Analysis - Germany - Individual Taxation - IBFD

Germany - Individual Taxation - Country Tax Guides (Last Reviewed: 15 October 2022)
Individual Taxation
Germany
Author
Andreas Perdelwitz
IBFD Headquarters, Amsterdam, Netherlands
IBFD Tax Technical Editor

Filip Krajcuska
Latest Information
This chapter is based on information available up to 15 October 2022. Please find below the main changes made to
this chapter up to that date:
Employee inflation premium tax exempt up to EUR 3,000 until 31 December 2024.
Abbreviations, Terms and References
Abbreviations
Abbreviation English definition German definition
AG Stock company Aktiengesellschaft
AO General Tax Code Abgabenordnung
AStG Foreign Tax Law Außensteuergesetz
AUV Ordinance governing allowances, etc., for Auslandsumzugskostenverordnung

civil servants who move abroad
BewG Valuation Law Bewertungsgesetz
BGBl. I Federal Law Gazette; official collection of Bundesgesetzblatt Teil I

statutes passed by the parliament, Part I
BMF Federal Ministry of Finance Bundesministerium der Finanzen
BStBl. Federal Tax Gazette; official collection Bundessteuerblatt

of statutes, decrees, letters, etc. (Part
I) and the decisions of the BFH that
are provided for the publication in
theBStBl.(Part II)
BUKG Law governing allowances and moving Bundesumzugskostengesetz
costs for civil servants)
ECJ Court of Justice of the European Union –
ECU European Currency Unit –
EEA European Economic Area (EU Member Europäischer Wirtschaftsraum

States and Iceland, Liechtenstein and
Norway)
A. Perdelwitz, Germany - Individual Taxation, Country Tax Guides IBFD (accessed 30 November 2022). 1
© Copyright 2022 IBFD: No part of this information may be reproduced or distributed without permission of IBFD.
Disclaimer: IBFD will not be liable for any damages arising from the use of this information.
Exported / Printed on 8 Dec. 2022 by Europa-Universitaet Viadrina.

EEC/EC/EU European Economic Community/ –

European Communities/European Union
EigZul Home ownership subsidy Eigenheimzulage
ErbStG Inheritance and Gift Tax Law Erbschaftsteuer- und

Schenkungsteuergesetz
EStDV Income Tax Implementation Ordinance Einkommensteuer-Durchführungsverord
nung
EStG Income Tax Law Einkommensteuergesetz
EStR Income Tax Regulations Einkommensteuer-Richtlinien
FGO Law on Fiscal Court Procedures Finanzgerichtsordnung
GewStG Business Tax Law Gewerbesteuergesetz
GmbH Limited liability company Gesellschaft mit beschränkter Haftung
GrEStG Law on Real Estate Transfer Tax Grunderwerbsteuergesetz
GrStG Land Tax Law Grundsteuergesetz
HGB Commercial Code Handelsgesetzbuch
KirchStG Church Tax Law Kirchensteuergesetz
KStG Corporate Income Tax Law Körperschaftsteuergesetz
SolZG Solidarity Surcharge Law Solidaritätszuschlaggesetz
UStG VAT Act 2005, as amended Umsatzsteuergesetz
VAT Value added tax –
Terms
Term English definition
Erlass Decree
Genussrechte Jouissance rights
Gesamthandsbilanz Joint balance sheet
Gewerbesteuer Business tax
Lohnsteuerrichtlinien Wage Tax Regulations
Partiarische Darlehen Participating loans
Solidaritätszuschlag Solidarity surcharge
Sonderbilanz Special-purpose balance
Teileinkünfteverfahren Partial-income system
Verfügung Ordinance
Wandelanleihen Convertible bonds
References
* Business Tax Law: Gewerbesteuergesetz, version of 15 October 2002, BGBl. I 2002 at 4167, last amended 19 June 2022,
BGBl. I 2022 at 911
* Commercial Code: Handelsgesetzbuch of 10 May 1897, RGBl 1897 at 219, last amended 15 July 2022, BGBl. I 2022 at 1146

* Decree on the tax treatment of employment income in the case of performance abroad: Auslandstätigkeitserlass of 31
October 1983, BStBl. I 1983 at 470
* Foreign Tax Law: Außensteuergesetz of 8 September 1972, BGBl. I 1972 at 1713, last amended 25 June 2021, BGBl. I 2021
at 2035
* General Tax Code: Abgabenordnung, version of 1 October 2002, BGBl. I 2002 at 3866 and BGBl. I 2003 at 61, last amended
12 July 2022, BGBl. I 2022 at 1142
* Income Tax Implementation Ordinance: Einkommensteuer-Durchführungsverordnung, version of 10 May 2000, BGBl. I 2000
at 717, last amended 2 June 2021, BGBl. I 2021 at 1259
* Income Tax Law: Einkommensteuergesetz, version of 19 October 2002, BGBl. I 2002 at 4210, last amended 19 June 2022,
BGBl. I 2022 at 911
* Income Tax Regulations: Einkommensteuer-Richtlinien 2005, BStBl. I 2005, Sondernummer 1, version of 18 December 2008,
BStBl. I 2008 at 1017
* Inheritance and Gift Tax Law; Erbschaftsteuer- und Schenkungsteuergesetz, version of 27 February 1997, BGBl. I 1997 I at
378, last amended 16 July 2021, BGBl. I 2021 at 2947
* Land Tax Law: Grundsteuergesetz of 7 August 1973, BGBl. I 1973 at 965, last amended 16 July 2021, BGBl. I 2020 at 2931
* Law governing allowances and moving costs for civil servants: Bundesumzugskostengesetz of 11 December 1990, BGBl. I
1990 at 2682, last amended 9 December 2019, BGBl. I 2019 at 2053
* Law on Promotion of Home Ownership: Eigenheimzulagengesetz, version of 26 March 1997, BGBl. I 1997 at 734, last
amended 22 December 2005, BGBl. I 2005 at 3680
* Ordinance governing allowances, etc., for civil servants who move abroad: Auslandsumzugskostenverordnung of 26
November 2012, BGBl. I 2012 at 2349, last amended 27 June 2018, BGBl. I 2018 at 891
* Real Property Acquisition Tax Law: Grunderwerbsteuergesetz, version of 26 February 1997, BGBl. I 1997 at 418 and 1804,
last amended 25 June 2021, BGBl. I 2021 at 2056
* Social Security Law VI: Sozialgesetzbuch VI, version of 18 December 1989, BGBl. I 1989 at 2261 and 1990 at 1337, last
amended 28 June 2022, BGBl. I 2022 at 975
* Solidarity Surcharge Law: Solidaritätszuschlaggesetz, version of 15 October 2002, BGBl. I 2002 at 4130, last amended 1
December 2021, BGBl. I 2021 at 5162
* Law on Fiscal Court Procedures: Finanzgerichtsordnung of 6 October 1965, BGBl. I 1965 at 1477, version of 28 March 2001,
BGBl. I 2001 at 442, 2262, BGBl. I 2002 at 679, last amended 5 October 2021, BGBl. I 2021 at 4607
* Valuation Law: Bewertungsgesetz, version of 1 February 1991, BGBl. I 1991 at 230, last amended 12 October 2021, BGBl. I
2021 at 4831
* VAT Act 2005, as amended: Umsatzsteuergesetz 2005, version of 21 February 2005, BGBl. I 2005 at 386, last amended 19
October 2022, BGBl. I 2022 at 1743
* Wage Tax Regulations: Lohnsteuer-Richtlinien 2008, version of 10 December 2007, BStBl. I 2007, Sondernummer 1
1. Individual Income Tax

1.1. Introduction
German resident individuals are liable to income tax on their worldwide income and assets. The taxation of foreign income of
resident individuals is discussed in section 7.1., and the taxation of non-resident individuals in section 7.3. For special rules on
expatriates, see section 7.2.
1.1.1. Geographical jurisdiction

The German Constitution and federal laws apply in the territory of the Federal Republic of Germany. The Federal Republic
includes 16 federal states (Länder), i.e. Baden-Württemberg, Bayern, Berlin, Brandenburg, Bremen, Hamburg, Hessen,

Mecklenburg-Vorpommern, Niedersachsen, Nordrhein-Westfalen, Rheinland-Pfalz, Saarland, Sachsen, Sachsen-Anhalt,

Schleswig-Holstein and Thüringen. There are no areas in which the individual income tax is not applicable.
1.1.2. Statutory framework

The income tax and the solidarity surcharge are imposed by the Income Tax Law (Einkommensteuergesetz, EStG) and the
Solidarity Surcharge Law (Solidaritätszuschlaggesetz, SolZG). If an individual is engaged in a business, he is also subject to the
Business Tax Law (Gewerbesteuergesetz, GewStG; see sections 1.4.1. and 2.).
Under the Church Tax Law (Kirchensteuergesetz, KirchStG), members of recognized churches are subject to church tax (see
section 2.).
Transfer taxes are imposed by VAT Act 2005, as amended (Umsatzsteuergesetz, UStG) and the Real Property Acquisition Tax
Law (Grunderwerbsteuergesetz, GrEStG). An annual municipal tax on real property is levied under the provisions of the Land Tax
Law (Grundsteuergesetz, GrStG).
The tax authorities have issued ample regulations (Richtlinien) on the Income Tax Law indicating their understanding of the law.
The same purpose is served by ordinances (Verfügungen) and decrees (Erlasse) issued by the tax authorities. They deal with
common or special problems relating to the application of law. Neither the regulations nor the ordinances or decrees have the force
of law; they only bind the tax authorities. A taxpayer who deviates from the regulations, ordinances or decrees, however, must
generally do so through court proceedings.
1.1.3. Type of tax system

Individuals are subject to income tax (Einkommensteuer), which is increased by a solidarity surcharge (Solidaritätszuschlag) (see
section 1.10.1.). Individuals carrying on a trade or business are also subject to business tax (Gewerbesteuer). The taxable period
is the calendar year. The income tax rate structure is progressive, up to a marginal rate of 45% (see section 1.10.) with a basic
allowance (see section 1.8.2.) incorporated. A special regime for expatriates exists under the provisions of the Foreign Tax Law
(AStG) (see section 7.2.).
1.1.4. Taxable persons

1.1.4.1. Definition of residence/domicile
An individual is considered resident in Germany if his domicile or habitual place of abode is in Germany.
According to section 8 of the General Tax Code (AO), an individual’s domicile is the place where he occupies a home in
circumstances which indicate that he will retain and use it. Only the actual facts are relevant, not the intention of the taxpayer.
An individual’s habitual place of abode is the place where he is present in circumstances which indicate that his stay is not just
temporary. A habitual place of abode is deemed to exist if an individual has been continuously present in Germany for a period
of more than 6 months (section 9 of the AO). A short interruption during the stay is not taken into account, i.e. it is included in the
calculation of the 6-month period. A presence of less than 6 months may also create a habitual place of abode if the presence
is not temporary. If the taxpayer’s presence in Germany is exclusively for a visit, recuperation, cure or similar private purpose, a
habitual place of abode is deemed to exist if the stay exceeds 1 year.
According to section 2 of the Foreign Tax Law (AStG), a German national who moves to a foreign country remains subject to an
“extended tax liability as a non-resident” for 10 years from his departure if he:
- has been subject to unlimited German taxation for at least 5 of the 10 years preceding his departure;
- has moved to a country which imposes no or low taxes on income (this is assumed if the income tax imposed is more than
one third lower than it would be in Germany for a single person with an annual income of EUR 77,000 or if the individual
is subject to a preferential taxation which diminishes his tax burden considerably in comparison to other taxpayers in that
particular country); and
- has retained essential economic ties with Germany. Essential economic ties with Germany are presumed if, inter alia:
- he holds a substantial shareholding in a German resident company;

- he receives income from Germany which exceeds either 30% of his worldwide income or EUR 62,000; or
- his assets, the profits of which would be subject to unlimited German taxation if he were a resident taxpayer, exceed 30%
of his total assets or exceed EUR 154,000.

The taxation of inward and outward expatriates is discussed in section 7.2.
1.1.4.2. Family unit

The Income Tax Law (EStG) contains no general provisions concerning the taxation of a family unit. However, a husband and wife
living together may file a joint assessment, which leads to a reduction in the rate progression. The tax assessment is based on
50% of the married couple’s total taxable income; the tax on it is multiplied by two. However, married individuals may elect to be
assessed separately, in which case they must file their own income tax return (sections 26, 26a-26b and 32a(5)-(6) of the EStG).
Following a decision of the Federal Constitutional Court (Bundesverfassungsgericht), the application of tax provisions relating to
married couples was extended to partners registered under the civil law partnership regime (civil partners), with effect from 19 July
2013 (applicable as well to pending cases). Accordingly, civil partners may also file a joint assessment (section 2(8) of the EStG).
1.2. Taxable income

1.2.1. General
Resident individuals are subject to income tax on their worldwide income falling under one or several of the following categories
(section 2(1) of the EStG):
(1) income from agriculture and forestry;

(2) income from a trade or business;
(3) income from independent personal services;
(4) income from employment, including compensation from past employment;
(5) income from capital investment;
(6) rental income from immovable property and certain tangible movable property and income from royalties; and
(7) other income (gains from private transactions, alimony, annuities, etc.).
Each category has its own special rules for computation and determining the base of the income tax assessment (section 2(3)-(5)
of the EStG).
For Categories 1 to 3, taxable income is calculated using the difference in net worth at the end of the business year and that at the
end of the preceding business year (net worth comparison). Further, withdrawals for private or non-business purposes must be
added back to the taxable income while capital contributions made during the business year must be deducted.
For Categories 4 to 7, there is a net income method of computation. Accordingly, taxable income is computed by reducing the
gross income of the particular category by income-related expenses in accordance with the cash receipts and disbursement
method (section 2(2) of the EStG). Income from capital investment (Category 5) accruing after 31 December 2008 is taxed
separately under a final flat withholding tax rate. For more details, see sections 1.5.1.and1.7.
The amounts of taxable income of all categories (calculated as stated above) are aggregated. The aggregate income, less
personal deductions (see section 1.8.1.), is the taxable base to which the allowances (see section 1.8.2.) and rates (see section
1.10.1.) are applied.
1.2.2. Taxable period

The tax year is the calendar year. However, for income from a trade or business the taxpayer may choose a tax year that is
different from the calendar year (financial year), in which case the income of the financial year is taxed as income of the calendar
year in which the financial year ends. The tax year for agricultural income runs from 1 July to 30 June (see section 1.4.4.).
1.2.3. Exempt income

The following types of income are exempt (section 3 of the EStG):
- payments from health insurance, accident insurance and insurance for disability and old age;
- a number of social distributions;
- lump-sum payments under the statutory pension scheme; and
- scholarships for research activities, scientific or artistic education and training.

For exempt dividends, see section 1.5.1.
1.3. Employment income

Remuneration for any work performed in Germany, regardless of who pays it and where or when it is paid, is taxable. If the
employee is a German resident, work performed outside Germany is also subject to German tax. For details, see section 7.2.2.
Income from employment principally consists of wages and salaries, including fringe benefits. Pensions paid by an employer for
past services are also included in this category (section 19 of the EStG).
1.3.1. Salary
General
Employment income is any amount, in cash or in kind, received by an employee with respect to his employment (section 19(1) of
the EStG). The employer must withhold the employee’s income tax, increased by the solidarity surcharge, and the social security
contributions and transfer them to the authorities (see section 1.10.3.1.).
The employer may, subject to certain conditions, apply special flat rates of tax to employees with low income. For income up to
EUR 450 per month the rate is:
- 2% (this percentage includes the solidarity surcharge and the church tax, if any) if the employer pays social security
contributions for the employee;
- 20% plus 5.5% solidarity surcharge and church tax in other cases.
For income up to EUR 120 per day (EUR 72 before 1 January 2020) and not more than 18 consecutive days of employment, the
rate is 25% plus solidarity surcharge and church tax, if any.
Special rules apply to employees in agriculture and forestry enterprises. In the case of flat-rate taxation, the employer is liable to
pay the tax (sections 40 and 40a of the EStG).
Overtime premiums
Overtime premiums for work performed on Sundays, bank holidays and at night are not taxable, provided they are paid in addition
to basic wages and do not exceed a certain percentage of the basic wages (section 3b of the EStG). The exemption is only
available if the basic wages do not exceed EUR 50 per hour. The rates vary for each period (e.g. Sundays, statutory holidays,
Christmas, work performed occasionally at night). Overtime premiums must be computed for each employee individually in
addition to the basic wages and may never be considered part of the basic wage. Therefore, employment contracts should
always state expressly that wages are based on a 40-hour work week (or less) and overtime will be paid in addition. Reasonable
assurance must be given that the overtime work has actually been performed. Overtime premiums exceeding EUR 25 per hour are
subject to social security contributions.
The Ministry of Finance issued official guidance, of 9 April 2020, clarifying that bonuses (for years 2020 and 2021) of up to EUR
1,500 in cash or in kind received by employees during the period from 1 March 2020 to 31 March 2022 (previously only until 30
June 2021) are exempt from tax under section 3, number 11 of the EStG. The only requirement is that the bonus must be granted
by the employer as a reward for special efforts due to the COVID-19 pandemic. Any additional payments granted by the employer
in addition to the reduced hours compensation benefit are not covered by the exemption for bonuses under section 3, number 11 of
the EStG.
With effect from 1 October 2022, employers are able to pay employees a tax-exempt inflation premium in cash or in kind up to a
total amount of EUR 3,000 until 31 December 2024 (section 3, number 11c of the EStG).
Accumulated earnings
If an employer pays a one-time bonus in respect of a number of years of service by the employee (e.g. 25 years’ service), a special
tax provision may apply upon request. To mitigate the effect of extraordinarily high progressive rates on that payment, the EStG
allows the following: the bonus must be taxed in the year of payment, but the tax rate that applies to one fifth of the bonus is applied
to the whole bonus for purposes of the progression. This relief is only applicable to resident employees subject to unlimited taxation
(section 34 of the EStG). The relief applies to the whole amount of income deemed “extraordinary income” that the taxpayer
receives in 1 tax year. Extraordinary income includes, apart from accumulated earnings, gains from the disposal of the whole or
a part of a business or the assets serving professional income, gains from the disposal of a privately held substantial interest in a
company and severance payments (see below).

Computation of employment income

Employment income is calculated by reducing the gross compensation (salary, including all taxable benefits) by expenses (section
2(2), numbers 2, 8, 9 and 9a of the EStG). Employees may deduct all expenses incurred in acquiring and maintaining income
(Werbungskosten), in some cases subject to limitations (section 9 of the EStG). If expenses do not exceed EUR 1,200 (EUR 1,000
before 1 January 2022), an employee is entitled to a standard deduction (Werbungskostenpauschbetrag) of EUR 1,200 (EUR
1,000 before 1 January 2022) for the assessment of income tax.
Income which is taxed by flat rates (e.g. the 20% provision, as described above) is not taken into account in the determination
of income for assessment purposes. The flat-rate levy satisfies the tax liability of the taxpayer (sections 40(3) and 40a(5) of the
EStG).
A special lump-sum deduction applies for commuting expenses of EUR 0.30 per kilometre (one way). This deduction is no longer
restricted to commuting by car but applies to all commuting regardless of the means of transport used and the actual expenses
which have been incurred (maximum amount of lump-sum deduction is EUR 4,500 for commuters using a means of transport other
than a car) (section 9(1), number 4 of the EStG). If the employer does not reimburse the commuting costs, the employee is entitled
to claim a lump-sum deduction of EUR 0.30 per kilometre (one way) as income-related expenses. From 1 January 2007, the lump-
sum deduction was only applicable for commuting expenses in excess of the first 21 kilometres. However, on 9 December 2008,
the Federal Constitutional Court declared this limitation to be unconstitutional. With effect from 1 January 2021, the lump-sum
deduction of EUR 0.30 per kilometre was increased to EUR 0.35 per kilometre for any kilometre in excess of the first 20 kilometres.
From 1 January 2022 until 31 December 2026, the lump-sum deduction amounts to EUR 0.38 per kilometre for any kilometre in
excess of the first 20 kilometres.
Reimbursements for business travel and certain moving expenses as described above are not treated as income unless they
exceed fixed amounts, depending on the income of the employee. Additional compensation for special hours of work in excess of
the above-mentioned income limits are part of taxable income. Income tax is collected by a withholding system at source, which
also applies for German church taxes (see section 1.10.3.1.).
Moving costs incurred in the course of employment are professional expenses and can therefore be reimbursed by the employer.
Such reimbursement is not subject to income tax (under section 3(16) of the EStG). If the employer does not reimburse the moving
costs on a tax-exempt basis, the costs are deductible as business expenses if incurred due to relocation by the employer to a new
principal place of work, or in connection with the commencement of a new employment by the taxpayer (section 9(1), number
5 of the EStG). Even if an employee decides to move house after years of commuting to the principal place of work, the moving
costs are attributable to the employment if the move substantially shortens the distance between home and work. Reimbursement
of such costs is tax exempt up to the amount that a comparable civil servant would receive according to the law governing the
reimbursement of moving costs for civil servants (BUKG).
Having a double household means that an employee maintains a second residence at his place of employment while his family
lives abroad. Travelling costs, increased subsistence expenditure and accommodation expenses are regarded as necessary
expenses related to the maintenance of two residences for the purposes of employment. Up to certain limits these expenses may
be reimbursed without becoming subject to income tax (section 3(16) of the EStG) or deducted by the taxpayer.
Costs up to EUR 1,250 for the taxpayer’s office at home are deductible if there is no other office place available for the taxpayer’s
professional activities. The actual costs for a taxpayer’s office at home are, however, deductible if such office is the centre of
the taxpayer’s professional activities. The legislator reintroduced the deductibility of costs for the taxpayer’s home office with
retrospective effect from tax year 2007 onwards through the Annual Tax Act 2010 as response to the Federal Constitutional
Court’s decision of 6 July 2010 (2 BvL 13/09). In its decision, the Court held the previous rules regarding the deductibility of costs
for a taxpayer’s home office unconstitutional. Since 2007, the costs for a taxpayer’s home office were deductible only if the office
was the centre of the taxpayer’s professional activities.
For tax years 2020 and 2021, a “home office” lump-sum deduction in the amount of EUR 5 per day which was spent exclusively
working at home because of COVID-19 restrictions (capped at max. EUR 600 per year) was introduced. However, this lump-sum
deduction was considered part of the standard deduction for work-related expenses in the amount of EUR 1,200 (EUR 1,000
before 1 January 2022). Thus, only if the general work-related expenses exceeded EUR 1,200 (EUR 1,000 before 1 January
2022), the additional deduction for home office expenses was effectively available (section 4(5) No. 6b of the EStG). The “home
office” lump-sum deduction is also available in tax year 2022.
1.3.2. Benefits in kind

Benefits in kind received or enjoyed from an employment in addition to the regular salary are categorized as income from
employment and normally valued at market price, including VAT (section 8(2) of the EStG).

