collect the 8-9% of your salary on behalf of these religious institutions. However, you can deduct this amount in full as a special expense on your annual tax return.

While a similar mosque tax (Moscheesteuer) has been proposed, it has not been put into effect. Likewise, if you have not declared a religion, you won’t be charged the worship tax. 

If you want to opt out of the payment, you must officially leave the church (Kirchenaustritt). The process typically involves a visit to the district court, civil registration office (Standesamt), or church office.

You can learn more about Kirchensteuer and Kirchenaustritt on the Red Tape Translations website.

Tax avoidance and evasion in Germany

Germany takes tax avoidance (Steuervermeidung) and tax evasion (Steuerhinterziehung) very seriously. However, despite its efforts, the international NGO Tax Justice Network estimates that the country loses out on around USD $26,0 billion in tax revenue each year to global tax abuse. 

Their 2021 Corporate Tax Haven Index ranks Germany 23^rd out of 70 nations worldwide, giving it a score of 58/100. By comparison, the neighboring Netherlands and Switzerland rank fourth and fifth, respectively.

What if I don’t do my taxes on time or at all?

If you cannot file your return or pay your taxes on time, you should get in touch with the tax office as soon as possible. In many situations, they can offer you an extension of the deadline and help organize a payment plan.

Depending on your (in)action, Germany’s tax fines and penalties include:

• Individuals filing their taxes late are fined 0.25% of the amount owed
• Companies filing their corporate tax return late face a fine of up to 10% of the tax due (up to a maximum of €25,000)
• Late payments incur a penalty of 1% of the amount owed each month

Deliberately withholding information from or providing incorrect information to the authorities can be classed as tax avoidance. This crime is punishable by hefty fines or imprisonment (up to five years). The most severe cases can even lead to up to 10 years in prison.

Tax advice in Germany

Doing your taxes in Germany can be challenging, especially if you’re still new to the system. This article offers a general overview, but you should always get professional advice from an expert regarding your individual tax situation.

Luckily, Germany has many financial experts who offer expat-friendly, English-speaking services, including:

• BuchhaltungsButler
• prinz.tax
• Taxback
• Taxfix
• Wundertax

If you’re a freelancer or business owner, you can also use an online platform like Finom to manage your corporate taxes. Likewise, trade bodies such as the International Federation of Accountants can help you find a tax advisor in Germany.

Useful resources

• Bundeszentralamt für Steuern – official website of the Federal Central Tax Office in Germany
• Find your local tax office – search function at the BZSt