Section 8(2) of the EStG refers to benefits in kind generally as accommodation, food, goods, services and other benefits provided
by the employer. Benefits in kind received by employees are included in the employment income and taxed accordingly. If the
employer grants the benefit at a reduced price, the benefit is valued at the difference between the amount paid by the employee
and market price. However, no income tax is assessed if the difference does not exceed EUR 50 per month (EUR 44 before 1
January 2021) for all benefits received. If the employer provides the employee with accommodation and free meals, the value of
the benefit in kind is determined according to special rules and fixed amounts provided for by an ordinance. In this case, the market
value does not apply.
The value for the private use of a company car is determined in a different way (section 6(1), number 4 and section 8(2) of the
EStG). The value of the fringe benefit is the expenditure which the employee would have incurred in owning a private car of the
same type. There are two ways of determining the value of that fringe benefit.
First, the total expense for the year is allocated on the basis of the ratio of private to total kilometres as shown in a logbook.
The resulting value of the fringe benefit is then reduced by any expenses borne by the employee (e.g. petrol, garage, cleaning).
Commuting between home and work is allocated to private kilometres.
Second, the monthly benefit may alternatively be valued at a flat 1% of the dealer’s list price on first registration plus the cost of
such accessories as radio, special tyres, etc., plus VAT. For electrically powered vehicles purchased before 1 January 2023,
a reduction of the dealer’s list price of up to EUR 10,000 is available depending on the vehicle's battery capacity. For fully
electrically powered vehicles purchased between 1 January 2019 and 31 December 2031, only 25% of the dealer’s list price
is taken into account for calculation purposes provided that the dealer’s list price is below EUR 60,000 (EUR 40,000 before
2020). The maximum benefit for the 1% rule is limited to the actual running costs of the company car. For company cars provided
to independent professionals, sole entrepreneurs and executives, only this second method is available if the use of the car for
business purposes exceeds 50% of the total use.
If the car is not used for private purposes for a whole month, the related benefit (i.e. the 1%) does not apply to that month. If a
company car is used for private purposes for up to 5 days per month, the imputed income is 0.001% of the list price for each
privately driven kilometre instead of 1% of the list price. In addition, a taxable benefit in kind of 0.03% of the list price per kilometre
of the distance between home and work (one way) per month is subject to wage tax withholding (or must be declared in the
absence of wage tax withholding, e.g. if the employee is employed by a foreign employer without a branch office or permanent
agent in Germany) in respect of commuting between home and work. In addition, a flat rate of 0.002% of the list price per kilometre
between home and work is used to evaluate the benefit of using the company car for home leave purposes in the framework of
maintaining a double household in excess of one home leave per week. The employee is entitled to claim a lump-sum deduction
per kilometre if flat-rate taxation does not apply (see reimbursement of commuting expenses above).
On certain benefits in kind, the employer may take over the liability to pay the income tax due at a lump-sum rate. Thus, the
net salary attributed to such benefits is not taken into account for the purposes of the employee’s taxable income. The lump-
sum taxation is allowed, inter alia, with respect to cheaper or free food and cheaper or free transport between home and work.
Reimbursement of costs for the use of the employee’s own car in commuting can be subject to a flat tax rate of 15%. If an
employee uses his own car, the maximum amount that may be reimbursed and taxed according to the flat-rate regulation is the one
deductible for an employee as income-related expenses (see above). Special rates apply for disabled persons (section 40 of the
EStG).
Further, employers may pay income tax due at a lump-sum rate of 30% for benefits in kind granted in addition to the regular salary
to their employees or gifts in kind if the value of the benefit (i) per recipient and tax year, or (ii) per benefit does not exceed EUR
10,000 (section 37b of the EStG).
Income which is taxed by flat rates (e.g. the 20% provision, as described above) is not taken into account in the determination
of income for assessment purposes. The flat-rate levy satisfies the tax liability of the taxpayer (sections 40(3) and 40a(5) of the
EStG).
If an employee receives goods or services as part of his salary, which are produced, sold or provided by the employer not only for
the needs of the employees, the respective benefits in kind are tax exempt up to EUR 1,080 per year if they are not taxed at a flat
rate. The value of such benefits in kind is determined by reducing the market price by 4% (section 8(3) of the EStG).
For stock options, see section 1.3.5.1.
Childcare
The fee paid by an employer to an employee for a nursery (Kindergarten) is tax exempt if this is in addition to the salary normally
agreed. It is not possible to change parts of the existing salary into the Kindergarten reimbursement or for a direct payment to be
made by the employer (section 3(33) of the EStG).

Employee insurance plans

Voluntary contributions by an employer to an employee’s insurance plan (voluntary pension, health, accident or life insurance) are
generally taxable for the employee. However, if the employer makes payments to pension funds, to benevolent funds or in the form
of direct insurance, and if the scheme provides for the pension payments to the employee to be made in the form of an annuity, an
amount of up to EUR 3,384 (in 2022) of the premiums paid is tax exempt, increased by an additional maximum amount of EUR
1,800 if the pension commitment was made after 31 December 2004 (section 3, number 63 of the EStG).
With respect to pension commitments made before 1 January 2005, there is a possibility for the employer to withhold a final tax
at a flat rate of 20% on payments to pension funds or direct insurances (in certain circumstances) with annual contributions up to
EUR 1,752 per year per employee; if the payments are made to group insurances, the limit of EUR 1,752 applies to the average
contribution for each employee of the employer.
For contributions for accident insurances, the employer may withhold a flat rate of 20% on payments for group insurances if the
average annual contribution per employee does not exceed EUR 100 (EUR 62 before 1 January 2020) (section 40b(3) of the
EStG).
Reimbursement of commuting expenses

If the employer does not reimburse the commuting cost, the employee is entitled to claim a lump-sum deduction of EUR 0.30 per
kilometre (one way) as income-related expenses. From 1 January 2007 the lump-sum deduction was only available as from the
21st kilometre of the distance between home and workplace. However, on 9 December 2008, the Federal Constitutional Court
declared this limitation to be unconstitutional. With effect from 1 January 2021, the lump-sum deduction of EUR 0.30 per kilometre
was increased to EUR 0.35 per kilometre for any kilometre in excess of the first 20 kilometres. From 1 January 2022 until 31
December 2026, the lump-sum deduction amounts to EUR 0.38 per kilometre for any kilometre in excess of the first 20 kilometres.
With effect from 1 January 2019, the reimbursement of cost for local public transport between home and work by the employer is
tax exempt (section 3, number 15 of the EStG). With effect from the same date, the employer may also provide tax-exempt benefits
in kind in the form of company bicycles to the employees (section 3, number 37 of the EStG).
1.3.3. Pension income

From 2005 the old system of the taxation of old-age pensions is phased out. The contributions to the statutory pension scheme
(and to certain private pension schemes) are gradually exempt from tax by extending their deductibility as special expenses.
Simultaneously, the taxable amount of the pensions paid out is gradually increased annually for each new age group of pensioners
to 100% in 2040.
In June 2021, two decisions (X R 33/19 and X R 20/19) from the Federal Financial Court were published in which the Court opined
that the current legislation on the taxation of pensions and the rules on the deductibility of contributions to the statutory pension
scheme may result in double taxation for taxpayers. The Court found that, in order to avoid any double taxation for taxpayers, the
amount of tax-exempt pension payments received may not be lower than the amount of contributions made from income already
taxed. The Court dismissed the taxpayers' claims in both cases because of a lack of actual double taxation in the underlying cases,
but noted that future pensioners may be actually subject to double taxation. The Court acknowledged that the general change
in taxation of pension income and the deductibility of contributions to the statutory pension scheme with effect from 2005 is in
line with Constitutional law. The Court, however, noted that taxpayers who recently retired, pensioners who are single, and men
(because of the lower average life expectancy) are more likely to be subject to double taxation in the future.
Pensions and widow’s and orphan’s allowances are treated as income from prior employment and are taxable as such (Category
4). A tax-free allowance of 14.4% of the payments (annual maximum EUR 1,080) plus an additional allowance of EUR 324 is
granted in 2022. However, if it is not a pension to a civil servant but a pension to a normal employee, the allowance applies from
the year the taxpayer reaches the age of 63 (60 if he is disabled) (section 19(2) of the EStG). These kinds of pension payments
include payments from the employer based on a confirmation of pension entitlement, whether or not secured by an employer’s
pension liability insurance.
Pension income derived from the statutory pension scheme is deemed to be “other income” (sections 2(1) and 22(1) of the EStG).
In 2022, all pensioners deriving income from the statutory pension scheme generally must pay tax on 82% of their pension income
received. The same applies to pension income derived from certain private capital-based pension schemes for a taxpayer’s old-
age provision if the underlying contract provides for the monthly payment (not starting before the taxpayer reaches the age of 60)
of a lifelong annuity. For income from other private pension schemes, the taxable income continues to be computed as the excess
of each payment over a proportionate share of the invested capital spread over the life expectancy of the recipient. The income,
i.e. the excess, is fixed as a percentage of the payments, which depends on the age of the recipient when he first received pension
payments (section 22 of the EStG). The same rules apply to certain pension payments from direct insurance and a pension fund.

Pensions derived by former employees from certified private pension plans (Altersvorsorgeverträge) are subject to tax if the
contributions were deductible or the subject of a cash grant (see section 1.8.1.3.).
Taxpayers over 64 years of age and deriving income other than the above-mentioned pension, etc., are granted a tax-free
allowance. In 2022, the allowance is 14.4% of the gross employment income (excluding the pensions) plus the aggregate income
of other categories (excluding statutory pension payments and similar pension payments), subject to an annual maximum of EUR
684 (section 24a of the EStG).
Employee pension schemes

In Germany there are several types of pension schemes which are related to employment and which are not mandatory, but based
on a contract between the employer and the employee. The tax treatment depends on which type of pension scheme is used. The
pension paid by the employer or the insurance company/fund may be paid in the form of a lump sum (Kapitalabfindung) or as a life
annuity (Leibrenten). Lump-sum payments from direct insurance, a pension fund or a benevolent fund are generally considered
income from capital investment (Category 5). If the pension commitment was made before 1 January 2005, lump-sum payments
from the above schemes are generally not subject to tax. If the commitment was made after 31 December 2004, such lump-sum
payments are fully taxed, or, if under the underlying contract no payments are made before 12 years have expired since the signing
of the contract and before the taxpayer reaches the age of 60, 82% of the payments are taxable. The tax treatment, described
below, refers to the situation where an annuity is paid. The annuity may be taxed either as other income (Category 7) or as income
from employment, depending on the type of pension contract.
If the employer confirms that the employee is entitled to a pension paid by himself (Pensionszusage), the pension
payments are taxed as income from employment. If the pensions are financed by an employer’s pension liability insurance
(Rückdeckungsversicherung) – a life insurance effected by the employer on the life of the employee or a benevolent fund
(Unterstützungskasse), an independent organization run by a group of employers for this purpose – the pension payments to
the employee are income from employment, but the payments to the funds are not taxable. A tax-free allowance of 14.4% of the
payments (annual maximum EUR 1,080) plus an additional allowance of EUR 324 are granted in 2022.
If the pension is financed by directly insuring the employee’s life (Direktversicherung), by a pension fund (Pensionskasse) or a
benevolent fund, the premiums which the employer pays to the insurance company or fund are income from employment for
the employee. For the tax treatment at the level of the employee, see section 1.3.2. When the direct insurance, pension fund or
benevolent fund pays the pension, the employee receives other income. The pension payments are either fully taxable (if the
premiums paid by the employer were tax exempt (see section 1.3.2.) or if deductible contributions to certified private pension plans
were made), or they are taxed as income derived from certain private capital-based pension schemes or other private pension
schemes (see above).
1.3.4. Directors’ remuneration

Fees received for membership of a board of directors are treated as employment income if the director is a managing director,
because the director is treated as a normal employee. If the individual is a member of a supervisory board without any managerial
duties, the income is treated as income from independent services (see section 1.4.2.) (section 18(1), number 3 and section 19(1)
of the EStG). In the latter case, directors’ fees are also subject to VAT (see sections 1(1) and 2 of the UStG).
1.3.5. Other
1.3.5.1. Stock options
If a company offers its employees the right to subscribe for its shares at preferential rates, the difference between the purchase
price and the market value is normally taxable as a benefit in kind. Under certain conditions, the discount remains exempt from
income tax. Accordingly, if (i) the respective offer is available to all employees who have been employed uninterruptedly for at least
1 year and (ii) the total discount on the shares for each employee does not exceed EUR 1,440 per calendar year (EUR 360 for
stock options granted before 1 July 2021), the benefit is exempt from tax (section 3 number 39 of the EStG).
If one of the conditions is not met, the benefit is taxed when the option is exercised. The amount taxable is the difference between
the fair market value of the shares at the time the option is exercised and the actual purchase price paid by the employee and
guaranteed by the employer when the option was granted.
With effect from 1 July 2021, employees have the option to agree with their employer on a preliminary non-taxation of a benefit in
kind, granted in the form of a right to subscribe for shares at preferential rates (section 19a of the EStG). When determining the
benefit in kind, the allowance in the amount of EUR 1,440 must be deducted. The fair market value serves as acquisition costs.

The option of preliminary non-taxation is only available if the employer qualifies (or qualified in the preceding year) as a micro, small
or medium-sized enterprise (SME) with fewer than 250 employees, with an annual turnover not exceeding EUR 50 million, and/or
an annual balance sheet total not exceeding EUR 43 million and the enterprise is not older than 12 years.
The preliminary non-taxed benefit becomes taxable if:
- the shares are wholly or partially transferred for free or against payment or are contributed to a business;
- more than 12 years have elapsed since the initial grant of the shares; or
- the employment relationship is terminated. If in this case, the employer takes over the liability to pay the tax on the benefit in
kind, there is no further benefit in kind arising to the employee.
1.3.5.2. Termination payments
Severance payments are generally taxed.
1.4. Business and professional income

The general principles for determining industrial, commercial, agricultural and professional profits are the same for individuals and
corporate entities. The taxable profit is the total income realized from carrying on business activities, whatever the nature of such
income or the form in which the activity is carried on. For individuals, business or professional income includes the distributed profit
shares of general and limited partnerships as well as profits earned by sole proprietors (sections 4 and 15 of the EStG).
The law differentiates between four types of business income (section 15(1) of the EStG):
- income earned by sole proprietorships;

- income from partnerships for tax purposes (see section 1.4.3.);
- income of a personally liable partner of a partnership limited by shares (see section 1.4.3.);
- any income consequent to one of the three activities mentioned above.
1.4.1. Business income
Under the Income Tax Law (EStG), any independent and lasting activity exercised with the intention of earning profit by
participating in the open market and which does not qualify as professional or agricultural or forestry activities is considered a
business (section 15(2) of the EStG).
Computation of business income

General
The Commercial Code and the Income Tax Law require nearly every business to keep certain books and records and, at the end
of each business year, to prepare an inventory and a balance sheet. Books, inventories and balance sheets, as well as records
(correspondence or vouchers), must be kept for 10 years. The Income Tax Law incorporates and expands the requirements of the
Commercial Code. If the accounting treatment of certain items is at variance with the tax rules, a reconciliation or a separate tax
balance sheet must be filed with the tax return (section 5(1) of the EStG and sections 140-148 of the AO).
Compulsory ordinances deal with the records required for purposes of income tax and VAT, including rules for electronic data-
processing systems. Failure to comply fully with the law and ordinances may result in rejection of the accounting records and
assessment of tax on an arbitrary basis (sections 158 and 162 of the AO). Individual taxpayers with taxable income of the types
calculated under the net income method (see section 1.2.1.) must report that income on a cash basis. However, expenses for
immovable property, shares and similar rights may only be deducted in the tax year during which the asset is sold. Respective
documentation must be prepared and provided by the taxpayer. Other taxpayers required to keep books must report income using
the net worth method (see section 1.2.1.). For such taxpayers, the starting point for determining taxable income is the balance
sheet at the end of the tax year and the balance sheet at the end of the previous year, as prepared from the accounting books and
records. These must be maintained on an accrual basis (section 4(1)-(3) of the EStG).
The balance sheet may often be adjusted to take into account the detailed rules of the EStG. When adjusted, the balance sheet is
referred to as the “balance sheet for tax purposes” as opposed to the “balance sheet for commercial purposes”. The valuation of
assets and liabilities on the two balance sheets is fundamentally the same, but the EStG may require or permit certain variations.
As a general rule, assets may not be valued lower, or liabilities higher, on the tax balance sheet than on the commercial balance

sheet. The only exception is for buildings, for which the EStG prescribes depreciation rates that may be higher than those used in
the commercial balance sheet.
When a business is acquired or disposed of during the calendar year, the net worth at acquisition becomes the beginning balance
sheet and the net worth on disposal becomes the final balance sheet for the determination of taxable income.
Depreciation
Depreciation is mandatory and, for tax purposes, is deductible for all assets used in carrying on a business or profession if
experience indicates that the useful life of the assets will exceed 1 year.
Buildings must be depreciated on a straight-line basis at a general rate of 2% of cost (2.5% on buildings completed before 1
January 1925), or at special rates used only for tax purposes. These rates are prescribed in the Income Tax Law (EStG), even
though lower rates may be used in the commercial balance sheet. The EStG provides a depreciation rate of 3% per year for
certain commercial buildings not used as dwellings; in the case of buildings for which the building permit was applied for, or
the acquisition contract was concluded before 1 January 2001, the former rate of 4% per year is still applicable. Furthermore,
degressive depreciation (special declining-balance method) at various rates is possible (in the case of acquisition it is required that
the taxpayer bought the building before the end of the year during which it was completed):
- buildings used in a business not as dwellings:
- buildings for which the building permit was applied or the acquisition contract was concluded before 1 January 1994: 10%
for 4 years, 5% for the next 3 years and 2.5% for the following 18 years; and
- no degressive depreciation for new buildings;
- buildings not used in a business or used in a business as dwellings:
- buildings for which the building permit was applied or the acquisition contract was concluded before 1 January 1995: 5%
for 8 years, 2.5% for the next 6 years and 1.25% for the following 36 years; and
- no degressive depreciation for new buildings; and
- buildings used as dwellings whether or not in a business:
- buildings for which the building permit was applied or the acquisition contract was concluded after 28 February 1989 and
before 1 January 1996: 7% for 4 years, 5% for the next 6 years, 2% the following 6 years and 1.25% for the following 24
years;
- buildings for which the building permit was applied or the acquisition contract was concluded after 31 December 1995
and before 1 January 2004: 5% for 8 years, 2.5% for the next 6 years and 1.25% for the following 36 years;
- buildings for which the building permit was applied or the acquisition contract was concluded after 31 December 2003
and before 1 January 2006: 4% for 10 years, 2.5% for the following 8 years and 1.25% for the following 32 years; and
- no degressive depreciation for new buildings (i.e. if the building permit was applied for or the acquisition contract was
concluded after 31 December 2005).
For movable fixed assets, with effect from 1 January 2008, only the straight-line depreciation and the production method are
permitted. However, in order to stimulate the economy and to mitigate the COVID-19 pandemic impact, the declining-balance
method has been temporarily reintroduced for movable fixed assets acquired or produced from 1 January 2020 until 31 December
2022. The annual rate of depreciation is limited to two and a half times the allowable straight-line rate with an overall maximum of
25%.
Before 1 January 2008, the normal methods of depreciation were the straight-line method, the declining-balance method and
the production method (section 7 of the EStG). These could be used alternatively, provided the required conditions were met. A
change from the declining-balance method to the straight-line method was permitted, but not vice versa.
Under the straight-line method, the taxpayer must estimate the economic useful life of the fixed asset. The Federal Minister of
Finance has issued a list which gives an overview of the normal economic useful life and the depreciation rate of many assets.
The taxpayer may deviate from the list if he can give reasons for the deviation. The following straight-line rates are applicable:
machinery 6% to 16%; office equipment 7% to 14%; office furniture 8%; computers 33.3% (until 2021); cars, trucks, etc. 8% to
16%.

The Ministry of Finance published official guidance in the form of a letter of 26 February 2021 (IV C 3-S 2190/21/10002:013)
regarding the depreciation period for computer equipment and software. With effect from 1 January 2021, computer hardware and
standard business software may be depreciated over a period of 1 year. This allows taxpayers to write off computer equipment and
software in the year of acquisition instead of over their depreciable lifetime. Previously, taxpayers could only depreciate such items
over a period of 3 years. The guidance notes that the term “computer hardware” encompasses computers, desktop computers,
notebooks, desktop-thin-clients, workstations, docking stations, small-scale-servers, external power adapters and peripherals.
If the movable assets acquired or manufactured were previously depreciated according to the declining-balance method,
the annual rate of depreciation was limited to three times the allowable straight-line rate with an overall maximum of 30%.
The taxpayer could use the declining-balance method if he maintained the required information to support the computation
of depreciation. Such details could be recorded in the taxpayer’s books or separate records. For movable assets acquired or
manufactured after 31 December 2000 but before 1 January 2006, the maximum depreciation rate was reduced to the lower of
twice the straight-line rate and 20% per year.
For movable assets, the potential depreciation in the year of acquisition or production is reduced by 1/12 of the acquisition or
production costs for each full month preceding the month of acquisition or production. Salvage value may be ignored at the
taxpayer’s election and is generally not taken into account.
Accelerated depreciation is available for:
- buildings in designated development areas: for restoration measures up to 9% per year in the first 8 years and up to 7% per
year in the following 4 years (section 7h of the EStG); and
- monuments and memorials: for maintenance measures up to 9% per year in the first 8 years and up to 7% per year in the
following 4 years (section 7i of the EStG).
For businesses with taxable income of less than EUR 200,000 according to the net income method, an additional depreciation of
up to 20% of the cost of acquisition or manufacturing of new movable assets is granted in the year of acquisition or manufacturing
and in the following 4 years (20% for all years together). The depreciation only applies if the new assets remain in a domestic
permanent establishment for at least 1 year or are rented out and if they are used exclusively or mainly for business purposes
in the years of the additional depreciation. In addition, the taxpayer may deduct up to 50% of the prospective acquisition or
production costs of future depreciable assets, with a maximum of EUR 200,000. In the case the assets are not acquired or
produced within the following 3 tax years, the previously made deduction must be added back retrospectively to the taxable
income of the tax year for which the deduction was claimed. The depreciation deduction is not available if a taxpayer benefits from
regional incentives. The additional depreciation or deduction under the aforementioned thresholds is available for assets acquired
or manufactured from 1 January 2020.
Previously, the additional depreciation was available for businesses with net assets of not more than EUR 235,000 (EUR 125,000
in the case of an agriculture and forestry business) and a taxable income of less than EUR 100,000 according to the net income
method. The taxpayer was allowed to deduct up to 40% of the prospective acquisition or production costs of future depreciable
assets, with a maximum of EUR 200,000. To mitigate the impact of the COVID-19 pandemic, the reinvestment period of 3 years
has been extended by 2 years, for taxpayers who claimed an investment deduction in 2018, but did not yet acquire or manufacture
new assets and otherwise would be forced to add back the amount of the previously taken investment deduction in 2022.
For newly constructed rental houses, based on building permissions granted between 1 September 2019 and 31 December 2021,
a temporary additional depreciation of 5% of the acquisition or production cost was available in addition to the regular straight-
line depreciation. The additional depreciation was only available if the acquisition or production costs did not exceed EUR 3,000
per square metre and the rental property was rented out in the year of acquisition or production and subsequent 9 years. The
depreciation basis was the acquisition or production cost with a maximum limit of EUR 2,000 per square metre (section 7b of the
EStG).
For newly acquired electric utility vehicles, purchased between 1 January 2020 and 31 December 2030, an additional depreciation
of 50% of the acquisition cost is available in the year of acquisition.
Where additional depreciation is used, the declining-balance method is not allowed In the case of accumulation of accelerated and
additional depreciation, only one type of depreciation may be chosen (per asset).
An extraordinary special depreciation deduction is allowed when the value of an asset is reduced because of economic or
technical obsolescence, but not for assets depreciated under the declining-balance method (section 7(1) and (2) of the EStG).
Movable assets that cost not more than EUR 800 (EUR 410 before 1 January 2018) (excluding VAT) and that may be separately
used may be written off in the year of purchase (section 6(2) of the EStG). Separate records must be kept for such assets if their
value is less than EUR 250 (EUR 150 before 1 January 2018) (excluding VAT), unless the value is apparent from the bookkeeping.

Alternatively, movable business assets, which may be used individually, with a value between EUR 250 (EUR 150 before 1
January 2018) and EUR 1,000, may be depreciated on a pool basis under the straight-line method at 20% per year over 5 years.
If single assets from the pool are sold or put out of use, the book value of the pool may not be changed (section 6(2a) of the EStG).
Under this alternative, qualifying assets with a value of less than EUR 250 (EUR 150 before 1 January 2018) (excluding VAT) may
be depreciated in the year of acquisition. Before 2010, depreciation on a pool basis was obligatory.
The taxpayer must opt for one of the above alternatives per tax year.
Intangible assets are generally amortized over their useful life, which need not always coincide with the legally established life.
However, intangible assets are only depreciable if they are acquired (see section 5(2) of the EStG). Patents are legally protected
for 18 years (design patents for 3 years with one renewal possible). In practice, however, the useful life of a patent may not exceed
5 years. Goodwill that develops in the course of doing business may not be capitalized; acquired goodwill, however, may be
reported in the balance sheet and depreciated over at least 15 years (section 7(1) of the EStG). Start-up costs are not treated as
assets for income tax purposes and therefore cannot be capitalized and must be deducted when incurred.
Valuation
Assets must be valued at the balance sheet date – the end of the fiscal or calendar year. Assets are carried at cost, less
depreciation, or lower going-concern value, defined as the total purchase price which a third party would allot to a specific asset if
he were to continue the business (section 6(1) of the EStG).
Valuation of inventory is usually the lower of cost or market value, following generally accepted accounting principles. A weighted
average is acceptable for similar goods. The taxpayer may also choose to use the LIFO method to value current inventory items of
the same kind.
Cost includes expenses incurred in acquiring inventory, such as freight and insurance. Manufacturing costs consist of material,
labour and depreciation of assets, and may also include any overhead and a portion of administrative expenses relating to
research and development. Selling expenses may not, however, be included. To determine the cost, the annual cost of inventory
items must be used, if available. If such amount is not available, the average cost is generally used. Market value means
replacement cost for raw materials and other purchasable items. It also means realizable value for finished goods and for unusable
or obsolete materials. If both replacement cost and realizable value could apply to certain goods, the method yielding the lower
value must be used.
The inventory may be reported in the balance sheet at the going-concern value if it is lower than the cost and the market value.
If the going-concern value is higher than the market price, in the tax balance sheet the inventory must be reported at the going-
concern value.
The write-down to a lower going-concern value for fixed assets as well as for inventory is allowed only if the decrease in value
is permanent. The taxpayer must prove the lower going-concern value each business year. Otherwise, the asset is revalued the
following year at its cost of acquisition or manufacture, less depreciation, rollover relief, etc. (section 6(1) of the EStG).
Liabilities may be valued at cost or going-concern value. The requirements for valuation at going-concern value and the potential
step-up are the same as for fixed assets and inventory (see above) (section 6(1), number 3 of the EStG).
Reserves and provisions
Provisions may be set up for certain liabilities, thereby reducing taxable income in the year of creation. Provisions may be made for
expenses incurred at the balance date, but whose exact amount cannot be determined, such as certain future pension payments to
employees (section 6a of the EStG), liabilities on surety obligations, warranties, damage claims, litigation expenses and deductible
taxes for corporate income tax purposes. Provisions are also allowed for repairs and maintenance that will be undertaken during
the first 3 months (section 249 of the HGB and section 5 of the EStG).
Provisions for grants to employees to mark the occasion of their completing a round number of years of service may be made,
subject to certain conditions (section 5(4) of the EStG).
Tax-deductible provisions for reserves are often based on the taxpayer’s estimates. These are normally accepted by the tax
authorities if they can be substantiated as being in accordance with prior experience and are reasonably necessary. The related
expenditures are charged to the reserve when incurred. If reserves are no longer necessary, they must be added back to income.
Tax-free reserves are possible with respect to capital gains on the alienation of an asset if the intention is to replace the asset
(section 6b of the EStG).

Gains on disposal of a business

A taxpayer who has reached the age of 55 or who is permanently unable to work may apply for an exemption for capital gains
realized from the sale or liquidation of his business up to an amount of EUR 45,000. If, however, the capital gains realized exceed
the amount of EUR 136,000, any excess reduces the allowance of EUR 45,000. Consequently, no allowance is granted for capital
gains of EUR 181,000 or more. The allowance is also granted if the taxpayer sells or liquidates a part of his business. However,
the taxpayer is entitled to the allowance only once (section 16(4) of the EStG). The taxable gain is subject to a reduced tax (section
34 of the EStG). These rules apply also to the liquidation of all or a part of the assets serving independent services of the taxpayer
(section 18(3) of the EStG).
Retained profits
A special tax treatment is available for retained income of sole entrepreneurs and partnerships. Upon request, the taxpayer may
retain income from business activities, agriculture and forestry and independent professional services, which income has been
computed using the net worth comparison method. The retained income is initially taxed at a reduced income tax rate of 29.804%
(28.25% plus the solidarity surcharge). Any income that has been taxed at the reduced rate is subject to subsequent taxation at
26.375% (25% plus the solidarity surcharge) in the year in which it is withdrawn from the business.
Retained income is the taxable income calculated under the net worth comparison method minus the excess of all withdrawals
over capital contributions. The retained income minus the paid amount of income tax and solidarity surcharge gives the amount
of income subject to subsequent taxation, when withdrawn. This amount is to be separately documented each tax year for each
partnership interest, including a carry-forward of last tax year’s retained income subject to subsequent taxation. If positive net
withdrawals in the following tax year do not exceed the tax year’s taxable income, no subsequent taxation is triggered. Otherwise,
a positive difference between the positive net withdrawals and the tax year’s taxable income triggers the subsequent taxation of a
respective amount of the retained income that is carried forward and subject to subsequent taxation (section 34a(1) of the EStG).
Subsequent taxation of retained income takes also place if the taxpayer:
- sells his enterprise or a separate unit thereof, an agricultural and forestry enterprise or unit thereof, a partnership interest or
the assets previously used to generate income from independent professional services or separate parts thereof;
- contributes the enterprise or partnership interest to a company or cooperative or reorganizes the partnership into a
cooperative;
- changes from the net worth comparison method to the net income method; or
- applies for subsequent taxation.
The request must be filed separately by each partner for each partnership interest in each tax year. The request can be withdrawn
until the tax assessment for the following tax year becomes final, i.e. after the grace period of the tax return concerning the
following tax year expires (section 34a(1) of the EStG). A co-entrepreneur of a partnership may file a request if his or her
partnership interest is greater than 10% or EUR 10,000. Capital gains may only be retained if the allowances under sections 16(4)
and 34(3) of the EStG have not been claimed. Losses may not be offset against retained income taxed at the reduced rate.
1.4.2. Professional income

Income from independent personal services includes income from professional and other independent activities (Category 3)
Income derived from professional activities, e.g. scientific, artistic, literary, teaching or educational activities includes:
- activities of:
- state-certified engineers, architects or similar professions;

- physicians, veterinarians and dentists;
- attorneys-at-law, patent attorneys, notaries public, certified public accountants;
- business consultants, tax advisers, auditors;
- photographic reporters and journalists; and
- interpreters and translators; and
- other similar activities, e.g.:

- activities of university graduate psychologists;

- activities of experts;
- certain medical services; and
- certain advisory activities in tax and law affairs.
If a professional is assisted by professionally trained staff who do not have the qualification required for a member of the
profession, income derived through the assistance of that staff also constitutes professional income if the professional is in charge
of his staff and is acting under his own responsibility.
Professional activities may be also performed by partnerships for tax purposes (Mitunternehmerschaft), e.g. lawyers acting in the
form of a partnership under the Civil Code (Gesellschaft bürgerlichen Rechts), general partnership (Offene Handelsgesellschaft)
or limited partnership (Kommanditgesellschaft). However, in this case, all partners being professionals must be in a managerial
position and personally responsible for their work. If one partner of the partnership is not a professional or is a company, e.g. a
limited liability company, the income of all partners is categorized as business income.
Income from other independent activities includes income from sideline activities, such as the remuneration paid to executors,
liquidators, property managers and trustees.
Further, the income which a participant in a property-managing enterprise, the purpose of which is to acquire, hold and alienate
participations in stock companies (AGs), receives in exchange for the services he performed for the furtherance of the enterprise’s
purpose falls under section 18(1) of the EStG, provided that such remuneration is only paid on condition that the participants in
the enterprise received back the entire capital they invested. The latter refers to income (carried interest) which a person (initiator)
making investment decisions for venture capital and private equity funds receives in exchange for his activities on behalf of such
funds.
In general, income from independent personal services is determined according to the net income method. However, the taxpayer
may also elect to determine this income by the net worth comparison method, which requires the taxpayer to keep books and
records in accordance with the generally accepted accounting principles (see section 1.4.1.).
Gains resulting from the disposal of all or part of assets that have been used for rendering independent personal services are also
categorized as income derived from independent services (section 18(3) of the EStG). The gains are taxed in the same way as
gains from the disposal of a business enterprise or a part of it (see section 1.4.1.).
Individuals rendering independent personal services are not subject to business tax (see section 2.2.).
1.4.3. Partnership income

Partnerships are not regarded as separate taxable entities for income tax purposes. The profit shares of partners qualifying as co-
entrepreneurs as well as compensation derived by partners for services rendered to the partnership or for granting loans or leasing
business assets are passed through to the partners and are included in their taxable income.
For tax years starting from 1 January 2022, partnerships may opt to be treated as non-transparent and taxed as corporations.
If a partnership opts to be taxed as such, the partners will correspondingly be taxed as shareholders (section 1a of the KStG).
See also Corporate Taxation section 11.2.1.
Persons are considered co-entrepreneurs if they work together in order to achieve a common goal by jointly undertaking the
business management and associated risks. In this sense, the law views the partners of general partnerships and the general
partner of limited partnerships and partnerships limited by shares as co-entrepreneurs (section 15(1) of the EStG).
Limited partners of a limited partnership are generally treated as co-entrepreneurs if comparable to the normal situation described
in the Commercial Code (section 161 et seq. of the HGB). The profit share attributable to the respective partner is determined
by adding the results of the joint balance (Gesamthandsbilanz) and the result of the special-purpose balance (Sonderbilanz)
attributable to that partner. The joint balance shows the entire income of the partnership and its allocation to the partners
according to the profit distribution agreement. The special-purpose balance carries assets which are in civil-law ownership of a co-
entrepreneur but let to the partnership, plus respective revenue and expenses.
1.4.4. Other
Income from agriculture and forestry (Category 1) includes income from various sources, such as farming, fishing or viniculture,
as well as profits from the sale of wine. An allowance of EUR 900 for a single taxpayer is granted annually, provided that the

aggregate of all types of income (see section 1.2.1.) does not exceed EUR 30,700 (for jointly assessed spouses or civil partners
both amounts are doubled, i.e. EUR 1,800 and EUR 61,400) (section 13(3) of the EStG).
Agricultural and forestry income is determined by net worth comparison if the law prescribes an obligation to keep books and
prepare annual accounts, which is the case when:
- the turnover exceeds EUR 600,000 per year (EUR 500,000 before 1 January 2016) (section 141 of the AO);
- the value according to the Valuation Law (section 46 of the BewG) of the self-managed farm land exceeds EUR 25,000; or
- the profit exceeds EUR 60,000 per year (EUR 50,000 before 1 January 2016) (section 141 of the AO).
If there is no such bookkeeping obligation, agricultural and forestry income may be determined according to an average for small
agricultural and forestry enterprises (section 13a of the EStG) or according to the net income method.
Agricultural and forestry income includes gains derived from the sale of the whole or a part of the agricultural or forestry enterprise
(section 14 of the EStG). The gains are taxed in the same way as gains from the disposal of a business enterprise or a part of it
(see section 1.4.1.).
The tax year for agricultural and forestry income runs from 1 July to 30 June. The profits of a tax year are allocated to the calendar
year proportionally. Gains from the sale of the whole or a part of the agricultural or forestry enterprise are allocated to the calendar
year in which they occur. Apart from the above specific provisions, the rules applying to other types of business income apply (see
section 1.4.1.).
1.5. Investment income

Investment income falls under three different categories of income. Dividends and interest are classified as income from capital
investment (Category 5). The scope of capital investment income under Category 5 also includes capital gains from the sale of
shares and financial instruments, e.g. bonds, dividend coupons, jouissance rights, certificates, options, futures and swaps (section
20(2) of the EStG). Income from immovable property and royalties is taxed under Category 6 – rental income. Other items of
income that may be regarded as investment income are taxed in Category 7 – other income.
The computation of investment income, including rental income as described above (see section 1.2.1.), is completely different
from the computation of business income (see section 1.4.1.). Taxable income is the difference between payments received and
income-related expenses paid during the relevant calendar year. Income-related expenses are deductible if substantiated. The net
income so computed is subject to tax.
Final flat withholding tax (sections 20, 32d and 43(5) of the EStG). All income from private capital investment under Category
5 is taxed separately by way of a final flat withholding tax at a rate of 25%, increased to 26.375% by the solidarity surcharge.
Economically connected expenses are not deductible. However, the EStG provides a tax-free amount (Sparerfreibetrag) of EUR
801 per taxpayer per year (double the amount for jointly assessed spouses or civil partners) (section 20(9) of the EStG). The
taxpayers may agree with the bank that no withholding tax is deducted on investment income up to the aforementioned amounts. A
special form must be filed with the bank.
The final flat withholding tax is withheld by the credit institutions. The taxpayer need no longer include the respective capital
income in his tax return, unless it has not been subject to the final flat withholding tax, e.g. in particular in the case of foreign capital
investment income (section 32d(3) of the EStG). Such income is also subject to the same rate of 25%. Foreign taxes paid on
foreign capital investment income are credited up to the amount of German tax paid. No excess foreign tax credit is granted.
If the final flat withholding tax exceeds the individual’s marginal income tax rate, the individual may opt for an assessment. In that
case, the applicable tax rate is the marginal income tax rate up to 25% (section 32d(4) of the EStG). The taxpayer may also opt for
assessment in other cases, e.g. such as where:
- the basic allowance has not been fully taken into account; or
- foreign taxes are still to be taken into account.
If the individual receives dividends and other profit distributions from shares held as business assets, the income is taxed under
a partial-income system, under which 60% of the dividend income is taxable. Correspondingly, only 60% of the economically
connected expenses are deductible (section 3, number 40 of the EStG). With effect from tax year 2014, the 40% exemption is
only applicable if the dividends and other profit distributions were not deducted when determining the profits of the distributing
company.

1.5.1. Dividends
General
Dividends in cash or in kind are subject to income tax according to the rules pertaining to income from capital investment
(Category 5) (section 20(1) of the EStG).
Final flat withholding tax

For dividends paid after 31 December 2008, a distinction is made between private shareholdings and shareholdings held
as business assets. Dividends derived by resident individual shareholders from private investments are subject to a final flat
withholding tax rate (sections 32d and 43(5) of the EStG). Economically connected expenses are not deductible. An allowance of
EUR 801 (Sparer-Pauschbetrag) is granted. The amount is doubled for jointly assessed spouses or civil partners.
Business income of individuals from investment in shares is taxed under a partial-income system, under which 60% of the dividend
income is taxable (section 3, number 40 of the EStG). Correspondingly, only 60% of the economically connected expenses are
deductible (section 3c(2) of the EStG). With effect from tax year 2014, the 40% exemption is only applicable if the dividends were
not deducted when determining the profits of the distributing company. The tax withheld is treated as an advance payment of
income tax and is creditable against the taxpayer’s income tax liability (sections 36(2) number 2, 43 and 43a of the EStG).
Stock dividends issued because of a capital increase out of retained earnings are exempt in the hands of the shareholder.
However, a subsequent repayment of the new capital is taxed as dividend income. Income from jouissance rights (Genussrechte)
is treated as dividends, provided the owner participates in the liquidation surplus of the company (non-deductible jouissance
rights). If the owner does not participate in the liquidation surplus, the income from jouissance rights (deductible jouissance rights)
is treated as interest, i.e. the amount paid on them is deductible for the company, thus not subject to corporate income tax and the
partial-income system.
Former system
Before the current rules took effect, economic double taxation was mitigated for individual shareholders for both income from
private and business investments, by means of the “half-income system”, under which only one half of the dividends received was
included in the individual’s taxable income. Correspondingly, only 50% of expenses related to dividend income were deductible.
1.5.2. Interest
Interest, including interest from participating loans (partiarische Darlehen), derived by an individual is also subject to tax according
to the rules pertaining to income from capital investment (Category 5), i.e. subject to the final flat withholding tax. However, interest
is taxed at normal progressive rates in the following circumstances:
- if the creditor and the debtor are related persons;

- if the interest is paid on a shareholder loan granted by a substantial shareholder who holds at least 10% of the capital of the
company; or
- if the interest is paid to a related person of such a substantial shareholder, or the interest is routed through a back-to-back
loan (section 32d(2) of the EStG).
If the interest income is attributable to the operation of a business, however, it is taxed as business income (see section 1.4.1.). For
example, if interest of any kind is paid to an individual general or limited partner by the partnership which is a resident enterprise
carrying on business activities, such interest is treated as a distribution of the partnership’s profits and is taxable as business
income of the recipient and not as investment income (section 15(1) of the EStG).
Interest from bank accounts, savings accounts, bonds and securities is taxed at the moment of receipt. However, if interest is
payable in the second half of year 1, but effectively credited to the taxpayer’s account within the first 10 days of year 2, such
interest is taxed as income of year 1 (section 11(1) of the EStG).
Special rules apply to zero-coupon bonds and certain government securities on which interest is accumulated up to the last day.
In such cases, the interest is taxed either when it is paid on maturity of the bond or the accumulated interest is taxed on the date of
disposal of the bond.
Only certain types of interest income are subject to withholding tax (see section 1.10.3.2.).
1.5.3. Royalties
There is no definition of royalties in the Income Tax Law (EStG).

If royalties are received by a resident individual in the course of a business or profession, they are taxed as income from business
(see section 1.4.1.).
If the royalties are received from private operations which are not part of a business or profession, they are considered rental
income under Category 6.
1.5.4. Income from immovable property

Income from immovable property is categorized as rental income under Category 6. Rental income is defined as income derived
from the renting and leasing of immovable property, particularly of real estate, buildings, parts of buildings or flats, movable assets
and royalties, to a third party (section 21 of the EStG). Germany does not levy any tax on deemed income from owner-occupied
dwellings. If the payment for a dwelling which is let for residential purposes is less than 50% (66% before 2021) of the usual rental
value on the local market, then the surrender of the use and benefit is to be divided into a gratuitous proportion and a proportion
attracting consideration.
The taxable rental income in the sense of Category 6 is the gross rental payments received, less depreciation, mortgage interest
and other expenses.
1.6. Other income

Annuities fall under the income category “other income” – Category 7. The proportion of the annuity payment which does not
represent a repayment of capital is taxable as income. For life annuities, income is computed as the excess of each payment over
the proportionate share of the invested capital spread over the life expectancy of the annuitant. The income, i.e. the excess, is fixed
as a percentage of the payments, which depends on the age of the recipient when he first received pension payments (section 22
of the EStG).
1.7. Capital gains

Business assets
Capital gains and losses arising in the course of a business are treated as ordinary business income or losses and are taxed at the
standard income tax rates. This applies to the sale of business assets, including assets used by a partnership. Losses on the sale
of business assets are generally deductible. These rules apply to business property only.
Capital gains on shares, as is the case for dividends (see section 1.5.1.), are eligible for the partial-income system: irrespective
of the size and duration of the shareholding, only 60% of the capital gains are taxable, the other 40% are tax exempt (section 3,
number 40 of the EStG). Likewise, only 60% of related expenses are deductible (section 3c(2)of the EStG), and capital losses are
not taken into account for income tax purposes (section 3c(2) of the EStG) (see sections 1.4.1. and 1.9.2., respectively). The gain
is fully taxable, however, if (a) the shares have been received in exchange for a tax-relieved business contribution against shares
and are sold within 7 years of their receipt, or (b) the gain is due to an earlier depreciation of the shares which has been deducted
for tax purposes (section 3, number 40(a) of the EStG).
A taxpayer who has reached the age of 55, or who is permanently unable to work, may apply for an exemption for capital gains
realized from the sale or liquidation of his business up to an amount of EUR 45,000. If, however, the capital gains realized exceed
the amount of EUR 136,000, any excess reduces the allowance of EUR 45,000. Consequently, no allowance is granted for capital
gains of EUR 181,000 or more. The allowance is also granted if the taxpayer sells or liquidates a part of his business. However,
the taxpayer is entitled to the allowance only once (section 16(4) of the EStG). The taxable gain is subject to a reduced tax (section
34 of the EStG) These rules apply also to the liquidation of all or a part of the assets serving independent services of the taxpayer
Rollover relief with a ceiling of EUR 500,000 is available for gains on shares, provided the shares belonged to a resident
permanent establishment (section 6b(10) of the EStG). The relief may be used to reduce the acquisition or manufacturing cost
of qualifying replacement assets acquired or manufactured after the gain was realized. Qualifying replacement assets are (i)
shares and wasting movable assets; and (ii) buildings acquired or manufactured within the next 2 years and 4 years, respectively.
The rollover relief is limited to qualifying replacement assets which are attributable to a resident permanent establishment. If the
replacement assets are attributable to a permanent establishment situated in another EU Member State/EEA country, the taxation
of the capital gains from the hidden reserves may be spread over 5 consecutive years. Upon request of the taxpayer, the tax due
may be paid in 5 equal instalments.

Where gains on shares benefit from the 40% exemption under the partial-income system (see above), no relief is available on
the exempt part. However, where the alienated shares are replaced by other shares, their acquisition price is reduced by the full
amount of the gain.
If the taxpayer does not acquire or manufacture the replacement assets in the financial year in which the gain was realized, a
reserve may be set up and kept for a maximum of 4 years. If the reserve is not used in time to reduce the acquisition cost of
replacement assets, it must be dissolved, and 60% of the gain must be added to the taxable income in that financial year. In
addition, the taxable amount is increased by 6% for each full financial year during which the reserve existed. In order to mitigate
the economic impact of the COVID-19 pandemic, the reinvestment periods for replacing assets have been extended by 1 year for
reinvestment reserves that would have to be dissolved in 2022. Previously, the reinvestment periods were only extended for 1 year
for reinvestment reserves that would have to be dissolved in 2021.
Private assets
Capital gains derived from private transactions are generally not subject to tax. However, capital gains realized by an individual
from private transactions are taxable, if the total gains are at least EUR 600 during the tax year, and arise from the disposal of:
- immovable property, including rights thereon, within 10 years of the date of acquisition; or
- movable property, excluding shares and bonds, within 1 year of the date of acquisition. The speculative period is increased to
10 years, if the use of such assets generates positive income within 1 calendar year.
Gains from the disposal of immovable property are not taxable if it has been used as a personal dwelling in the year of the disposal
and the 2 preceding years.
Final flat withholding tax. The scope of capital investment income under Category 5 includes capital gains from the sale of shares
and financial instruments, i.e. capital gains from derivative transactions and short sales. Such gains, accruing after 31 December
2008, are subject to a final flat withholding tax at a rate of 25% (26.375%, including the solidarity surcharge).
Capital gains on the disposal of privately held shares relating to a substantial interest in a company are, however, always taxable
as business income. Gains from the disposal of the shares in a company, resident or non-resident, in which the individual seller
has owned a substantial interest of at least 1% of the capital, directly or indirectly, at any time during the preceding 5 years, are
taxable under this provision. If the shares were acquired by gift or inheritance, the acquisition and additional costs of the previous
owner are taken into account. If the sale comprises the entire capital of a corporation, or if the corporation is liquidated, the taxable
gain is reduced by EUR 9,060, provided the gain is not more than EUR 36,100. The allowance is reduced by any excess of the
gain over EUR 36,100.
If only a part of the total shares in the company are sold, the allowance is reduced proportionally. The upper limit for the total gain
is also reduced proportionally, and if the gain exceeds this revised limit, the allowance is reduced by the excess. The losses from
such substantial interests are generally deductible, subject to some restrictions (section 17(1)-(4) of the EStG).
Other
Upon request, the income tax computed under the general rates (see section 1.9.1.) is reduced with respect to income classified
as “extraordinary income”, as follows: the difference between (i) the tax levied on the income, including only one fifth of the
extraordinary income and (ii) the tax levied on the income excluding the extraordinary income, is multiplied by five and added to
total income (i.e. the normal taxable income, excluding the extraordinary income) (section 34 of the EStG).
Extraordinary income includes:
- capital gains realized from the sale of an agricultural or forestry business, or of a part of that business, or a participation in
such a business;
- capital gains realized from the sale of a business, or of a part of a business, or from the sale of a participation held by a
partner, or by a general partner of a limited partnership with shares;
- capital gains realized from the sale of assets, or part thereof, which are used to render independent personal services; and
- remuneration for several years’ activity (accumulated earnings).
Alternatively, a different reduced tax rate may, upon request, be applied in these cases (except for the sale of a substantial
interest). This reduced tax rate is 56% of the average tax rate which would be applicable if the capital gain was included in taxable
income as ordinary income, with a minimum of 14%. Only taxpayers who have reached the age of 55, or permanently unable to

work, qualify for this rate reduction. Furthermore, it is only granted once in a taxpayer’s lifetime, and the maximum capital gain for
which this rate reduction is available is EUR 5 million (section 34(3) of the EStG).
Neither of the rate reductions is available to the extent that the gains are realized on shares and are taxed under the partial-income
system (see section 1.5.1.).
1.8. Personal reliefs

1.8.1. Deductions
In computing the income for the various categories, individual taxpayers may deduct all expenses directly incurred in acquiring
or maintaining that income. However, expenses which are directly and economically connected with tax-free income are not
deductible (section 3c(1) of the EStG). In particular, where dividends or capital gains qualify for the partial-income system only
60% of related expenses are deductible (section 3c(2) of the EStG) (see sections 1.5.1. and 1.7.). The net income from all
the categories is aggregated to find the taxpayer’s total income (section 2 of the EStG). If total income is negative, none of the
deductions or allowances is available. The deductions listed in this section are taken from total income. These include a deduction
for special expenses (see below and section 1.8.1.5.) and for exceptional expenditures (see section 1.8.1.5.).
There are two types of special expenses (Sonderausgaben): those which are deductible in full and those which are deductible up
to certain limits. Special expenses are personal or family expenditure which may specifically be deducted under the EStG. The
deductions must be made in the year in which the expense is incurred.
For all special expenses, except those for insurances and social security (see section 1.8.1.3.), a lump-sum deduction of EUR
36 (EUR 72 for jointly assessed spouses or civil partners) is automatically granted if the actual special expenses are not higher.
The loss carry-over (section 10(d) of the EStG; see section 1.9.1.) is applied before the tax base is reduced by special expenses
(Sonderausgaben) and exceptional expenses (aussergewöhnliche Belastungen).
In addition to special expenses, resident taxpayers are entitled to tax relief in respect of exceptional expenditure
(aussergewöhnliche Belastungen) which is unavoidable. If the expenditure exceeds that incurred by the majority of taxpayers with
similar income, net worth and family status, the taxpayer may apply for permission to deduct a portion of those expenses (section
33(1) of the EStG). Medical costs may be deductible as exceptional expenditure (see section 1.8.1.2.). For other deductible items,
see section 1.8.1.5.
1.8.1.1. Interest expenses

Mortgage interest is not deductible in the case of owner-occupied houses. Where the property is let, mortgage interest is
deductible in the calculation of the taxable rental income.
1.8.1.2. Medical expenses

Medical costs may be deducted as exceptional expenditure (see section 1.8.1.5.) within certain limits. Only the amount not
reimbursed by third parties is deductible. The deductible amount depends upon total income and family status (section 33(3) of the
EStG). See the table in section 1.8.1.5. for the non-deductible portion of exceptional expenditure.
1.8.1.3. Insurance premiums

In 2022, generally 94% of the contributions to the statutory pension scheme, and to certain private pension schemes for a
taxpayer’s old-age provision, are deductible if the underlying contract provides for the monthly payment (not starting before the
taxpayer reaches the age of 60) of a lifelong annuity (including certain contributions to qualifying employee pension schemes),
up to a maximum of EUR 25,639 (double for jointly assessed spouses or civil partners) (section 10(3) of the EStG). Such
contributions and premiums are also deductible if made to non-resident social security institutions, or to insurance companies
that have been granted permission to conduct their business in Germany. A lump-sum deduction is taken into account only for
purposes of the quarterly tax prepayments (see section 1.11.4.). Before 2010, a lump-sum deduction was granted to employees
who did not substantiate higher contributions.
In addition, mandatory contributions to health, accident and liability insurance, to the insurance for disability and old age, and
premiums of similar private insurance, and to unemployment insurance, may be deducted. Such contributions and premiums are
also deductible if made to non-resident social security institutions, or to insurance companies that have been granted permission
to conduct their business in Germany. Furthermore, the premiums of annuity insurance, and 88% of the premiums of capital life
insurance with a term of at least 12 years, are deductible, provided that the policy period started before 1 January 2005.
The annual deduction for all the above-mentioned contributions and premiums is generally limited to EUR 2,800. The annual
deduction is limited to EUR 1,900 for taxpayers not making their health insurance contributions wholly or partly by themselves (e.g.

where employer pays part of the contributions). The maximum amounts available for deduction to each of the jointly assessed
spouses or civil partners are summed up. However, if the amount of mandatory contributions to the health, disability and old age
insurances exceeds the limit of EUR 2,800 or EUR 1,900, it is fully deductible. In that case, no other contributions and premiums
are deductible.
A lump sum (Vorsorgepauschale) is taken into account for the purposes of the quarterly tax prepayments in respect of payments
to insurance for health, for disability and old age as well as to pension schemes (section 39b of the EStG) (see section 1.11.4.). In
2022, the lump-sum deduction generally must be computed as follows:
- 88% of 50% of the total contribution to the statutory pension scheme (see above); plus
- 12% of the employee’s gross salary, with a maximum of EUR 1,900 (EUR 3,000 for jointly assessed spouses or civil
partners).
Until 2020, the EStG provided for an obligatory evaluation as to whether the old maximum annual deductions for the above-
mentioned contributions and premiums to the pension insurance, health insurance, etc., would be more favourable for the taxpayer.
If that was the case, the old maximum annual deduction applied (section 10(4a) of the EStG). The maximum deduction generally
was EUR 1,334 (double if jointly assessed). Individuals deriving income other than income from employment could qualify for an
additional deduction of EUR 300 in 2019 (double if jointly assessed). Any remaining expenses were deductible up to half of their
amount, with a maximum of EUR 667 (double if jointly assessed). A lump-sum deduction was granted to employees who did not
substantiate higher contributions.
Contributions by employees to certified private pension plans (Altersvorsorgeverträge) (section 10a of the EStG). The annual
maximum deduction is EUR 2,100. Each spouse is entitled to the deduction provided the prescribed requirements are fulfilled.
In certain circumstances, jointly assessed spouses or civil partners may claim a double deduction even if only one spouse fulfils
the requirements. The deduction is not available if the taxpayer has received a cash grant for contributions to a certified private
pension plan (Altersvorsorgezulage) and the grant exceeds or equals the relief given by the deduction (section 79 et seq. of
the EStG). The cash grant consists of a basic grant (Grundzulage) and, if the taxpayer has one or more dependent children, an
additional child-related grant (Kinderzulage). The basic grant is EUR 175 (EUR 154 before 2018) per year. The additional child-
related grant is EUR 185 per child per year. The amount of EUR 185 is increased to EUR 300 per child born after 31 December
2007.
1.8.1.4. Donations
Gifts and donations to third parties are not deductible, unless made for charitable, religious, scientific, or public-benefit purposes
(sections 52 to 54 of the AO). The deduction is limited to 20% of total income before deduction of special expenses (see section
1.8.1.), exceptional expenditure (see section 1.8.1.) and personal allowances (see section 1.8.2.), or 0.4% of the total sum of
turnover and salaries. If a single donation exceeds the above-mentioned maximum amounts in the year of the donation, the excess
may be deducted from the income of the preceding years, up to the maximum amount for each year. Carry-forward is available
upon application (section 10b(1) of the EStG).
Donations made to non-profit organizations established in other EU Member States/EEA countries are also deductible, provided
(i) the Directive on Administrative Cooperation (2011/16) (DAC) and the Recovery Directive (2010/24) are applicable between
Germany and the respective EU Member State/EEA country; (ii) the donations would be deductible if made to a resident non-profit
organization; and (iii) the activities of the receiving non-resident organization benefit resident individuals or Germany’s general
reputation.
Further, expenses for gifts and donations of up to EUR 1 million to newly established qualifying foundations are deductible once
every 10 years. A foundation qualifies as newly established during the first 12 months of its incorporation. Qualifying foundations
are public-law foundations and those private-law foundations that are exempt from corporate income tax because their objects
are charitable or religious, support a church, or benefit the public. The deduction may be taken entirely in the year in which the
donation is made, or spread over the following 9 years (section 10b(1a) of the EStG).
Donations to political parties are deductible up to EUR 1,650, and for jointly assessed spouses or civil partners up to EUR 3,300
(section 10b(2) of the EStG). This applies only to donations for which the taxpayer did not get an income tax credit: 50% of the
donations are deductible from the income tax assessed with a maximum amount of EUR 825 per taxpayer, and EUR 1,650 for
jointly assessed spouses or civil partners (section 34g of the EStG).
1.8.1.5. Other expenses

The following expenses are deductible:

- Two thirds of childcare services costs (Kinderbetreuungskosten), up to a maximum of EUR 4,000 per child, if the child lives
in the parents’ household and is 14 years old or younger (an age limit of 25 years applies to certain handicapped children)
(section 10(1), number 5 of the EStG).
- Expenses for a taxpayer’s first professional education or his first studies (e.g. school and university fees, manuals and
accommodation costs) up to a maximum of EUR 6,000 per calendar year. For jointly assessed spouses or civil partners, each
individual is entitled to EUR 6,000 (section 10(1), number 7 of the EStG).
- Maintenance payments of up to EUR 13,805 for a divorced or separated resident spouse, provided the payment is taxed in
the hands of the recipient as income (see below). Both spouses must be subject to unlimited German taxation as residents,
or the recipient spouse must live in, and be a citizen of, an EU Member State (section 10(1), number 1 of the EStG). The
ECJ upheld the non-availability of the deduction in a case where the maintenance payments were not taxable in the hands of
the recipient in the EU Member State of which the recipient was resident being compatible with articles 12 and 18 of the EC
Treaty (Case C-403/03, Schempp).
If the deduction as special expenses is not applicable or not chosen by the taxpayer, alimony may be deducted as exceptional
expenditure even if the recipient does not report the payments. This exceptional expenditure deduction is, however, limited to
EUR 10,347 per year if the wife’s own income is EUR 624 or less. If her income exceeds that amount, the deductible alimony
is reduced by the excess (section 33a(1) of the EStG).
- Thirty per cent (maximum EUR 5,000) of contributions to private schools and supplementary schools situated in an EU
Member State/EEA country (on certain conditions) (section 10(1), number 9 of the EStG).
In addition to special expenses (see above and section 1.8.1.), resident taxpayers are entitled to tax relief in respect of exceptional
expenditure (aussergewöhnliche Belastungen) which is unavoidable. If the expenditure exceeds that incurred by the majority of
taxpayers with similar income, net worth and family status, the taxpayer may apply for permission to deduct a portion of those
expenses. Medical costs may be deductible as exceptional expenditure (see section 1.8.1.2.). Other deductible items are listed
below (sections 33 and 33a-b of the EStG):
- maintenance and training expenses of dependent persons with no or less than EUR 15,500 net worth, for whom child
allowances and child grants are not available and if there is a legal obligation of support (limited to EUR 10,347, reduced by
the amount of the dependent person’s own income exceeding EUR 624 per calendar year; the own income is reduced by
actual business expenses of the dependent person or by a minimum lump-sum deduction of EUR 180);
- training expenses (Ausbildungsfreibetrag) of a dependent child for whom child allowance or child tax credit is available if the
child is 18 years or older and living away from home (up to 25 years of age if certain conditions are satisfied). The maximum
amount of deduction is EUR 924;
- expenses for domestic help up to EUR 624 if the taxpayer or his or her spouse is 60 years or older, or if the help is necessary
because of illness of the taxpayer or his or her spouse or a dependent child living in their household (on certain conditions);
the maximum amount is EUR 924 if one of the persons is handicapped; and
- expenses for living in a nursing home if the taxpayer or his or her spouse live there permanently if the costs are comparable to
those of a domestic help; the maximum amount is EUR 924 if permanent nursing is necessary.
For the disability of the taxpayer or of his child, certain graduated deductions between EUR 384 (EUR 310 before 2021) and EUR
7,400 (EUR 3,700 before 2021) are granted, depending on the degree of disability (section 33(b) of the EStG).
Exceptional expenditure is deductible within certain limits depending on the family status of the taxpayer, his total income before
special expenses, exceptional expenditure and personal allowances and the number of dependent children. Each taxpayer must
bear a personal burden, not deductible according to the appropriate schedule. The excess of the expenses is deductible as
exceptional expenditure (section 33(1) of the EStG). The non-deductible portion is:
Family status Number of children Total amount of income (before special expenses, etc.)
Up to Up to More than
EUR 15,340 EUR 51,130 EUR 51,130
(%) (%) (%)
Single none 5 6 7
Married none 4 5 6
Single 1–2 2 3 4
Married 1–2 2 3 4

Family status Number of children Total amount of income (before special expenses, etc.)
Up to Up to More than
EUR 15,340 EUR 51,130 EUR 51,130
(%) (%) (%)
Single over 2 1 1 2
Married over 2 1 1 2
Only those children for whom the taxpayer receives a child allowance (Kinderfreibetrag) (see section 1.8.2.) and childcare
allowance (Betreuungsfreibetrag) (see section 1.8.2.) or child tax credit (Kindergeld) (see section 1.8.3.) are relevant for this
calculation (section 33(1)-(3) of the EStG).
1.8.2. Allowances
A basic allowance (Grundfreibetrag) is granted to every taxpayer. It is EUR 10,347 for a single person and EUR 20,694 for jointly
assessed spouses or civil partners. Before 1 January 2022, the basic allowance for a single person was EUR 9,744 (EUR 19,488
for jointly assessed spouses or civil partners). The basic allowance is reflected in the tax rate table as income taxed at 0% (see
section 1.10.1.).
In principle, two lump-sum deductions are available for each dependent child of the taxpayer:
- child deduction (Kinderfreibetrag): EUR 2,730 (EUR 5,460 for jointly assessed spouses or civil partners) per child per year;
and
- deduction for childcare, upbringing and education (Freibetrag für den Betreuungs- und Erziehungs- oder Ausbildungsbedarf):
EUR 1,464 (EUR 2,928 for jointly assessed spouses or civil partners) per child per year.
These deductions do not apply if the child tax credit (Kindergeld) (see section 1.8.3.) received during the year (see above) exceeds
or equals the benefit of the lump-sum deductions. If, however, the actual relief offered by the lump-sum deductions is higher than
that of the child relief, the deductions apply and the child tax credit is reversed (sections 31 and 32 of the EStG).
Single persons who are heads of one-parent families may deduct an additional amount of EUR 4,008 per year (EUR 1,908 before
1 January 2020) if at least one child in respect of which the taxpayer is entitled to the child tax credit/deductions mentioned
above lives in the taxpayer’s household, and if both child and taxpayer are registered in that household (Entlastungsbetrag für
Alleinerziehende; section 24b of the EStG). The amount is increased by EUR 240 for each additional child. The deduction is
generally not available if another adult with whom the taxpayer jointly maintains the house and in respect of which the taxpayer is
not entitled to the child tax credit/deductions lives in the taxpayer’s household.
For children born from 1 January 2007 onwards, spouses who stop working in order to take care of the child in its first year after
birth receive parent support. Parent support amounts to 65% of the previous net income (67% if previous net income did not
exceed EUR 1,240) up to a maximum of EUR 1,800. The minimum parent support granted is EUR 300. Parents with no income
and parents with income exceeding EUR 250,000 are excluded from the grant. Parent support is paid for 12 months and may be
prolonged for 2 “father months”, if the father stays at home for this time to take care of the child. If work is given up only partly,
parent support will be paid pro rata; however, where the work time exceeds 30 hours per week, parent support is not granted.
Taxpayers over 64 years of age and deriving income other than pensions from the statutory pension scheme and pensions taxed
as income from (prior) employment (see section 1.3.) are granted a tax-free allowance. The allowance is 14.4% of gross salary
(excluding the pensions taxed as income from employment) plus 14.4% of the aggregate income of other categories (excluding
statutory pension payments and similar pension payments), subject to an annual maximum of EUR 684 (section 24a of the EStG).
For the allowance for pensions taxed as income from prior employment, see section 1.3.
1.8.3. Credits
Tax credits are available for domestic help provided by certain employed and self-employed persons (section 35a of the EStG).
The maximum credit is the lower of 20% of expenses and EUR 4,000. Only non-deductible expenses qualify for the tax credits.
The limits apply per household. The credits cannot result in a refund.
Further, a monthly child relief (Kindergeld) in the form of a tax credit (with refund of any excess) is granted for resident children
under 18 years who are maintained by the taxpayer. The child tax credit also applies to children between 18 and 25 years inclusive
if the child is a full-time student or in military or community service (Wehrdienst, Ersatzdienst) or – in certain circumstances –
unemployed. Children in this respect are the taxpayer’s own children and adopted children as well as stepchildren, foster children
and grandchildren, but the latter only if they live in the taxpayer’s household. The tax credit is EUR 219 (EUR 204 before 1 January

2021) for the first and second child. For the third child, the tax credit is EUR 225 (EUR 210 before 1 January 2021). For the fourth
and any further child, a tax credit of EUR 250 (EUR 235 before 1 January 2021) is available. The child relief is granted only once
per child; it is not doubled for jointly assessed spouses or civil partners. The child tax credit is available to resident taxpayers,
but generally only with respect to their children resident in Germany or an EEA country (EU Member States and Iceland, Norway
and Liechtenstein). Non-resident taxpayers are entitled to a child tax credit on certain conditions if they are employed in Germany
(section 62 et seq. of the EStG).
In order to mitigate the economic impact of the COVID-19 pandemic, a one-time child bonus of EUR 300 per child, for children who
were entitled to monthly child relief in 2020, was paid in September (EUR 200) and October (EUR 100) 2020. In 2021, taxpayers
received a one-time child bonus of EUR 150 per child for children who were entitled to monthly child relief. In 2022, taxpayers will
receive a one-off child bonus of EUR 100 per child for children who were entitled to monthly child relief in July.
For the child allowance, see section 1.8.2. For credits on municipal business tax, see section 2.2.
1.9. Losses
1.9.1. Ordinary losses
Losses may generally be set off against income arising in the same tax year. As a first step, losses are set off against income from
the same category (see section 1.2.1.). As a second step, the remaining losses are set off against income from all other categories
(section 2(3) of the EStG). However, the setting-off or deduction of certain losses is either limited or not allowed, e.g.:
- losses from animal husbandry and from derivative transactions may only be set off and carried over against income of the
same kind (section 15(4) of the EStG);
- losses from silent partnerships, indirect holdings or other internal partnerships within incorporated companies, in which
the partner or participant is to be regarded as co-entrepreneur, may only reduce the profits which the partner or participant
received in the directly preceding fiscal year or receives in the following fiscal years from the same silent partnership, indirect
holding or other internal partnership (section 15(4) of the EStG);
- on the precondition that a negative capital account will arise or an existing one will be increased, the share of the losses
assigned to a limited partner of a limited partnership may not be set off by him against income deriving from other categories
or other business income. If the losses cannot be set off in the current assessment period, they will diminish the profits of the
limited partner in later assessment periods, insofar as they derive from his participation in the limited partnership (section
15(a) of the EStG);
- losses from prefabricated tax deferral schemes that exceed 10% of the invested capital in the initial investment phase may
only be offset against future income from the same source (section 15b of the EStG);
- capital losses from private transactions (see section 1.7.) may only be carried over to be offset against capital gains from
private transactions in the previous year or in following years (section 23(3)of the EStG); and
- foreign losses from a foreign permanent establishment whose income is not from active business activities, or from the
participation of a silent partner in trading business or from a participating loan if the debtor has his residence, seat or place
of management abroad, or from leasing out immovable or movable property situated abroad, may only be set off against
foreign profits of the same category from the same country in the current year or in the following years (section 2(a) of the
EStG). The limitation does not apply to losses stemming from operations in a EU Member State/EEA country if the Directive
on Administrative Cooperation (2011/16) (DAC) or a similar agreement is applicable between Germany and that state.
Remaining losses generally must be carried back to the preceding year before carrying the remainder forward. With effect from
2022, the loss carry-back period is increased from 1 to 2 years. Upon the taxpayer’s application, however, losses may be carried
forward without having carried them back (section 10d(1) of the EStG). The loss carry-back is restricted to EUR 1 million (double
for jointly assessed spouses or civil partners). In order to mitigate the economic impact of the COVID-19 pandemic, the maximum
amount for a loss carry-back has been increased to EUR 10 million (double if jointly assessed) for the tax years 2020, 2021 and
2022. Previously, the maximum amount for a loss carry-back was capped at EUR 5 million for the tax years 2020, 2021 and 2022.
Further, losses may be carried forward for an indefinite period of time. The amount of the loss carry-forward is limited to EUR 1
million (double for jointly assessed spouses or civil partners) of net income in a given year without restriction. Any remaining loss
can only be set off against up to 60% of the net income exceeding this limit (section 10d(2) of the EStG).
In both cases, the loss carry-over is applied before the tax base has been reduced by special expenses and extraordinary
expenses (see section 1.7.), with the result that the deduction of such expenses is reduced or even totally cancelled in years in
which a loss carry-over is available.

Casual losses caused by theft, fire, storm, etc. are deductible for income tax purposes and must be claimed in the year incurred or
discovered. In the case of taxpayers who compute taxable income by the net worth comparison method, the deduction is reflected
in the final balance sheet either by eliminating the assets or writing them down to going-concern value. However, if an insurance
payment exceeds the net book value of assets destroyed by a fire or similar cause, the resulting gain may be credited against the
cost of the replacement asset or placed in a special replacement reserve (Rücklage für Ersatzbeschaffung) which may be used
to reduce the base cost of the replacement assets bought within the next year in the case of fixed (movable) assets and within the
next 2 years in the case of land or buildings (R 6.6(4) and (5) of the EStR).
1.9.2. Capital losses

Capital losses from private transactions (see section 1.7.) may only be carried over to be offset against capital gains from private
transactions in the previous year or in following years. Speculative losses from private transactions incurred until 31 December
2008 under the old provisions, could be carried forward until 31 December 2013 and could be set off also against capital income
from the sale of shares. From 2014, such losses may only be set off against speculative gains from private transactions according
to the revised provisions.
Capital losses from private capital investment income may only be offset against private capital investment income. In addition,
capital losses from the sale of shares may only be offset against income from the same source. This also applies in cases of a total
capital loss, e.g. shares in an insolvent company. However, in the latter case a limitation of EUR 20,000 per year applies with the
possibility of a loss carry-forward. The original limitation of EUR 10,000 was increased to EUR 20,000 with a retroactive effect from
1 January 2020. With effect from 1 January 2021, the same limitation applies to losses from transactions with futures and options.
In June 2021, a decision of 17 November 2020 (VIII R 11/18) from the Federal Financial Court was published. In this decision,
the Court stated that the limitation on the use of losses from the sale of shares which may only be set off against capital gains
from the sale of shares is unconstitutional. The Court considered that the limitation treats taxpayers differently without justification,
depending on whether they have incurred losses from the sale of shares or the sale of other capital investments. A justification for
this unequal treatment of the use of losses incurred from the sale of shares can be derived from neither (i) the risk of significant
losses in tax revenue; (ii) the need to prevent abusive arrangements; nor (iii) other non-fiscal objectives. The Federal Financial
Court decided to refer the matter to the Federal Constitutional Court.
If the taxpayer opts to include capital income for assessment purposes (see section 1.5.), losses from other sources may be set
off against capital income. In that case, losses from private transactions must be taken into account in priority to losses from other
income categories.
For capital losses from business transactions, the general rules apply.
The deduction of capital losses from the sale or other disposal of shares held as business assets is limited if the corresponding
gains qualify for the partial-income system (section 3c(2) of the EStG) (see sections 1.5.1. and 1.9.1.). Expenses which are directly
and economically connected with tax-free income are not deductible (section 3c of the EStG). Where dividends or capital gains
qualify for the partial-income system, generally only 60% of related expenses are deductible (section 3c(2) of the EStG).
1.10. Rates
1.10.1. Income
Individual income tax is imposed at progressive rates under complex tables (section 32a of the EStG). Abbreviated tables are
presented below (for 2022).
Tax table for single taxpayers

Annual taxable income (EUR) Marginal rate (%) Tax payable (EUR)
Up to 10,347 0 0
10,348 – 14,926 14.00 – 23.97 0 – 869
14,927 – 58,596 23.97 – 42 69 – 15,274
58,597 – 277,825 42 15,275 – 107,350
Over 277,825 45 107,350

Tax table for married taxpayers or civil partners (assessed jointly)

Annual taxable income (EUR) Marginal rate (%) Tax payable (EUR)
Up to 20,694 0 0
20,695 – 29,852 14.00 – 23.97 0 – 1,738
29,853 – 117,192 23.97 – 42 1,738 – 30,548
117,193 – 555,650 42 30,548 – 214,700
Over 555,650 45 214,700
A 5.5% solidarity surcharge is levied on the amount of tax computed according to the above tables. The solidarity surcharge of
5.5% is levied on the income tax due (section 1 of the SolzG). It is computed on the total tax due after deducting tax credits. In
addition, the solidarity surcharge increases the withholding taxes imposed on payments to both residents and non-residents. If a
non-resident benefits from a tax treaty, the total withholding tax, including the surcharge, may not exceed the maximum treaty rate.
With effect from tax year 2021, the solidarity surcharge is reduced by the introduction of an exemption limit of EUR 16,956 (EUR
33,912 for jointly assessed spouses or civil partners). For higher income earners, the solidarity surcharge is limited to 11.9% of
the difference between the total tax due, i.e. the assessment basis, and the exemption limit. The solidarity surcharge levied on
withholding taxes imposed on payments to resident or non-resident recipients remains unchanged.
1.10.2. Capital gains

Capital gains arising in the course of a business are treated as ordinary business income and are taxed at the standard income tax
rates (see section 1.10.1.).
Capital gains on shares, as is the case for dividends (see section 1.5.1.), are subject to a final flat withholding tax at a rate of 25%,
increased to 26.375% by the solidarity surcharge.
1.10.3. Withholding taxes

1.10.3.1. Employment income
Employers must withhold wage tax from remuneration paid to employees in accordance with the wage tax tables and pay the
total amount withheld to the local tax office. Together with the wage tax the employer must withhold the solidarity surcharge on the
wage tax and pay it to the local tax office. No wage tax is withheld from employees whose annual income is up to EUR 10,347 for
single taxpayers or EUR 20,694 for jointly assessed spouses or civil partners (see section 1.1.4.2.) (sections 38 et seq. and 46 of
the EStG). Before 1 January 2022, no wage tax was withheld from employees whose annual income was up to EUR 9,744 (EUR
19,488 for jointly assessed spouses or civil partners).
If the taxable income consists only of salaries and wages, the tax liability is fully satisfied by the withholding tax. However, a
resident employee can claim a refund if the actual income-related expenses exceed the employee’s exemption of EUR 1,200 (EUR
1,000 before 1 January 2022) or the standard deduction for special expenses (EUR 36 for single taxpayers and EUR 72 for jointly
assessed spouses or civil partners) which have been taken into account in the wage tax tables. To obtain the refund, the taxpayer
must file a tax return.
If the taxpayer has income from more than one employment or income in addition to that on which wage tax was withheld, he must
also file a tax return with his local tax office, in the latter case provided the additional income amounts to more than EUR 410. For
non-resident employees the wage withholding tax is generally final. However, non-residents may apply for an assessment to get a
refund (section 50(2) of the EStG).
Prior to 2012, each employee received a wage tax card from the domestic municipal authority, which had to be given to the
employer, who would state at the end of the year the wages received, taxes withheld and some other data, e.g. employer’s
contribution to social security, etc. With effect from 2012, wage tax cards are no longer issued by the municipalities. The former
system based on wage tax cards is replaced by electronic wage accounting.
1.10.3.2. Dividends
Dividends are subject to a withholding tax (Kapitalertragsteuer) of 25%, increased to 26.375% by the 5.5% solidarity surcharge.
The same applies to income from jouissance rights (Genussrechte) that entitle the owner to participation in the liquidation surplus.

1.10.3.3. Interest
Interest is normally not subject to withholding tax. However, withholding tax (Kapitalertragsteuer) is imposed on interest from
convertible bonds (Wandelanleihen), from profit-sharing bonds (Gewinnobligationen), from participating loans (partiarische
Darlehen), on interest paid by banks and interest paid on certain bonds, including corporate and government bonds and on
anonymous over-the-counter transactions (anonyme Tafelgeschäfte). The rate is 25%, increased to 26.375% by the 5.5%
solidarity surcharge (for income from jouissance rights, see section 1.5.1.). Anonymous over-the-counter transactions mean that
interest is paid on coupons from bearer bonds (e.g. corporate and government bonds), the interest is not credited to an account of
a foreign bank or another foreign financial institution and the custody of the bond is not retained by the debtor, the German bank or
another German financial institution. If the interest received is not taxed under the final flat withholding tax see section 1.5., the tax
withheld is credited against the income tax assessed at the end of the year (section 36 of the EStG).
1.10.3.4. Royalties
There is no withholding tax on royalties paid to residents.
1.10.3.5. Other income

Remuneration paid to contractors for building services is subject to a 15% withholding tax. The solidarity surcharge does not apply.
No tax is withheld if the service provider has presented a certificate of exemption, the total consideration per year does not exceed
EUR 15,000 where the German customer only carries out VAT-exempt rental services (section 4, number 12, sentence 1 of the
UStG); or the total consideration per year does not exceed EUR 5,000 in all other cases. The tax withheld may be credited against
the contractor’s wage tax and income tax liability (section 48 of the EStG).
1.11. Administration
1.11.1. Tax returns
All persons subject to German income tax must file an income tax return annually with the appropriate local tax office (depending
on the place of residence). Employees who are subject to the wage tax withholding system are not required to file an annual
income tax return unless they have income from more than one employment or from sources other than employment amounting to
more than EUR 410 (sections 25 and 46(2) of the EStG; section 56 of the EStDV and section 19 of the AO).
1.11.2. Assessment
Income tax is assessed on a calendar year basis.
Upon receiving the tax return, the tax inspector reviews it. He may require the taxpayer to furnish information and supporting
documentation. Preliminary assessments are possible, based on the taxpayer’s information, without a final review on the date the
assessment notice is issued. A final review will follow in later years. If the taxpayer does not provide the tax office with all requested
information, arbitrary assessments may be made if there is no possibility of determining the taxpayer’s true and correct income.
After reviewing the tax return the tax office assesses the taxes and issues an official assessment notice which can, if necessary, be
contested within 1 month. The filing date for the annual income tax return is 31 May of the year following the tax year. For tax years
beginning on or after 1 January 2018, the filing date for the annual income tax return is 31 July of the year following the tax year.
Extensions are possible up to 30 September, and are automatically granted by the tax authorities if the return is prepared by a
tax adviser or accountant (sections 149(2), 162, 164 and 348 of the AO). For tax years beginning on or after 1 January 2018,
extensions are possible until the end of February of the second subsequent year (e.g. 28 February 2022 for tax year 2020). Due
to the COVID-19 pandemic, the deadline for submitting tax returns for tax year 2019 prepared by a tax adviser or accountant was
initially extended to 31 March 2021; subsequently, the deadline for tax returns for tax year 2019 has been extended until 31 August
2021. For the same reason, the deadline for submitting tax returns for tax year 2020 has been set at 31 October 2022. In light of
the ongoing COVID-19 pandemic, the deadlines for submitting tax returns in general and tax returns prepared with the help of tax
advisers or accountants have been further extended for the tax years 2020 to 2024. With effect from 23 June 2022, the general
deadline for submitting tax returns for tax year 2020 was 31 October 2021, for tax year 2021 it is 31 October 2022, for tax year
2022 it is 30 September 2023 and for tax year 2023 it is 31 August 2024. Accordingly, the deadline for submitting tax returns
prepared by a tax adviser or accountant for tax year 2020 is 31 August 2022, for tax year 2021 it is 31 August 2023, for tax year
2022 it is 31 July 2024, for tax year 2023 it is 31 May 2025 and for tax year 2024 it is 30 April 2026.
1.11.3. Appeals against assessment

An income tax assessment notice can be contested within 1 month after receipt. If unsuccessful, the taxpayer may present his
case to the court within 1 month after the tax office’s decision has been issued. If the court agrees, further appeal to the Federal

Tax Court is possible on certain conditions. The taxpayer must be represented by a lawyer, chartered accountant or tax adviser,
before the Federal Tax Court. The appeals do not suspend the tax payment. The tax office or the tax court may, however, in certain
circumstances suspend the tax payment upon request. If the taxpayer’s appeal was not successful, he must pay 0.5% interest per
month on the tax that was suspended (sections 237, 238, 348, 355 and 361 of the AO; sections 40, 47, 69, 115 and 120 of the
FGO).
1.11.4. Payment of tax and refunds

The taxpayer has 1 month after receiving the assessment to pay the assessed tax to the cashier’s department of the appropriate
tax office. In extraordinary cases and upon request, the tax office may accept payment by instalments or later than the original
due date. If the taxpayer’s income is not subject to withholding taxes and his tax liability is estimated at EUR 400 or more, the
tax authorities make quarterly estimates based on the prior year’s income which is assessed together with the annual income tax
liability. The quarterly prepayments must be made by 10 March, 10 June, 10 September, and 10 December, in the relevant tax
year. Excess amounts are refunded to the taxpayer or credited against taxes yet to be paid when the final assessment has been
made by the tax office (sections 220 and 222 of the AO and sections 36(1), (4) and 37 of the EStG).
If a taxpayer requests a reduction of the prepayments, he must demonstrate that his anticipated taxable income has declined or is
declining. On 19 March 2020, the Ministry of Finance issued official guidance stating that the requirements to demonstrate that the
anticipated income has declined or is declining shall be considered met if the requesting taxpayers can prove to be directly affected
by the COVID-19 pandemic and the emergency measures taken by the government.
1.11.5. Late payment interest and penalties

If there is a delay in filing the income tax return, the tax authorities may impose a penalty of up to 10% of the outstanding tax, with
a maximum of EUR 25,000. If an assessment notice is issued, and payment of the tax is delayed, a penalty of 1% per month of the
outstanding tax is automatically levied.
In addition, outstanding taxes incur an interest of 0.15% (with effect from 1 January 2019; before: 0.5%) per month of delay
from 15 months after the calendar year ends for which the tax is incurred (e.g. for outstanding income tax of the calendar year
2019 interest is paid from 1 April 2021). On the other hand, the tax authorities grant the same interest rate for excess taxes if an
overpayment has not been credited back to the taxpayer’s account within the 15-month period. The interest period ends when the
assessment notice is issued (sections 152, 233, 223a, 238 and 240 of the AO).
Interest at the rate of 0.5% per month (6% per year) is due from the taxpayer if:
- payment of tax was postponed due to an appeal and the appeal is rejected (section 237 of the AO);
- payment of tax was postponed because the payment would cause extreme hardship for the taxpayer (section 234 of the AO);
or
- taxes were reduced fraudulently; interest is due from the date on which the tax was reduced (section 235 of the AO).
Previously, the interest rate incurred on outstanding taxes was also 0.5% per month. In a decision of 25 April 2018 (IX B 21/18),
the Federal Financial Court (Bundesfinanzhof) expressed doubts as to the compatibility of the interest of 0.5% per month for
outstanding taxes with the Constitution because it does not reflect the market interest rate for periods after 1 April 2015. In
response to this development, the Ministry of Finance issued official guidance providing that decisions concerning late payment
interest relating to tax obligations starting on or after 1 April 2015 shall be suspended upon request of taxpayers who appealed
against an underlying decision. Further, in its decision (1 BvR 2237/14, 1 BvR 2422/17) of 8 July 2021, the Federal Constitutional
Court found that late payment interest levied at a rate of 0.5% per month (6% per year) on excess payments and refunds of tax
relating to interest periods from 1 January 2014 is unconstitutional. The Court held that the rules contained in sections 233a and
238 of the AO continue to apply for interest periods up to and including 2018, but the rules are inapplicable for interest periods
beginning in 2019. Therefore, the legislature is obliged to amend the rules on late payment interest with retroactive effect from
1 January 2019 in order to comply with Constitutional law by 31 July 2022. Per legislative change effective 22 July 2022, the
legislature amended the rules on late payment interest on additional outstanding taxes, on excess payments and refunds of tax by
reducing the applicable rate from 0.5% to 0.15% per month with retroactive effect from 1 January 2019.
Penalty interest is not deductible in calculating taxable income.
On 19 March 2020, the Ministry of Finance issued official guidance stating that enforcement measures and late payment penalties
will be waived until 31 December 2020 if the debtor of a pending tax payment is directly affected by the COVID-19 pandemic.
These measures were initially prolonged until 31 March 2021; subsequently, these measures have been prolonged until 30 June
2022, if the penalties related to late payments in the period between 1 January 2021 and 31 March 2022.

In addition, the following criminal penalties may arise:
(1) a fine of up to EUR 1.8 million or imprisonment for up to 5 years – for tax fraud through incomplete or incorrect returns or by
failing to inform the tax authorities of relevant facts in violation of a specific duty to do so;
(2) imprisonment for 6 months to 10 years – for serious tax fraud (the seriousness of tax fraud may concern either the amount of
tax due or repetition of violation) and tax fraud through forged documents or through inducing an official to abuse his position;
and
(3) a fine up to EUR 50,000 – for negligence leading to a reduction of tax as in (1).
Taxpayers may avoid criminal penalties if they correct or supplement incorrect or incomplete data filed or furnish previously omitted
data in respect of such incorrect, incomplete or omitted data. In order to successfully avoid any legal consequences, taxpayers
must commence a voluntary disclosure before a public official of the tax authorities has already announced an investigation or
has already appeared at the taxpayer’s premises for the purpose of carrying out a tax audit or of investigating a tax crime or a tax
offence. A voluntary disclosure must be commenced by the taxpayer, before he receives a written notification regarding a future tax
audit.
A successful voluntary disclosure, resulting in an avoidance of legal consequences, requires that a taxpayer comprehensively
submits all relevant data on every instance of tax evasion that is not subject to the statute of limitation yet (see section 1.11.6.) and
repays the evaded amount of tax. Partial voluntary disclosure is not valid for the purposes of the avoidance of legal consequences.
In addition, in order to avoid legal consequences, in the case the evaded tax exceeds an amount of EUR 25,000, the taxpayer is
required to pay an additional penalty. With effect from 1 January 2015, the penalty payment amounts to 10% of the evaded tax
if the amount of evaded tax exceeds EUR 25,000. The penalty payment is 15% of the evaded tax if the amount of evaded tax
exceeds EUR 100,000 and 20% if the amount of evaded tax exceeds EUR 1 million.
1.11.6. Statute of limitations

The regular statute of limitations period is 4 years, starting at the end of the year in which the tax return for the respective tax
year was filed. The run of the statute of limitations period may not, however, start later than 3 years following the respective tax
year. After the expiration of the statute of limitation period, the tax assessment may no longer be changed. However, the statute of
limitations period is 15 years (10 years before 2021) in the case of negligent tax fraud and in the case of wilful tax fraud.
The running of the 4-year period is stopped by certain events, the most important one being the start of an audit.
1.11.7. Rulings
In principle, a taxpayer is entitled to an advance ruling on the basis of precisely described facts if the tax treatment of the facts
would affect his business decisions for the future. The advance ruling becomes ineffective if there is a change in the tax law on
which it is based. Advance rulings cannot be granted in tax planning matters, for instance, in the case of potential abuse of law
(section 89(2) of the AO).
The ruling is binding on the taxpayer and the competent tax authorities. The taxpayer may appeal against the ruling (see section
1.11.3.). The fee for the ruling depends on the value for the taxpayer (Gegenstandswert) (section 89(4) of the AO). The value
is determined by comparing the tax consequences of the scenario based on the facts described by the taxpayer and following
his legal opinion with the tax consequences of the same scenario under the application of the tax authorities’ legal opinion. The
value as determined is applied to the official table in the Court Fees Act. If the value cannot be determined at all, not even by
assessment, a time fee with a minimum of EUR 50 per half hour of handling time is charged (section 89(4), (5) and (6) of the AO).
No fee is levied if the value for the taxpayer is below EUR 10,000 or the handling time is less than 2 hours.
2. Other Taxes on Income

2.1. Local income tax
No state income tax is levied in Germany.
Municipal income tax. Business tax is dealt with under section 2.2.
Church tax. If an employee is a member of a registered German church, the church authorities where he lives may levy, either
themselves (in Bayern) or through the German tax office (in the other German states), a special church tax of 8% (Baden-
Württemberg, Bayern) or 9% (Berlin, Brandenburg, Bremen, Hamburg, Hessen, Mecklenburg-Vorpommern, Niedersachsen,
Nordrhein-Westfalen, Rheinland-Pfalz, Saarland, Sachsen, Sachsen-Anhalt, Schleswig-Holstein, Thüringen). The base for

the church tax is the income tax notionally assessed using the child deduction (EUR 2,730 per year per child per parent) and
the deduction for childcare, upbringing and education (EUR 1,464 per year per child per parent), whether or not for income tax
purposes the child deduction and deduction for childcare, etc., apply (see section 1.8.1.5.) (section 51a of the EStG).
Under certain conditions it is possible to claim a reduction in church tax to 2.75% (Baden-Württemberg), 3% (Berlin, Brandenburg,
Hamburg, Mecklenburg-Vorpommern, Schleswig-Holstein) or 3.5% (Bremen, Hessen, Niedersachsen, Nordrhein-Westfalen,
Rheinland-Pfalz, Saarland, Sachsen, Sachsen-Anhalt, Thüringen) of taxable income (net income after deduction of business
expenses, special expenses, social security contributions, extraordinary expenses, child allowance and childcare allowance,
foreign tax credits and other credits). The application must be filed with the relevant church’s administration within one year after
the final German income tax assessment of the relevant tax year was issued, including a copy of that tax assessment.
Bayern does not allow a reduction in church taxes. Some states provide a minimum church tax, church taxes from net wealth, real
estate, or special church contributions.
2.2. Other
Municipal business tax is levied on all business enterprises in Germany, regardless of their legal form. Individuals are thus also
liable for municipal business tax on their business. The business tax is levied on a taxpayer’s business income. The municipal
business tax is not deductible from its own base and for income tax purposes, but a lump-sum tax credit is available against
income tax (see section 1.8.3.).
The taxable income for the business tax is generally determined in the same manner as for income tax purposes, subject to certain
adjustments. These adjustments refer to certain expenses which may be deducted for income tax purposes but not for business
tax purposes and vice versa. A personal exemption of EUR 24,500 is granted to individuals and partnerships (sections 1, 2, 7 et
seq. and 11 of the GewStG).
The effective rate of business tax depends on a federal rate (Steuermesszahl) and a municipal coefficient (Hebesatz). The amount
of the business tax is determined by applying first the basic federal rate to the taxable business income, which results in a basic tax
amount. The coefficient is then applied to this basic tax amount to determine the actual tax burden. The coefficient is fixed by the
municipalities and may vary according to their financial needs from 200% to 490%. In 2013, the coefficient was 410% for Berlin,
460% for Frankfurt am Main, 470% for Hamburg, and 490% for Munich.
From 1 January 2008, the previous progressive rates, ranging from 1% to 5%, are replaced with a uniform federal rate of 3.5% and
the local consumption taxes.
The municipal business tax is not deductible for income tax purposes, but the taxpayer is entitled to a credit calculated as 4 times
(before 2020: 3.8 times) the basic amount for this municipal business tax. The credit is subject to a maximum which is determined
by the proportion business income bears to all taxable income.
For example, if a taxpayer earns 55% of his taxable income from employment, runs a business which provides the remaining 45%
of his taxable income and has an income tax liability of EUR 50,000, the maximum business tax credit is EUR 22,500 (45% of
50,000).
Any excess credit cannot result in a refund of income tax, nor may the excess be carried over to be set against income tax of
another year. Despite this limitation, the municipal business tax credit may result in overcompensation depending on the municipal
coefficient when the tax credit is greater than the municipal business tax and the taxpayer can use the credit fully against his
income tax liability for the year.
3. Social Security Contributions

The compulsory social insurance scheme includes the following:
- pension insurance (Rentenversicherung);

- unemployment insurance (Arbeitslosenversicherung);
- health insurance (Krankenversicherung); and
- nursing insurance for disability and old age (Pflegeversicherung).
The above types of insurance are generally financed by equal contributions from employers and employees. However, in Sachsen
the employee pays 2.025% (1.775% in 2018) and the employer pays 1.025% (0.775% in 2018) for the nursing insurance for
disability and old age.

3.1. Employed
Employees are subject to the compulsory social security system. The employee’s share is withheld from wage and salary
payments by the employer. The monthly rates from 1 January 2022 are applied on the actual monthly income with a maximum
annual income basis of EUR 84,600 (EUR 85,200 in 2021) in former West Germany and EUR 81,000 (EUR 80,400 in 2021) in
the states of Brandenburg, Mecklenburg-Vorpommern, Sachsen, Sachsen-Anhalt and Thüringen for the purposes of the pension
and unemployment insurance. The maximum income base for health insurance and nursing insurance for disability and old age is
for both former West and East Germany EUR 58,050 (EUR 58,050 in 2021). The effective contributions to the compulsory social
insurances are as follows:
Rates for 2022 – West Germany

Rates Wage ceiling Maximum contribution to be paid
by employer by employee
(%) (EUR per month) (EUR) (EUR)
Pension 18.6 7,050 656 656
Unemployment[1] 2.4 7,050 85 85
Health[2] 14.6 4,837.50 353 353
Disability and old age[3] 3.05 4,837.50 74 74
1 Before 1 January 2020, the rate was 2.5%.

2 Before 1 January 2015, the rate was 14.9%. Employees had to bear an additional contribution of 0.9%. With effect from 1 January
2015, the rate is 14.6%. The additional contribution of 0.9% borne by employees is abolished. For both employees and employers,
the rate is 7.3%. Compulsory health insurance funds are allowed to levy additional contribution charges which are equally shared
by the employee and the employer. Before 1 January 2019, such additional levy was payable only by the employee. The average
additional contribution charge for 2022 is 1.3%.
Rates for 2022 – East Germany

Rates Wage ceiling Maximum contribution to be paid
by employer by employee
(%) (EUR per month) (EUR) (EUR)
Pension 18.6 6,750 628 628
Unemployment[1] 2.4 6,750 81 81
Health[2] 14.6 4,837.50 353 353
Disability and old age[3] 3.05 4,837.50 74[4] 74[4]

2 Before 1 January 2015, the rate was 14.9%. Employees had to bear an additional contribution of 0.9%. With effect from 1 January
2015, the rate is 14.6%. The additional contribution of 0.9% borne by employees is abolished. For both employees and employers,
the rate is 7.3%. Compulsory health insurance funds are allowed to levy additional contribution charges which are equally shared by
the employee and the employer. Before 1 January 2019, such additional charges were payable only by the employee. The average
additional contribution charge for 2022 is 1.3%.
4 In Sachsen, the maximum contribution is EUR 98 (2.025%) for the employee and EUR 50 (1.025%) for the employer.
The rate of the contribution to the insurance for disability and old age is increased by an additional 0.35% (0.25% before 1 January
2022) for childless employees, which must be borne exclusively by the employee.
Employees whose income exceeds the monthly ceiling for health insurance are entitled to elect whether to be insured by public
or private health insurance. The employer’s contribution in such a case is limited to the maximum that would be payable under
the state health insurance scheme. This contribution is paid to the employee if he bears the cost of the premiums for the private
insurance. The reimbursement to the employee is exempt from wage tax if the insurance company provides a certificate to the
effect that section 257(2a) of Book V of the German Social Security Law has been complied with.
Members of the board of directors of a resident company (stock company or, under certain circumstances, limited liability
company) are not employees for the purposes of the social security legislation.

3.2. Self-employed
Self-employed persons (i.e. persons with income from agriculture and forestry, business or independent personal services) are not
subject to the compulsory German social security scheme. If they pay on a voluntary basis, they must pay both the employer’s and
the employee’s part. For the deductibility of the contributions, see section 1.8.1.
3.3. Expatriates
Foreign citizens employed in Germany are also covered by the compulsory social security system. Therefore, foreign workers are
required to pay contributions to the statutory pension insurance, the health insurance, the unemployment insurance and the nursing
insurance for disability and old age. They are not required to pay contributions to the accident insurance; contributions are payable
by the employer only. Generally, the foreign worker is not entitled to a refund of the contributions he paid upon returning to his
native country. There is only one exception: if a person has been covered for less than 5 years by the statutory pension insurance,
he is entitled to apply for a refund of the contributions he paid to the pension insurance, provided he is not entitled to pay voluntary
contributions to the German pension insurance. The exception derives from the fact that according the German Social Security
Law (Book VI, section 50) a person is entitled to receive pension payments only if he was covered by the pension insurance for
at least 5 years. “Not entitled” means that the person does not have a right of affiliation. The exception applies to “not entitled”
persons whether they actually use that right or not. However, the EU Regulations (see below) and most of the social security
agreements provide such a right of affiliation. Thus, a refund of the pension contributions is only available for citizens of countries
with which Germany has no social security agreement or to which the EU Regulations do not apply.
Foreign employees seconded for a fixed period of time to Germany but working for the foreign employer are able to claim the
coverage of their residence countries’ social security insurances according to EU Regulations, social security agreements as well
as special provisions of the German Social Security Law (Book IV, sections 4 and 5). According to section 14 of Social Security
Regulation (71/1408), a stay in Germany of up to 1 year, which might be prolonged for 1 further year under certain conditions,
will normally allow these employees to remain members of their residence country systems; after that period they will become
members of the host country system if they are not covered by special provisions of the related agreements (e.g. article 17 of
Social Security Regulation (71/1408)). The German Social Security Law (Book IV, section 4 and 5) only requires that at the
moment the work in the foreign country starts the stay is expected to be limited in time. The law does not mention a certain number
of years. The same rules apply to a German person working abroad for a German employer.
The EU Social Security Regulations (Social Security Regulation (71/1408) and Social Security Regulation (72/574)) provide for
a common social security territory covering all EEA countries (EU Member States and Iceland, Norway and Liechtenstein). The
applicability of the Regulations was extended to Switzerland with effect from 1 June 2002. The EU rules override German social
security agreements with the relevant countries but do not make these agreements inapplicable (e.g. for non-EU citizens assigned
to Luxembourg or an assignment to the Isle of Man). Apart from the countries to which the EU Social Security Regulations apply,
Germany has concluded social security agreements with Albania, Australia, Brazil, Canada, Chile, China (People’s Rep.), Croatia,
India, Israel, Japan, Korea (Rep.), Macedonia (FYR), Moldova, Morocco, the Philippines, Quebec, Tunisia, Türkiye, Ukraine, the
United States, Uruguay and former Yugoslavia (applicable with respect to Bosnia and Herzegovina, Montenegro and Serbia).
4. Tax Calculation Examples

1. Calculation (for 2022): Without child deduction and deduction for
childcare, etc.
(Married couple filing jointly)
(EUR) (EUR)
Income and deductions
Gross salary 80,000

Standard deduction (see section 1.10.3.1.) (1,200) 78,800
Rental income 6,000

Interest, depreciation (7,000) (1,000)
Aggregate income 77,800
Special expenses (see section 1.8.1.4.):

(EUR) (EUR)
– charitable gift 1,000 (1,000)
Deduction for insurance premiums (Vorsorgeaufwendungen) (9,547)
Exceptional expenditure (see section 1.8.1.5.):

– tuition deduction for the child at university (maximum deduction) (924)
Taxable income 66,329
Income tax (for joint assessment, see section 1.1.4.2.) 11,856
Solidarity surcharge and church tax
Taxable income as above 66,329

Less child deduction (2 × 2 × 2,730; see section 1.8.2.) (10,920)
Less deduction for childcare, etc. (2 × 2 × 1,464; see section 1.8.2.) (5,856)
Deemed taxable income 49,553
Deemed income tax 6,862
Surcharge (5.5% of 0, see section 1.10.1.) 0
Church tax (9% of 6,862) 618
Total burden
Aggregate tax burden (11,856 + 0 + 618) 12,474

Child tax credit (2 × 12 × 219; see section 1.8.3.) (5,256)
Actual burden 7,218
2. Calculation (for 2022): With child deduction and deduction for childcare,
etc.
(Married couple filing jointly)
(EUR)
Income and deductions
Calculation as above:
– taxable income 66,329
– child deduction (10,920)
– deduction for childcare, etc. (5,856)
Final taxable income 49,553
Income tax for 2022 (for joint assessment, see section 1.1.4.2.) 6,862
Solidarity surcharge and church tax
Income tax 6,862
Surcharge (5.5%) 0
Church tax (9%) 618
Total burden 7,480

3. Comparison
(EUR)
Actual burden
– method 1 7,218
– method 2 7,480
Difference 262
As method 1 – child tax relief – gives more relief to the taxpayer, he will keep the child tax relief. In computing his income tax, the
tax authorities will automatically choose method 1.
5. Taxes on Capital
5.1. Net wealth tax
The net wealth tax was abolished with effect from 1 January 1997.
5.2. Real estate tax

Real estate tax is levied annually by the municipalities on immovable property, whether held as a private or business asset. It is
imposed on the fiscal value at a basic federal rate of 0.35%. The result is multiplied by a municipal coefficient, which ranges from
280% to 810% and brings the effective rate to between 0.98% and 2.84% of the fiscal value. The average rate is around 1.9%.
In a decision of 10 April 2018 (1 BvL 11/14, 1 BvL 12/14, 1 BvL 1/15, 1 BvR 639/11, 1 BvR 889/12), the Federal Constitutional
Court ruled that the use of outdated fiscal values for real estate tax purposes is unconstitutional. The Court held that the continuous
usage of fiscal values established in 1964 or earlier for the annual assessment of the real estate tax results in unequal treatment in
the evaluation process of real estate which is not sufficiently justifiable and therefore infringes the principle of equality.
The fiscal value of immovable property is determined based on the Valuation Law. The Valuation Law provides that the fiscal value
shall be updated every 6 years. However, in practice the historical fiscal values have not been updated until today. From 1974
onwards, the 1964 data for fiscal values were used in West Germany (the old federal states) for purposes of the real estate tax. In
East Germany (the five new federal states), the data of 1935 is partly being used for fiscal values relating to real estate.
The Court held that the legislator must amend the existing rules in accordance with the constitutional principles by 31 December
2019. Until then, the present rules remain applicable. After the enactment of new rules, the existing provisions may still be
applied for a period of 5 years, but no longer than until 31 December 2024 in order to ensure legislative coverage during the
implementation process of the new rules. In December 2019, new rules were enacted which mainly take effect on 1 January 2025.
The basic features of the real estate tax regime remain unchanged. However, new fiscal values shall be determined by 1 January
2022.
For individuals, the real estate tax is only deductible for income tax purposes if the property is used in the course of a trade or
business or if it constitutes a source of income, e.g. in the case of rental income (sections 1, 2, 13, 15 and 25 of the GrStG).
6. Inheritance and Gift Taxes

6.1. Inheritance and gift tax
6.1.1. Taxable persons and events
Taxable events
The Inheritance and Gift Tax Law (Erbschaftsteuer- und Schenkungsteuergesetz, ErbStG) imposes tax on the transfer of property
by death or by gift. In most cases, gifts and inheritances are treated alike and the same rate schedule applies to both gifts and
inheritances. The term “gift” includes transfers without, or for a disproportionately small, consideration as well as transfers for a
particular purpose rather than to a particular person (section 1 of the ErbStG).
Taxable persons
Inheritance or gift tax is levied on the following persons:

- the heir in the case of an inheritance;

- the donor and donee in the case of a donation; they are jointly liable for the tax liability; and
- for donations or bequests to a special cause (Zweckzuwendung), the person who is executing the donation or bequest.
The entire inheritance or gift in excess of exemptions is taxable if either the deceased or heir, donor or donee, has his domicile
or habitual place of abode in Germany. If none of the parties is domiciled, only German-situs property transferred is subject to
tax (sections 1, 2 and 20 of the ErbStG). Since 14 December 2011, non-resident heirs and donees could opt for resident taxation
regarding the entire inheritance or gift (including the German situs-property) if either the deceased or heir, donor or donee had
his domicile or habitual place of abode in an EU Member State/EEA country at the time the relevant transfer took place. If the
beneficiary opted for resident taxation, higher personal reliefs applied (see section 6.1.3.). With effect from 25 June 2017, the
option to be taxed as a resident for inheritance or gift tax purposes has been abolished.
The Inheritance and Gift Tax Law in connection with the Valuation Law (section 121 of the BewG) defines German-situs property
as:
- agricultural and forestry property situated in Germany;

- land and buildings situated in Germany;
- business property of a permanent establishment or owned through a permanent agent located in Germany;
- shares in a resident company if the non-resident shareholder, alone or together with related persons, has a direct or indirect
holding of at least 10%;
- inventions and utility models registered in Germany;
- business assets let to a business located in Germany;
- mortgages, other charges on immovable property as well as other claims and rights secured by German-situs immovable
property (including a German-registered ship);
- rights deriving from the participation as a silent partner in a trading business or from a participating loan if the debtor is a
resident individual, partnership or company; and
- the right of usufruct with respect to one of the assets listed.
The transfer of property to a German foundation is considered a donation or inheritance, as the case may be. Further, in the case
of a family foundation the liability recurs once in every 30-year period following the transfer of capital to the foundation.
Inheritance tax is also levied if on his death the deceased person required the establishment or endowment of a fund under
foreign law, the purpose of which is to retain property (e.g. a trust). Correspondingly, gift tax is levied if a donor has established
or endowed such a fund. Every kind of transfer of property to the fund is subject to tax, regardless of whether domestic or foreign
property is transferred. Also transfers following the establishment or endowment are subject to tax. Further, gift tax is levied if
and to the extent the fund, while it exists, transfers property or distributes profits to a beneficiary, called an interim beneficiary
(Zwischenberechtigter). The taxable person is the fund established or endowed following a death; the fund and the donor who
established or endowed the fund – they are jointly liable for the tax liability; and the interim beneficiary.
6.1.2. Taxable base

The taxable base is the value of the inheritance reduced by the debts of the deceased as well as the funeral and administrative
expenses, and by personal and other exemptions (e.g. for business property). The amount is rounded down to the nearest EUR
100. The inherited assets are valued in accordance with the Valuation Law, in general, using the fair market value, although
some exceptions exist. If the funeral and certain administrative costs are not duly substantiated, a lump sum of EUR 10,300 per
inheritance may be deducted (section 10 of the ErbStG).
6.1.3. Personal reliefs

Various exemptions apply equally to gifts and transfers upon death. A spouse or civil partner of the deceased or a donor has a
basic exemption of EUR 500,000 and an additional exemption of EUR 256,000 in the case of acquisitions mortis causa. The latter
exemption is reduced, however, by the capitalized value of any pension or similar recurrent payments that the spouse receives by
reason of the death of the deceased.

Every child has a basic exemption of EUR 400,000 and an additional exemption in the case of acquisitions mortis causa up to 5
years of age of EUR 52,000, from 5 to 10 years of age of EUR 41,000, from 10 to 15 years of age of EUR 30,700, from 15 to 20
years of age of EUR 20,500, and from 20 to 26 years of age of EUR 10,300. The additional exemption is reduced, however, by the
capitalized value of any pension or similar recurrent payments that the child receives as a result of the death of the deceased.
Every other person from Category I (see section 6.1.4.) is entitled to an exemption of EUR 100,000. However, grandchildren are
entitled to an exemption of EUR 200,000. Recipients in Category II (see section 6.1.4.) are entitled to an allowance of EUR 20,000.
The same applies to recipients of Category III (see section 6.1.4.). There are also exemptions for certain items, such as household
goods and works of art.
In the case of the limited tax liability under section 2(1), number 3, of the ErbStG in respect of domestic assets (as defined in
section 121 of the Valuation Law (see section 6.1.1.)), the basic exemption is only available pro rata. The amount of the pro-
rata exemption corresponds to the value of the domestic assets subject to limited tax liability in relation to the total sum of assets
received via inheritance or donation. Before 25 June 2017, the basic exemption in the case of the limited tax liability amounted
to EUR 2,000, but the beneficiary could opt for resident taxation regarding the entire inheritance or gift and consequently qualify
for higher personal reliefs. With effect from 25 June 2017, the additional exemptions mentioned above are also available to
beneficiaries who are only subject to limited tax liability, provided that between Germany and the state of residence of the
beneficiary or the deceased/donor, administrative cooperation in the field of taxation is in place. If the deceased owned a house or
a flat and used it for himself and his family as a residence before his death, that property may be inherited tax-free by the surviving
spouse or civil partner. However, the heir must continue to use the property as his own residence for the following 10 years. If
the property is sold or rented out during this time, the inheritance will be subject to tax retrospectively, unless the heir provides
sufficient reasons. Children may inherit an owner-occupied house tax free under the same conditions. However, for children, the tax
exemption is limited to the inheritance of houses or flats with a living space of up to 200 square metres.
Certain reliefs exist for business property. For example, 85% of the business assets acquired by way of inheritance or gifts mortis
causa is excluded from the tax base, if:
- the business is continued with its assets for the following 5 years;
- the majority of the jobs are maintained for the following 5 years after succession, i.e. if the sum of salaries in the subsequent
5 years is not lower than 400% of the sum of salaries in the year of succession (for companies with more than 15 employees)
(see below the requirements as regards companies with up to 15 employees); and
- the value of passive business assets, e.g. rented-out property or rights equivalent to real property rights, does not exceed
10% of the total business assets value. Before 1 July 2016, in order for business assets to qualify for the relief, up to 50% of
the total business assets could be passive assets.
The exemption is granted pro rata, if the business is discontinued or sold before the end of the 5-year period or the sum of salaries
falls below the required threshold. Where the business or a part of it is sold, the exemption can be preserved if the capital gains are
reinvested under certain conditions within 6 months.
As an alternative, the heirs may apply for full exemption from inheritance tax, if:
- the business is continued for the following 7 years;

- the sum of salaries in the subsequent 7 years is not lower than 700% of the sum of salaries in the year of succession (for
companies with more than 15 employees) (see below the requirements as regards companies with up to 15 employees); and
- the value of passive business assets does not exceed 20% of the total business assets value. Before 1 July 2016, in order for
business assets to qualify for the relief, not more than 10% of the total business assets could constitute passive assets.
With effect from 1 July 2016.there are different thresholds applicable for the 85% and 100% exemptions depending on the number
of employees of a company. For companies with 6 to 10 employees, the sum of salaries in the subsequent 5 years may not be
lower than 250% of total salaries in the year of succession to qualify for the 85% exemption and not lower than 500% of total
salaries to qualify for the 100% exemption. In turn, for companies with 11 to 15 employees, those percentages are 300% and
565%, respectively. The salary requirement is not applicable in the case of companies with 5 or less employees.
From that date, the scope of the definition of passive assets is extended to include, inter alia, pieces of art, art collections, scientific
collections, libraries and archives, coins, precious metals and precious stones, marquees, vintage cars, yachts, gliders, as well
as other items typically used for private purposes, if the production, processing, rental or trading of these items is not the core
business of the company. However, in the case of an inheritance, such assets are not classified as passive assets if they, within
2 years after the death of the deceased, are used for investment in the enterprise and serve a primary commercial activity. In
addition, the investment must be carried out on the basis of a plan already made by the deceased.

With effect from 1 July 2016, if the value of the inherited business property exceeds EUR 26 million, an heir may apply either for
a partial waiver of inheritance tax or for a reduction in relief for business assets. If an heir can provide proof that he is not able to
pay the full amount of inheritance tax due (after applying the above-mentioned 85% or 100% relief options), because 50% of the
total value of the inherited or received as donation passive assets and passive assets which the heir or donee already owned are
insufficient to pay the tax, the amount of tax due which exceeds that amount is waived. For the calculation of the threshold of EUR
26 million, all inheritances or donations qualifying for relief, which were received during a period of past 10 years, are added up.
Alternatively, if assets with a value of more than EUR 26 million are inherited, an heir may opt for a reduction of the 85% or 100%
relief. The relief is then reduced by 1% for every EUR 750,000 in excess of the amount of 26 million. This means that an heir may
not claim any relief if the value of the inherited assets is more than EUR 90 million (sections 13-17 of the ErbStG).
6.1.4. Rates
The tax rates vary between 7% and 50%, according to the relationship between the deceased and the heir, and between the donor
and the donee. The inheritance and gift tax rates are (sections 15 and 19 of the ErbStG):
Value of the gift/inheritance Rate
up to and incl.
Category I [1] Category II [2] Category III [3]
(EUR) (%) (%) (%)
75,000 7 15 30
300,000 11 20 30
600,000 15 25 30
6,000,000 19 30 30
13,000,000 23 35 50
26,000,000 27 40 50
> 26,000,000 30 43 50
1 Category I: spouses and civil partners, children and stepchildren, grandchildren, great grandchildren and, in the case of inheritance,
parents and grandparents.
2 Category II: brothers, sisters, nephews, nieces, stepparents, sons-in-law, daughters-in-law, parents-in-law and divorced spouses
and former civil partners and, in the case of gifts, parents and grandparents.
3 Category III: other persons, including legal entities.
6.1.5. Double taxation relief

Foreign tax, if similar to the German inheritance and gift tax, may be credited proportionally against the German inheritance or gift
tax due, but may not exceed the German tax. If the deceased or donor was resident in Germany, a tax credit is available only with
respect to foreign inheritance and gift tax imposed on foreign-situs assets which correspond to the assets on which non-residents
are liable to German inheritance or gift tax. If the deceased donor was a non-resident, a tax credit is available with respect to
foreign inheritance and gift tax levied on all foreign-situs assets. The tax credit may only be claimed where the German inheritance
and gift tax liability did not arise later than 5 years after the inheritance tax and gift tax liability abroad (section 21 of the ErbStG).
These foreign tax credit provisions may be modified by treaties dealing with inheritance taxes. For a list of relevant treaties, see
section 7.4.4.
7. International Aspects
7.1. Taxation of resident individuals
For residence rules, see section 1.1.4.1.
7.1.1. Taxable foreign income

7.1.1.1. General
Resident taxpayers are subject to income tax on their worldwide income and capital gains, even where the source country also
taxes the same income. Double taxation is avoided or mitigated by the unilateral relief measures or under tax treaty provisions (see
section 7.1.4.).
Taxable foreign-source income and capital gains are generally determined in the same manner as domestic income.


As the total worldwide income of a German resident taxpayer is subject to German income tax, income from abroad or from work
performed in foreign countries is also subject to German taxation (section 34d, number 5 of the EStG).
If, however, the conditions of the dependent personal services article of the tax treaty concluded by Germany and the state where
the German resident employee is working are met, that country will be able to tax the income as well. In this case, the salary
attributable to these activities abroad will be exempt in Germany according to the treaty. However, income which is exempt in
Germany in this manner will be taken into account in determining the individual’s tax rate on income that is taxable in Germany
(section 32b(1) of the EStG). The exemption of this salary from German tax under a tax treaty is only available if the resident
employee proves that the amount of tax assessed by the source state has been paid or that the source state has renounced its
right to tax the income. The Federal Ministry of Finance has issued guidelines on the application of this limitation (letter of 21 July
2005, BStBl. I 2005 at 821).
On 14 September 2006, the German Finance Ministry published a letter on the tax treatment of income from employment under tax
treaties (IV B 6 – S 1300 – 367/06). An updated version of the letter (IV B 2 - S 1300/08/10027) was published on 3 May 2018 and
is applicable with effect from that date. In particular, the ruling stipulates that:
- frontier workers are defined as workers who exercise their employment in the frontier zone of the other contracting state and
return daily to their residence state. Under the treaties with France, Austria and Switzerland, employment income of frontier
workers is taxable only in the country of residence;
- Germany generally applies the exemption-with-progression method on employment income. Several treaties deviate from
this, e.g. treaties with Denmark, France and Italy (in cases of hiring-out of labour);
- depending on the treaty, the 183 days may relate to the tax year, the calendar year or any other period of 12 months;
- in most treaties, the 183-day rule relates to the presence of the employee in the state of performance. The physical presence
is relevant, not the duration of the performance. Short stopovers (with the exception of transit) qualify as countable days and
multiple stays must be added up;
- in some treaties, e.g. with Belgium and Denmark, the 183-day rule relates to the performance itself. Only those days must be
taken into account where the employee was actually present to perform his duties (including days where such performance
was not possible due to exceptional circumstances such as strike or illness). However, as an exception, in the case of the
treaty with Belgium, typical interruptions must be taken into account for the calculation. Thus, e.g. weekends, vacations and
sick leave must be added in so far as they relate to the foreign employment, even if the employee is not present in the country
of performance;
- “employer” in the sense of the treaty may not only be the employer under civil law, but also every natural or legal person that
economically bears the remuneration for the dependent services. In particular, the receiving company will be treated as the
economic employer if the employee is integrated into the company and remunerated by it due to its own economic interest. To
establish whether the employee becomes integrated into the company, all circumstances of the relation must be examined.
Particularly decisive criteria are whether or not the receiving company bears the responsibility or risk for the results produced
by the employee’s work, and whether the authority to instruct the employee lies with the receiving company. However, if the
employee is sent abroad for a period not exceeding 3 months, the receiving company is deemed not to be the economic
employer;
- if the employee alternates between the associated enterprises, there might ensue cases where both enterprises might
be treated as the employer under the treaty. In such cases, two employment contracts exist, which must be considered
separately pro rata temporis;
- if the foreign employment contract must be considered used almost exclusively in order to avoid German taxation, the anti-
abuse provision section 42 of the General Tax Act, which would render it a sham transaction, may be applicable on a case-
by-case evaluation;
- in cross-border cases of commercial hiring-out of labour, the hiring company principally functions as employer. The 3-month
threshold is not applicable. Such cases must be judged on a case-by-case basis taking all circumstances into account.
The following criteria are particularly relevant: (1) who bears the risk and responsibility for the result of the employee’s
performance; (2) who commands the employee; (3) who has control over and bears the responsibility for the establishment
in which the employee performs his duties; (4) who provides the essential tools and materials to the employee; and (5) who
decides on the number and qualifications of the employees; and

- for some treaties, e.g. with France, Italy and Sweden, the 183-day rule does not apply to cases of commercial hiring-out of
labour. Both contracting states retain their taxing rights and double taxation is avoided through a credit.
The letter also comments on the attribution of the employment income and several specific forms of remuneration, and contains
numerous case studies that describe the rules by way of practical examples.
Any foreign tax imposed on the employment income may be credited against the related German tax, provided certain conditions
are satisfied, if the double taxation is not avoided by tax treaty rules (section 34c of the EStG).
Non-residents, irrespective of their nationality, may elect to be deemed residents for German income tax purposes if at least 90%
of their worldwide income is subject to German taxation or if their income not subject to German taxation does not exceed EUR
10,347 (EUR 9,744 before 1 January 2022) (section 1(3) of the EStG). Income from German sources which under a tax treaty is
either not taxed in Germany or is taxed only at a limited rate (e.g. dividend, interest and royalties) is income not subject to German
taxation in determining the 90% or EUR 10,347 limit.
Deemed residents are, in principle, treated in the same manner as residents, irrespective of the income category. However, in
general a non-resident does not benefit from joint assessment (see section 5.) with his spouse who is also not resident in Germany,
and the deduction of alimony payments to a former spouse not resident in Germany, as these reliefs require a resident spouse.
A non-resident single parent furthermore generally does not qualify for the single-parent allowance of EUR 4,008 (see section
1.8.2.) for a child living in the taxpayer’s household which is not located in Germany, as the allowance generally is only available for
(deemed) residents.
However, a national of an EEA country who qualifies as a deemed resident as well as a German resident who meets the conditions
for a deemed resident (90% or EUR 10,347) is entitled to:
- joint assessment (see section 5.) with his spouse resident in an EEA country other than Germany, provided that at least 90%
of their joint worldwide income is subject to German taxation or their income not subject to German taxation does not exceed
EUR 20,694; and
- the deduction of alimony payments to a former spouse resident in an EEA country other than Germany (section 1a of the
EStG), provided that the alimony payments are subject to tax in the hands of the former spouse in the new residence state.
The ECJ held the non-availability of the deduction in a case where the maintenance payments were not taxable in the hands
of the recipient in the EU Member State of which the recipient was resident to be compatible with articles 12 and 18 of the EC
Treaty (Case C-403/03, Schempp).
On 6 November 2013, the German Ministry of Finance issued official guidance, of 16 September 2013, in response to the decision
of the Court of Justice of the European Union (ECJ) in the case of Katja Ettwein v. Finanzamt Konstanz (C-425/11). The guidance
provides that a national of an EEA country who qualifies as a deemed resident is also entitled to joint assessment with his spouse
and to the deduction of alimony payments to a former spouse, if the spouse or former spouse has a permanent home or a habitual
abode in Switzerland. The guidance applies to all pending cases.
If the non-resident worker does not meet the conditions for deemed residents or does not apply for the treatment as a deemed
resident, he is taxed as a non-resident. Generally, the non-resident employee’s tax liability is met by the withholding of wage tax,
unless the non-resident employee opts for assessment. In that case, the non-resident employee must file a tax return. The German
tax will be levied in accordance with the rules applied to the single taxpayer. The non-resident employee will be entitled to the
normal deductions given to residents except the deduction of insurance contributions for future care expenses, in respect of which
only the lump-sum deduction is available (premiums for social security insurances, health, accident, nursing, life and public liability
insurances, etc. In the case of assessment, the lump-sum deductions for employment income-related expenses (EUR 1,200), and
for insurance contributions for future care (section 10a(1)-(3) of the EStG; are fully granted even if the employee does not earn
German-source employment income during the whole year. If the non-resident employee applies for assessment, his income which
is not taxable in Germany is taken into account in determining the tax rate applicable to the employee’s income taxable in Germany
(exemption with progression; section 32b of the EStG).
Some tax treaties deal with cross-border workers (treaties with Austria, France, the Netherlands and Switzerland). Regulations
to the Germany-Switzerland treaty allow Germany to levy a 4.5% tax at source on employment income earned by Swiss workers
who commute to work in Germany. This tax reduces the tax base for the purposes of Swiss taxation, if the employee is a Swiss
resident. If a German resident works in Switzerland but commutes daily back to his residence in Germany, Switzerland is also
allowed to levy a 4.5% tax at source on employment income. This tax is creditable for German tax purposes (article 15a of the
treaty).

7.1.1.3. Business and professional income

Income from a trade or business activity that derives from a permanent establishment or a permanent representative situated in a
foreign country is subject to tax in the same manner as domestic income (section 34d, number 2 of the EStG). The same applies
to income from a forestry or agricultural operation abroad (section 34d, number 1 of the EStG) and income from independent
personal services (section 34d, number 3 of the EStG) carried out in a foreign country.
7.1.1.4. Investment income

Foreign-source investment income, including dividends and interest, gross of foreign taxes paid, if any, is included in the taxable
income of resident individuals (section 34d, number 6 of the EStG) and subject to the final flat withholding tax rate (see section
1.5.1.). Rental income derived from immovable assets situated in a foreign country is also included in the resident individual’s
income.
7.1.1.5. Other foreign income

Other income (Category 7), if derived from abroad, is subject to tax in the same manner as domestic income (section 34d, number
8 of the EStG).
7.1.1.6. Capital gains

Foreign capital gains are generally taxable under the same conditions as domestic capital gains (see section 1.7.).
7.1.2. Other taxes on income

No other taxes on income are applicable.
7.1.3. Taxes on foreign capital

There is no net wealth tax. Foreign immovable property is not subject to German real estate tax.
7.1.4. Double taxation relief

An ordinary credit is granted for foreign income tax paid on foreign income of resident taxpayers, unless this unilateral relief
measure is superseded by relief under a tax treaty. To qualify for the tax credit, the foreign income tax must be similar to the
German income tax. The tax credit is limited to the maximum amount of German taxes imposed on that income or the actual
amount of the foreign tax, whichever is lower. The foreign tax credit is generally computed on a country-by-country basis, save as
regarding income from private capital investment. Excess credits may not be carried forward.
As a special relief upon request, the EStG allows the taxpayer to claim not a credit of foreign taxes against German taxes, but
a deduction of the foreign tax paid as an expense in determining German taxable income. This latter rule is only favourable if
computing the total taxable income of the taxpayer results in a loss. As the German tax on this income is then zero, a foreign tax
credit would be worthless. Therefore, the EStG allows the tax paid in foreign countries as an additional expense, which, in effect,
increases the loss. By the use of the loss carry-back and carry-forward, foreign taxes paid are partly used to mitigate the German
tax burden. If taxes paid in a foreign country are not equal to the German income tax, or foreign taxes are not paid to the same
foreign country from which the income is derived, the EStG allows a relief from foreign taxes only as an expense. Double taxation
can be avoided if each of the foreign countries also credits the corresponding German tax on that income (section 34c of the
EStG).
Special provisions allow an exemption on foreign-earned employment income if there is no tax treaty that covers income from
employment. Construction work performed outside Germany for at least 3 months is exempt under the Auslandstätigkeitserlass
(Decree on the tax treatment of employment income in the case of performance abroad). The employee is exempt from German
taxation to the extent that his work is outside Germany for a minimum period of 3 uninterrupted months. This rule applies to certain
types of favoured activities.
A tax credit for foreign income is not granted if this unilateral relief measure is superseded by relief under a tax treaty (section 34c,
number 6 of the EStG). For a list of tax treaties in force, see section 7.4. For treaty relief, see section 7.4.1.2.
However, under section 50d(9) of the EStG, exemption under the treaty is not granted in cases of double non-taxation where:
- the other contracting state does not tax (or only taxes at a lower rate) because of a different characterization; or
- the recipient is not subject to tax in the other contracting state because of his residence, habitual abode, seat, place of central
management and control or similar attribute. This does not apply to dividends.

For treaty relief, see section 7.4.1.2.
7.2. Taxation of expatriate individuals

7.2.1. Inward expatriates
There is no special regime covering inward expatriates.
7.2.2. Outward expatriates

A German citizen residing in a foreign country may be taxed as a resident of Germany if he is employed as a civil servant or
diplomat or is part of the family of such a person. This extended unlimited tax liability applies only to German citizens (section 1(2)
of the EStG).
A German national who moves to a foreign country remains subject to extended tax liability as a non-resident for 10 years from his
departure if he:
- has been subject to unlimited German taxation for at least 5 of the 10 years preceding his departure;
- has moved to a country which imposes no or low taxes on income; and
- has retained essential economic ties with Germany (section 2(1) of the AStG).
Low taxes are assumed if the income tax imposed is more than one third lower than it would be in Germany for a single person
with an annual income of EUR 77,000, or if the individual is subject to preferential taxation which diminishes his tax burden
considerably in comparison to other taxpayers of that particular country (section 2(2) of the AStG).
Essential economic ties with Germany are presumed if, inter alia:
- the taxpayer holds a substantial shareholding in a German resident company (at least 1%);
- he receives income from Germany which exceeds either 30% of his worldwide income or EUR 62,000; or
- his assets, which would give rise to income derived from Germany if he were a resident taxpayer, amount to more than 30%
of his total assets or exceed EUR 154,000 (section 2(3) of the AStG).
Under section 6 of the AStG, an individual who has been subject to unlimited German income tax liability for at least 10 years prior
to emigrating to another country, and who is thereby no longer subject to unlimited German income tax liability, is subject to tax on
emigration in respect of the unrealized increase in the value of his shares in a domestic company in which the individual owns or
has owned at any time within the preceding 5 years, directly or indirectly, at least 1% of the share capital.
With effect from 1 January 2022, this exit tax applies to individuals who have been subject to unlimited domestic income tax liability
for at least 7 years within the 12 years preceding the emigration to another country. The exit tax equally applies if an individual
transfers his shares gratuitously to another taxpayer who is not subject to unlimited domestic tax liability, or if Germany would
lose the right to tax capital gains from the sale of such shares in any other way. The shares are deemed to be sold at market value
at the moment of transfer of residence, at the moment of gratuitous transfer or a second before the moment Germany loses its
taxation right.
Where the termination of subjection to tax as a resident is due to temporary absence and when the taxpayer again becomes
subject to tax as a resident within the following 7 years (before 2022 – 5 years), the tax claim ceases to exist if the shares have
not been disposed of during that time. The tax authorities may extend this 7-year period to the maximum when the taxpayer is in
a position to demonstrate that his absence is motivated by professional reasons and that his intention to return as a resident is
unchanged (section 6(3) of the AStG).
Upon request, the tax due may be paid by regular deposits during a maximum period of 7 years (before 2022 – 5 years) as from
the first deposit due against the provision of securities when the immediate collection would be too rigorous for the taxpayer
(section 6(4) of the AStG). However, if the individual is a national of an EEA country, where the Directive on Administrative
Cooperation (2011/16) (DAC) or a similar agreement is applicable between Germany and the respective EEA country, the tax
authorities ex officio grant an interest-free deferral of the tax on the unrealized capital gain. The deferral is repealed if the taxpayer
alienates (all or part of) the shares, or is no longer subject to taxation comparable to German unlimited income tax liability in an
EEA country (section 6(5) of the AStG).

7.3. Taxation of non-resident individuals

An individual is treated as non-resident if neither his domicile nor his habitual place of abode is in Germany (section 1(4) of the
EStG; for definitions, see section 1.1.4.1.).
7.3.1. Taxable domestic income

7.3.1.1. General
Non-residents are subject to German income tax in respect of German-source income explicitly listed in the law (sections 1 and
49-50a of the EStG). If a double taxation convention applies, this rule is limited.
If the income is not subject to withholding tax, the computation of income follows the rules that apply to residents. However, most of
the privileges granted to residents are not granted to non-residents. For example, business and income-related expenses are only
deductible if economically connected with the income earned in Germany. The same applies to the deductibility of losses. Most of
the personal allowances are not available for non-residents (section 50(1) of the EStG). Non-resident individuals are subject to the
same tax rates as applicable to resident individual taxpayers.
Income tax or withholding tax imposed on non-residents is increased by the 5.5% solidarity surcharge (see section 1.10.1.) of the
withholding tax or assessed income tax.
If an individual becomes resident or non-resident during a year, German-source income derived during the period of non-residence
is added to the income derived in the period of residence (section 2(7) of the EStG). This means that, in respect of all German-
source income during that year, the taxpayer is taxed as a resident.
Non-residents, irrespective of nationality, may elect to be deemed residents for German income tax purposes if at least 90% of
their worldwide income is subject to German taxation or if their income not subject to German taxation does not exceed EUR
10,347 (EUR 9,744 before 1 January 2022). Income from German sources which under a tax treaty is either not taxed in Germany
or is taxed only at a limited rate (e.g. dividends, interest and royalties) is deemed not to be subject to German taxation for purposes
of determining the 90% or EUR 10,347 limit.
Deemed residents are, in principle, treated in the same manner as residents, irrespective of income category (see section 1.2.1.).
A national of an EEA country who qualifies as a deemed resident is entitled to the deduction for alimony payments (see section
1.7.) to a former spouse resident in an EEA country other than Germany and to the joint assessment (see section 1.10.2.) with his
spouse resident in an EEA country other than Germany, provided at least 90% of the spouses’ joint worldwide income is subject
to German taxation or their income not subject to German taxation does not exceed EUR 20,694 (EUR 19,488 before 1 January
2022). For details, see section 7.1.1.2.

A non-resident employee is subject to the German wage withholding tax unless a treaty provides for taxation in the country of
residence. The basic allowance applicable to resident individuals is available. The lump-sum deduction of EUR 1,200 (see section
1.10.3.1.) and the lump-sum deductions in respect of special expenses (see section 1.8.1.5.) are granted, but only proportionally
if the employee does not derive German-source employment income during the whole year, and if he did not or cannot apply for
an assessment (section 50(1) of the EStG; for assessment, see section 7.3.6.). For non-residents, the wage withholding tax is
generally final (section 50(1) of the EStG), unless they opt for assessment. For deemed residents and citizens of an EEA country,
see section 7.1.1.2.
Any compensation received for the termination of an employment is subject to German income tax, provided that the employment
income was taxable in Germany.
Employment income derived from being hired out by a foreign hirer to work in Germany is subject to the normal final withholding
tax. The foreign hirer must withhold the tax. This applies to hired-out non-residents as well as to hired-out resident employees.
Pension payments which are taxed as employment income are also taxed if paid to non-residents.
Remuneration derived by a non-resident member of a supervisory board if the services are provided to a company the place of
effective management of which is in Germany (i.e. even if the services are provided outside Germany) is taxed at source by a
withholding of 30%. This is treated as a final settlement of that tax liability.
Also subject to German income tax is remuneration for services on an aeroplane used in international transport by a company
whose place of management is in Germany.

7.3.1.3. Business and professional income

The following types of income of a non-resident individual are characterized as business income:
- income from agriculture and forestry in Germany;

- profits from a business conducted in Germany through a permanent establishment or permanent representative;
- income from the sale of shares in a resident company (if the seller has owned in the preceding 5 years, directly or indirectly, a
substantial interest of at least 1%, the half-income system applies);
- income from the sale of shares in a resident or non-resident company, if at any time during the 365 days preceding the
alienation, these shares derived more than 50% of their value directly or indirectly from immovable property situated in
Germany (with effect from 1 January 2019);
- capital gains from the sale or leasing of immovable property or certain tangible movable property situated in Germany, or
rights, if registered; and
- income from independent services if they are rendered or exploited in Germany or if a permanent establishment or fixed base
is maintained in Germany.
If income is effectively connected with a permanent establishment, tax on that income (e.g. business income) of the non-resident is
levied by assessment, and any tax withheld is credited against the assessed tax.
7.3.1.4. Investment income

Non-residents are subject to German income tax on dividends, income from the participation of a silent partner in a trade or
business, interest on convertible bonds, profit-sharing bonds and participating loans if the payer is resident in Germany, and on
interest from loans secured by immovable property situated in Germany.
If, however, the income is effectively connected with a permanent establishment, tax on that income of the non-resident is levied by
assessment and any tax withheld will be credited against the assessed tax.

Non-residents are also subject to German income tax with respect to the following income:
- income from leasing immovable property or certain tangible movable property situated in Germany, and income from royalties
if the property or royalties are situated in Germany, or the respective rights are entered in a domestic public book or register;
and
- pensions paid by the German statutory pension scheme and other domestic insurance enterprises or paying agents (section
22, number 3 of the EStG).
7.3.1.6. Capital gains
Capital gains realized by a non-resident individual from private transactions or from the alienation of a substantial interest in a
resident company may be subject to German income tax as for residents. For details, see section 1.7. However, a treaty may
provide for these gains not to be subject to German taxation.
7.3.2. Withholding taxes

7.3.2.1. Dividends
Dividends and other profit distributions paid by resident companies to non-residents are subject to withholding tax
(Kapitalertragsteuer) at a rate of 25%, increased to an effective rate of 26.375% by the 5.5% solidarity surcharge.
Income from jouissance rights which entitle the owner to the participation in the liquidation surplus (non-deductible jouissance
rights) is subject to withholding tax in the same manner as dividends (see above). Income from jouissance rights which do not
entitle the owner to the liquidation surplus (deductible jouissance rights) is subject to withholding tax at a rate of 25%, increased to
26.375% by the 5.5% solidarity surcharge.

7.3.2.2. Interest
Interest on convertible bonds (Wandelanleihen), profit-sharing bonds (Gewinnobligationen) or participating loans (partiarische
Darlehen) is subject to a final withholding tax (Kapitalertragsteuer) at the rate of 25%, increased to an effective rate of 26.375% by
the 5.5% solidarity surcharge. The tax is withheld on gross income, i.e. without deduction of related expenses.
Income from the participation of a typical silent partner in a trade or business (Beteiligung an einem Handelsgewerbe als stiller
Gesellschafter) is subject to tax in Germany if the payer is resident in Germany. Such income is subject to withholding tax in the
same manner as is interest on convertible bonds, etc.
Anonymous over-the-counter transactions (anonyme Tafelgeschäfte) are also subject to withholding tax (Kapitalertragsteuer) at
a rate of 25%, increased to an effective rate of 26.375% by the 5.5% solidarity surcharge. The tax is withheld on gross income,
i.e. without deduction of related expenses. “Anonymous over-the-counter transactions” mean that interest is paid on coupons
from bearer bonds (e.g. corporate and government bonds), the interest is not credited to an account of a foreign bank or another
foreign financial institution and the custody of the bond is not retained by the debtor, the German bank or another German financial
institution.
The withholding tax on ordinary bank interest (see section 1.10.3.3.) does not apply to payments to non-residents. Interest that
is effectively connected with a permanent establishment or that is paid on a loan secured directly or indirectly by a mortgage on
German immovable property, or on a ship entered into a German ship register, is taxed by assessment.
7.3.2.3. Royalties
Royalties are subject to income tax if registered in Germany or utilized in a permanent establishment in Germany. The income tax
on these types of income is levied by a final withholding tax of 15% (15.825% including the 5.5% solidarity surcharge).

Remuneration to non-resident directors of a supervisory board (Aufsichtsrat) is taxed at source by a final withholding tax of 30%.
The tax is withheld on gross income, i.e. without deduction of related expenses (section 50a(1)-(3) of the EStG).
The withholding tax on remuneration paid to contractors (see section 1.10.3.5.) applies also to payments to non-residents. In the
case of a non-resident contractor, the tax is final, unless a treaty provides otherwise.
Income of non-resident artistes and sportsmen is normally subject to a final withholding tax of 15%, which is levied on gross
income. This applies to income derived from appearances in Germany, or from their exploitation in Germany, even if the
appearances did not take place in Germany. If the remuneration is lower than EUR 250, the withholding tax rate is reduced to nil.
In general, this withholding tax is final. However, if the non-resident artistes and sportsmen are nationals and residents of an EEA
country, they may opt to deduct related expenses directly at the withholding stage. In that case, the withholding tax rate is 30%
of the net payments if the recipient is an individual. If the recipient is a company established in an EEA country, the rate is 15%.
Related income, such as income from the use of a person’s name or publicity in advertisements for products in Germany, is also
subject to the withholding tax (section 50a(1) of the EStG). The tax authorities issued detailed guidance regarding the withholding
tax levied on non-residents deriving income from artistic, sporting, cultural, entertaining or similar performances realized or
exploited in Germany in accordance with section 50a of the EStG (official letter of 25 November 2010, IV C 3 – S 2303/09/10002).
7.3.3. Other taxes on income

The business tax on income (see section 2.2.) is levied according to the general rules if the non-resident taxpayer maintains a
permanent establishment (see section 7.3.1.3.) in Germany.
7.3.4. Taxes on capital

There is no net wealth tax. Non-resident individuals are liable to real estate tax (see section 5.2.) with respect to their immovable
property located in Germany.
7.3.5. Taxes on inheritances and gifts

For inheritance or gift tax levied on non-residents, see section 6. A non-resident beneficiary is entitled to the allowances mentioned
in section 6.1.3., unless he is taxable only by reason of the fact that taxable property is situated in Germany. In such a case, the
allowances are available only pro rata. The amount of the pro-rata exemption corresponds to the value of the domestic assets
subject to limited tax liability in relation to the total sum of assets received via inheritance or donation.

7.3.6. Administration
Non-residents must file a tax return for each tax year with respect to German income, unless the tax liability is satisfied by a final
withholding tax. For details, see section 1.11.
7.4. Tax treaties and other agreements

7.4.1. Tax treaties
7.4.1.1. Treaty policy
Germany has a very extensive treaty network. The treaties generally follow the OECD Model Convention.
Treaty provisions prevail over domestic tax law (section 2 of the AO). A domestic law that became effective after the treaty,
however, may override a treaty provision (BFH 1995, BStBl. 1995 II, at 129). Section 50d(3) of the EStG contains such an override
provision: it is an anti-treaty-shopping provision which denies treaty benefits (mainly reduction of withholding tax) to a non-resident
(intermediate) company under certain conditions if such a company is not the beneficial owner of the income and its shareholders
(the beneficial owners) would not be entitled to the treaty benefit if they would have invested directly.
Section 50d(3) of the EStG has been amended by the bill on the modernization of withholding tax relief procedures with effect from
9 June 2021. The amended version of section 50d(3) of the EStG shall be applicable to all pending cases unless a non-resident
company would be entitled to a relief in accordance with the previously applicable version of section 50d(3) of the EStG. The anti-
treaty-shopping rule contained in section 50d(3) of the EStG has been amended to take into account the jurisprudence of the
ECJ, in particular the decision in the Joined Cases C-116/16 (T Danmark) and C-117/16 (Y Denmark), the decision in Deister
Holding (Case C-504/16) and the decision in GS (Case C-440/17), and the general anti-avoidance rule contained in the Anti-
Tax Avoidance Directive (2016/1164) (ATAD). The revised structure of section 50d(3) of the EStG is similar to the general anti-
avoidance rule in article 6 of the ATAD.
Accordingly, section 50d(3) of the EStG denies treaty benefits to a non-resident (intermediate) company as far as:
- the shareholders (the beneficial owners) would not be entitled to the treaty benefit if they had received the income in question
directly; and
- the source of income does not have a material connection with the economic activity of the intermediate company.
Regarding the second condition, section 50d(3) of the EStG provides for an assumption that the mere income generation and its
passing on to the beneficial owners as well as the carrying on of a business activity without being adequately equipped for it, in
view of the business purpose, is not sufficient to create the required material connection with an economic activity.
The non-resident company may avoid the consequences of the application of section 50d(3) of the EStG, if it can prove that none
of the main purposes of its interposition is to obtain a tax advantage. Also, it may avoid the consequences if the non-resident
company is listed at a recognized stock exchange and the main type of its shares is regularly and materially traded at such a stock
exchange.
Until 9 June 2021, section 50d(3) of the EStG denied treaty benefits to a non-resident (intermediate) company if:
- it was not the beneficial owner of the income and its shareholders (the beneficial owners) would not be entitled to the treaty
benefit; and
- the foreign company did not generate its gross income from its own active business activities.
However, if the intermediate company failed both of these tests, it could qualify for treaty benefits if:
- there were economic or other important reasons for the use of the intermediary company in view of the respective income;
and
- the foreign company was adequately equipped for carrying out its own business activities and for participation in the general
commerce.
Section 50d(3) of the EStG imposed the burden of proof for the existence of economic or other important reasons for the
interposition of the intermediary company as well as for its adequate business substance on the non-resident company.
Before 2012, section 50d(3) of the EStG denied treaty benefits to a non-resident (intermediate) company if:

- it was not the beneficial owner of the income and its shareholders (the beneficial owners) would not be entitled to the treaty
benefit;
- the use of the intermediary company did not have economic or other important reasons; or
- the foreign company did not generate more than 10% of its gross income from its own active business activities; or
- the foreign company was not adequately equipped for carrying out its business activities.
The anti-treaty-shopping provision had been amended in 2011, in response to an infringement procedure against Germany
initiated by the European Commission. On 18 March 2010, the Commission had announced that it had sent Germany a reasoned
opinion, requesting Germany to amend section 50d(3) of the EStG. The Commission had considered that section 50d(3) of the
EStG was disproportionate in particular as regards the third condition listed above, where the possibility to produce proof to the
contrary did not exist. Therefore, in the Commission’s view, the German measure went beyond what was necessary to attain its
objective of preventing tax evasion. On 27 September 2012, the Commission announced that it closed the infringement procedure
against Germany regarding section 50d(3) of the EStG, because Germany had amended its legislation.
On 23 September 2016 and on 28 November 2016, reference was made to the ECJ by the Finanzgericht Köln (Cologne tax court
of first instance) for preliminary rulings in the case of Deister Holding AG, as full legal successor to Traxx Investments N.V. v.
Bundeszentralamt für Steuern (Case C-504/16) and in the case of Juhler Holding A/S v. Bundeszentralamt für Steuern (C-613/16)
respectively, concerning the compatibility of section 50d(3) of the EStG (as applicable before 2012) with EU law. In its decision
of 20 December 2017, the ECJ held that section 50d(3) of the EStG (as applicable before 2012) is not compatible with EU law, in
particular with article 1(2) of the Parent-Subsidiary Directive (2011/96) and the freedom of establishment. In another decision of 14
June 2018, in the case of GS v. Bundeszentralamt für Steuern (Case C-440/17), the ECJ held that also section 50d(3) of the EStG,
as applicable from 2012, is not compatible with EU law.
On 4 April 2018, the Ministry of Finance issued official guidance (IV B 3 – S 2411/07/10016-14) in response to the ECJ decision in
Deister Holding and Juhler Holding (Joined Cases C-504/16 and C-613/16). The guidance stipulates that the previously applicable
version of article 50d(3) of the EStG as amended in 2007 is not applicable any longer. The guidance further provides that article
50d(3) of the EStG, in the current version as applicable from 1 January 2012, applies in a modified way. Accordingly, sentence
2 of article 50d(3) of the EStG is no longer applicable. Sentence 2 of article 50d(3) of the EStG provides that only the facts and
circumstances of the foreign company are relevant, i.e. organizational, economic or other reasonable circumstances of associated
enterprises must be disregarded. The guidance, in addition, provides for some modifications regarding substance requirements
contained in the official guidance (IV B 3 – S 2411/07/100016) on the current version of article 50d(3) of the EStG issued in
January 2012.
For Germany’s policy on tax sparing credits, see section 7.4.1.6.2.
7.4.1.2. Treaty relief from double taxation

The two methods for avoiding double taxation of foreign income used in Germany’s tax treaties are the exemption method and the
credit method. The treaties also provide for a reduction of withholding taxes in the source state.
The exemption method allows an exclusion of foreign-source income from the German taxable base. The exemption method
generally applies to:
- income of a foreign permanent establishment;

- income from foreign immovable property; and
- dividends, if the investment in the non-resident company is at least 25% of the nominal share capital (affiliation privilege).
Five per cent of gross dividends are added back to taxable income as a lump-sum compensation for the non-deductible
interest and other expenses that are directly connected with the exempt dividends. Thus, only 95% of the dividends are
actually exempt (section 8b(5) of the Körperschaftsteuergesetz (KStG)). Foreign dividends and similar income from qualifying
participations of at least 10% in the capital of the paying company are exempt from corporate income tax under domestic law.
The 5% add-back is maintained.
Many treaties include an activity clause under which an exemption is granted only if the foreign subsidiary or permanent
establishment carries on an active business. The activity clause became irrelevant for foreign-source dividends from 2002 due
to the domestic exemption of foreign-source dividends, which does not require an active business of the subsidiary. The German
rules on controlled foreign companies can be applicable, however.
If the exemption method does not apply, the foreign taxes paid in the treaty country are credited against the German corporate
income tax. However, in respect of the 5% add-back, a credit is not granted, as it only represents non-deductible business

expenses. Most of Germany’s treaties follow the OECD Model Convention, but specify that Germany’s unilateral tax credit rules
are to be respected.
The credit method applies mainly to withholding tax on interest and royalties, and income taxes on foreign permanent
establishments that do not meet the activity test.
If the treaty tax credit relief is less favourable than the unilateral relief provisions, the latter can be used. Thus, instead of claiming
a tax credit under the treaty, the foreign tax might be deducted under the unilateral relief provisions, which are more favourable in
loss situations (section 26(2) of the KStG).
An application to reduce the foreign withholding tax to the treaty rate must first be presented to the German tax authorities for
confirmation that the applicant is entitled to the reduction as a resident.
7.4.1.3. Tax treaties in force

The following is a complete list of tax treaties concluded by Germany which are in force. For the effective date, only the date on
which a treaty generally takes effect in Germany is given (a treaty may take effect at different times for the treaty partner, as well as
for different types of taxes).
Notes:
There are no taxes on capital currently imposed in Germany.
The treaty with China (People’s Rep.) does not apply to Hong Kong and Macau.
7.4.1.4. Tax treaties signed but not yet in force

The following treaties, amending protocols or exchanges of notes have been concluded by Germany but have not yet entered into
force:
7.4.1.5. Treaty Withholding Rates Table

See Germany - Treaty Withholding Rates Table, Quick Reference Tables IBFD.
7.4.1.6. Special provisions in tax treaties
7.4.1.6.1. Limitation on benefits provisions
The following tax treaties (as possibly amended by protocols) concluded by Germany contain a limitation on benefits clause:
Country Treaty article
Australia 10(3), 23
Canada 29(3)
China 29
Cyprus 27
Denmark 45
Estonia 27
Finland 25
Ireland 29A
Israel 26
Japan 21
Kuwait 23
Liberia 4 (Protocol)
Liechtenstein 31
Malta 27
Netherlands 23 and 15 (Protocol)
Singapore 29
Spain 28
Switzerland 4(6)
Trinidad and Tobago 1 (Protocol)
United Kingdom 30A


United States 28
Additionally, the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting
(MLI), which is effective in Germany from 1 April 2021, provides for the implementation of anti-abuse rules in the tax treaties
covered by the MLI. Article 7 of the MLI on the prevention of treaty abuse requires that one of the following measures is adopted: (i)
a principal purpose test (PPT); (ii) a PPT together with a simplified or a detailed limitation on benefits (LOB) test; or (iii) a detailed
LOB (together with an anti-conduit provision).
7.4.1.6.2. Tax sparing credit
The effect of tax exemptions granted by some countries to non-resident investors is not intended to be nullified by levies in the
investor’s country of residence. To that effect, several German tax treaties contain provisions granting a foreign tax credit on
certain categories of foreign income, even if such income is exempt from foreign tax or subject only to a reduced taxation under the
law of the source country.
Tax sparing credits are granted by Germany to its resident companies under the following tax treaties:
Country Qualifying Credit Treaty article Expiry date
income rate (%)
Argentina Dividends [1] 20 23(3) None
Interest 15 23(3) None
Royalties 20 23(3) None
Bangladesh Dividends 15 22(1)(c) None
Interest 15 22(1)(c) None
Royalties 15 22(1)(c) None
Bolivia Interest 20 23(1)(c) None
Ecuador Interest 20 23(1)(c) None
Egypt Dividends 15 [2] 24(1)(c) None
Interest 15[2] 24(1)(c) None
Greece Dividends[1] 30 [3] 17(2)(2)(b) None
Interest 10 17(2)(2)(a) None
Indonesia Interest 10 23(1)(c) None
Iran Dividends 20[2] 24(1)(c) None
Royalties 10[2] 24(1)(c) None
Ivory Coast Dividends[1] 15 23(1)(c) None
Interest 15 23(1)(d) None
Jamaica Dividends 15[2] 23(1)(c) None
Interest 10/12.5[2] [4] 23(1)(c) None
Kenya Dividends[1] 15 [5] 23(1)(c) None
Interest 15[5] 23(1)(c) None
Management fees 15[5] 23(1)(c) None
Liberia Interest 10 23(1)(c) None
Royalties 10 [6] 23(1)(c) None
Mongolia Dividends[1] 10 23(1)(c) None
Morocco Dividends 15 23(1)(3) None

Country Qualifying Credit Treaty article Expiry date

income rate (%)
Interest 10/15 [7] 23(1)(4) None
Portugal Dividends[1] 15 24(2)(c) None
Sri Lanka Dividends[1] 20 23(1)(c) None
Trinidad and Tobago Dividends 20[2] 22(1)(c) None
Interest 10/15[2] [4] 22(1)(c) None
Uruguay Dividends 5[8] 22(1)(f) None
Interest 10 22(1)(f) None
Royalties 10 22(1)(f) None
Venezuela Dividends 15 23(1)(c) None [9]
Interest 5 23(1)(c) None[9]
Royalties 5 23(1)(c) None[9]
Zimbabwe Royalties 10 23(1)(c) None
Technical fees 10 23(1)(c) None
1 For qualifying activities/income.

2 The tax sparing credit is limited to the allowable withholding tax rate given.
3 A 25% holding is required.
4 The 10% rate applies to interest paid to banks.
5 Not to exceed the normal domestic rates in those countries.
6 Does not apply to copyright royalties, excluding films, etc., and to trademarks.
7 The 15% rate applies only to interest paid by Moroccan entities listed in the final protocol.
8 A 10% holding is required.
9 Ten years following the entry into force of the appropriate economic programme.
7.4.1.6.3. Special provisions for offshore activities

The following tax treaties (as possibly amended by protocols) concluded by Germany contain offshore provisions:
Denmark 23
Lithuania 20A
Netherlands 5(4)
Norway 20
United Kingdom 20
7.4.1.6.4. Excluded individuals

German tax treaties do not generally contain provisions on excluded individuals. However, the treaty with Switzerland includes a
provision on excluded individuals (article 4(6)).
The following German tax treaties contain remittance basis clauses:
Ghana 23
Ireland 29
Jamaica 3(3)
Malaysia 3 (Protocol)
Mauritius 3 (Protocol)
Singapore 22


Trinidad and Tobago 1 (Protocol)
United Kingdom 24
7.4.1.6.5. Other special provisions

The following tax treaties (as possibly amended by protocols) concluded by Germany contain frontier worker provisions:
Austria 15(6)
France 13(5)
Netherlands 12 (Protocol)
Switzerland 15A
The following tax treaties (as possibly amended by protocols) concluded by Germany contain arbitration clauses:
Armenia 24(5)
Australia 25(5)
Austria 25(5)
Canada 25(6)
France 25(5)
Ireland 22
Japan 24(5)
Jersey 9 (5)
Liechtenstein 25(5),(6),(7)
Luxembourg 24(5)
Netherlands 25(5)
Singapore 26(5)
Sweden 41(5)
Switzerland 26(5),(6),(7)
United Kingdom 26(5)
United States 25(5)
7.4.2. Treaties on administrative assistance

7.4.2.1. Multilateral agreements on administrative assistance
Directive on Administrative Cooperation (2011/16) (DAC)
As regards EU Member States, mutual administrative assistance is governed by the Directive on Administrative Cooperation
(2011/16) (DAC) and the Recovery Directive (2010/24). Derogations may apply to the United Kingdom because it is no longer an
EU Member State.
For a more extensive description of DAC, see European Union – Direct Taxation – Global Topics section 8.1.
DAC has been amended by various directives, and, in particular, by the Amending Directive to the 2011 Directive on
Administrative Cooperation (2018/822) (DAC6), which provides for the automatic exchange of any cross-border arrangement
within the European Union, as well as between EU Member States and third countries from 1 July 2020.
Germany has implemented the rules contained in the DAC6 into its domestic law.
Germany has chosen as follows as regards the two implementation options granted by DAC6:

Option Implementation
Possibility for intermediaries to receive a waiver from filing information on a Yes
reportable cross-border arrangement if that obligation would breach the legal
professional privilege under the national law of that EU Member State
Require each relevant taxpayer to file information about its use of the arrangement Yes
to the tax administration in each of the years for which the taxpayer uses it
OECD Convention on Mutual Administrative Assistance in Tax Matters

Germany is a signatory to the multilateral OECD Convention on Mutual Administrative Assistance in Tax Matters of 25 January
1988, as amended by the 2010 Protocol. The Convention and the Protocol are applicable in respect of Germany from 1 January
2016. For all countries that are currently applying the Convention, see here. Under the Convention, Germany will automatically
exchange tax information with other parties to the Convention.
OECD Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports
Germany is a signatory to the OECD Multilateral Competent Authority Agreement on the Exchange of Country-by-Country
(CbC) Reports (CbC MCAA). Germany signed the CbC MCAA on 27 January 2016. The CbC MCAA provides for the automatic
exchange of annual CbC reports filed by MNE groups with all jurisdictions in which the MNE groups operate.
OECD Multilateral Competent Authority Agreement on automatic exchange of financial account
information
Germany is a signatory to the OECD Multilateral Competent Authority Agreement on automatic exchange of financial account
information (CRS MCAA), which provides for the automatic exchange of financial account information pursuant to the Common
Reporting Standards on the basis of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
7.4.2.2. Bilateral agreements on administrative assistance

Additionally, Germany has entered into exchange of information treaties with the following countries:
Country Date of signature Effective date
Andorra 25.11.10 20.01.12
Anguilla 19.03.10 11.04.11
Antigua and Barbuda 19.10.10 30.05.12
Austria 04.10.54 26.11.55
Bahamas 09.04.10 12.12.11
Bermuda 03.07.09 01.01.13
British Virgin Islands 05.10.10 04.12.11
Cayman Islands 27.05.10 20.08.11
Cook Islands 03.04.12 11.12.11
Finland 25.09.35 01.01.36
Gibraltar 13.08.09 04.11.10
Grenada 03.02.11 22.11.13
Guernsey 26.03.09 22.12.10
Isle of Man 02.03.09 05.11.10
Italy 09.06.38 01.01.54
Jersey 04.07.08 28.08.09
Liechtenstein 02.09.09 01.01.10
Monaco 27.07.10 09.12.11
Montserrat 28.10.11 03.01.14
Netherlands 21.05.99 23.06.01
San Marino 21.06.10 21.12.11
St. Kitts and Nevis 19.10.10 01.01.17
St. Lucia 07.06.10 28.02.13

Country Date of signature Effective date

St. Vincent and the Grenadines 29.03.10 07.06.11
Turks and Caicos Islands 04.06.10 25.11.11
Notes:
The agreement with Italy was reinstated from the date mentioned.
The agreement with the Netherlands applies to collection claims that are not more than 15 years old (from the date of the original
collection order).
7.4.3. Foreign account reporting agreements

7.4.3.1. Foreign account reporting agreements signed
7.4.3.2. Foreign account reporting agreements not signed
7.4.4. Transportation (tax) treaties
Germany has concluded transportation (tax) treaties (as possibly amended by protocols) with the following countries:
Country Scope Date of signature Entry into force Effective date
Brazil Sea 17.08.50 10.05.52 10.05.52
Cameroon Air 24.08.17 07.12.20 01.01.2021
China (People’s Rep.) See 31.10.75 29.03.77 29.03.77
Colombia Air/sea 10.09.65 14.06.71 01.01.62
Hong Kong Air 08.05.97 12.11.98 01.01.98
Sea 13.01.03 17.01.05 01.01.98
Isle of Man Sea 02.03.09 05.11.10 01.01.10
Panama Air/sea 21.11.16 27.10.17 01.01.17
Paraguay Air 27.01.83 13.04.85 01.01.79
Saudi Arabia Air 08.11.07 08.07.09 01.01.67
Venezuela Air/sea 23.11.87 30.12.89 01.01.90
Yemen Air 02.03.05 23.01.07 01.01.82
The treaty with Saudi Arabia applies from 1 January 2009 in the case of individuals employed aboard an aircraft of an international
air transport enterprise of a contracting state.
In addition, there is a unilateral exemption from the German taxes on income connected with the operation of ships and aircraft in
international traffic (section 49(4) of the EStG), which applies to residents of:
Country Scope Effective date
Afghanistan Air 01.01.59
Brunei Air 01.01.90
Chile Air 01.01.70
China (People’s Rep.) Air -
Chinese Taipei Sea 23.08.88
Ethiopia Air -
Ghana Air/sea 17.05.85
Iraq Air/sea n/a
Jordan Air 01.01.70
Lebanon Air/sea 01.01.57
Lithuania Air 01.01.92
Papua New Guinea Air/sea 10.02.89

Country Scope Effective date

Seychelles Air 01.01.89
Sudan Air 04.06.83
Syria Air/sea -
Taiwan Sea 23.08.88
Note:
The exemption regarding residents of China, Ethiopia and Syria is effective since flights/shipping commenced between the
countries.
7.4.5. Inheritance and gift tax treaties

Germany has concluded inheritance and gift tax treaties (as possibly amended by protocols) with the following countries:
Country Scope Date of Entry into Effective
signature force date
Denmark I/g 22.11.95 25.12.96 01.01.97
France I/g 12.10.06 03.04.09 03.04.09
Greece I 18.11.10/22.03.12 01.12.10 22.03.12
Sweden I/g 14.07.92 13.10.94 01.01.95
Switzerland I 30.11.78 28.09.86 28.09.80
United States I/g 03.12.80 27.06.86 01.01.79
7.4.6. Social security agreements

The coordination of various EU social security systems is done by Social Security Regulation (2004/883) and Social Security
Implementing Regulation (2009/987), as amended by Amending Regulation to the Social Security Regulation (2012/465), which
are effective from 1 May 2010, and which replaced the former Social Security Regulation (71/1408) and Social Security Regulation
(72/574). Social Security Regulation (2004/883) provides for a common social security territory covering all EEA countries
(EU Member States plus Iceland, Liechtenstein and Norway) with effect from 1 June 2012. Since 2 February 2013, Amending
Regulation to the Social Security Regulation (2012/465) also applies to Iceland, Liechtenstein and Norway. With effect from 1 April
2012, both regulations are applicable in relations between Switzerland and EU Member States. Since 1 January 2011, Social
Security Regulation for Nationals of Third Countries (2010/1231) extends the applicability of Social Security Regulation (2004/883)
and Social Security Implementing Regulation (2009/987) to nationals of non-EU countries legally resident in the European Union,
with the exception of Denmark and the United Kingdom. Effective 1 January 2021, with the United Kingdom not being an EU
Member State anymore, EU social security systems no longer apply with regard to the United Kingdom. However, UK and EU
nationals who were in a cross-border situation before the end of the transition period (before 1 January 2021) continue to be
subject to Social Security Regulation (2004/883) and Social Security Regulation (2003/859) as long as their cross-border situation
does not change after 1 January 2021. Further measures will be taken either unilaterally by the EU Member States to settle the
applicable social security framework or by the European Union in relation with the United Kingdom that qualifies as a third state.
In addition, Germany has concluded the following social security agreements (as possibly amended by protocols):
Country Date of signature Date of entry into force Effective date
Albania 08.09.15 01.12.17 01.12.17
Australia 13.12.00 01.01.03 01.01.03
Austria[1] 04.10.95 01.01.98 01.01.98
Belgium[1] 07.12.57 in force effective
Bosnia and Herzegovina 12.10.68 01.09.69 01.09.69
Brazil 03.12.09 01.05.13 01.05.13
Bulgaria[1] 17.12.97 01.02.99 01.02.99
Canada 14.11.85 01.04.88 01.04.88
(see also
Quebec)

Country Date of signature Date of entry into force Effective date

Chile 05.03.93 01.01.94 01.01.94
China (People’s Rep.) 12.07.01 04.04.02 04.04.02
Croatia[1] 24.11.97 01.12.98 01.12.98
Czech Republic[1] 27.07.01 01.09.02 01.09.02
France[1] 10.07.50 in force effective
Hungary[1] 02.05.98 01.05.00 01.05.00
India 12.10.11 01.05.17 01.05.17
Israel 17.12.73 01.05.75 01.05.75
Japan 20.04.98 01.02.00 01.02.00
Korea (Rep.) 10.03.00 01.01.03 01.01.03
Moldova 12.01.17 01.03.19 01.03.19
Montenegro 12.10.68 01.09.69 01.09.69
Morocco 25.03.81 01.08.86 01.08.86
Netherlands[1] 129.03.51 in force effective
North Macedonia 08.07.03 01.01.05 01.01.05
Philippines 19.09.14 01.06.18 01.06.18
Poland[1] 08.12.90 01.10.91 01.10.91
Quebec 20.04.10 01.04.14 01.04.14
Romania[1] 08.04.05 01.06.06 01.06.06
Serbia 12.10.68 01.09.69 01.09.69
Slovak Republic[1] 12.09.02 01.12.03 01.12.03
Slovenia[1] 24.09.97 01.09.99 01.09.99
Spain[1] 04.12.73 01.11.77 01.11.77
Tunisia 16.04.84 01.08.86 01.08.86
Türkiye 30.04.64 01.11.65 01.11.65
Ukraine 07.11.18 -
United Kingdom[1] 20.04.60 in force effective
United States 07.01.76 01.12.79 01.12.79
Uruguay 08.04.13 01.02.15 01.02.15
1 Certain provisions of bilateral social security agreements entered into by the EU Member States before the date of application
of Social Security Regulation (2004/883) may continue to apply provided that they are included in Annex II of Social Security
Regulation (2004/883).
7.4.7. Miscellaneous agreements

Germany is a party to the Arbitration Convention (90/436), which provides that where the commercial or financial relations between
two associated enterprises differ from those which would apply between independent enterprises, the profits of those enterprises
should each be adjusted as appropriate to reflect the arm’s length position. The Arbitration Convention (90/436) provides for
disputes with fiscal authorities to be referred to an advisory commission, subject to waiver of rights of appeal under domestic law
provisions. The Arbitration Convention (90/436) was first applicable with respect to the 15 old EU Member States. With respect
to the 10 new EU Member States that acceded to the European Union on 1 May 2004 a new Accession Convention was signed
on 8 December 2004 (EU Official Journal, C 160, 30 June 2005) and ratified by Germany on 21 March 2007. The Arbitration
Convention (90/436), as extended by the Accession Convention, is applied by Germany from 1 June 2007. The Convention
entered into force in relation to Bulgaria and Romania on 1 July 2008 and in relation to Croatia on 1 January 2015.
Additionally, Tax Dispute Resolution Mechanisms Directive (2017/1852) applies to complaints submitted as from 1 July 2019
relating to questions of dispute with regard to income or capital earned in a tax year commencing on or after 1 January 2018.
Derogations may apply to the United Kingdom because the United Kingdom is no longer an EU Member State.

8. Value Added Tax

See Corporate Taxation section 13.
9. Miscellaneous Indirect Taxes

See Corporate Taxation section 14.

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Germany - Individual Taxation - Country Tax Guides (Last Reviewed: 15 October 2022)

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Abbreviations, Terms and References

AO General Tax Code Abgabenordnung

AStG Foreign Tax Law Außensteuergesetz

AUV Ordinance governing allowances, etc., for Auslandsumzugskostenverordnung

BGBl. I Federal Law Gazette; oﬃcial collection of Bundesgesetzblatt Teil I

BStBl. Federal Tax Gazette; oﬃcial collection Bundessteuerblatt

ECU European Currency Unit –

EEA European Economic Area (EU Member Europäischer Wirtschaftsraum

Exported / Printed on 8 Dec. 2022 by Europa-Universitaet Viadrina.

EEC/EC/EU European Economic Community/ –

ErbStG Inheritance and Gift Tax Law Erbschaftsteuer- und

EStR Income Tax Regulations Einkommensteuer-Richtlinien

FGO Law on Fiscal Court Procedures Finanzgerichtsordnung

GewStG Business Tax Law Gewerbesteuergesetz

GmbH Limited liability company Gesellschaft mit beschränkter Haftung

GrEStG Law on Real Estate Transfer Tax Grunderwerbsteuergesetz

GrStG Land Tax Law Grundsteuergesetz

HGB Commercial Code Handelsgesetzbuch

KirchStG Church Tax Law Kirchensteuergesetz

KStG Corporate Income Tax Law Körperschaftsteuergesetz

SolZG Solidarity Surcharge Law Solidaritätszuschlaggesetz

UStG VAT Act 2005, as amended Umsatzsteuergesetz

VAT Value added tax –

Exported / Printed on 8 Dec. 2022 by Europa-Universitaet Viadrina.

1. Individual Income Tax

1.1.1. Geographical jurisdiction

Exported / Printed on 8 Dec. 2022 by Europa-Universitaet Viadrina.

Mecklenburg-Vorpommern, Niedersachsen, Nordrhein-Westfalen, Rheinland-Pfalz, Saarland, Sachsen, Sachsen-Anhalt,

1.1.2. Statutory framework

1.1.3. Type of tax system

1.1.4. Taxable persons

- he holds a substantial shareholding in a German resident company;

Exported / Printed on 8 Dec. 2022 by Europa-Universitaet Viadrina.

The taxation of inward and outward expatriates is discussed in section 7.2.

1.1.4.2. Family unit

1.2. Taxable income

(1) income from agriculture and forestry;

1.2.2. Taxable period

1.2.3. Exempt income

Exported / Printed on 8 Dec. 2022 by Europa-Universitaet Viadrina.

For exempt dividends, see section 1.5.1.

1.3. Employment income

Exported / Printed on 8 Dec. 2022 by Europa-Universitaet Viadrina.

Computation of employment income

1.3.2. Beneﬁts in kind

Exported / Printed on 8 Dec. 2022 by Europa-Universitaet Viadrina.

Exported / Printed on 8 Dec. 2022 by Europa-Universitaet Viadrina.

Employee insurance plans

Reimbursement of commuting expenses

1.3.3. Pension income

Exported / Printed on 8 Dec. 2022 by Europa-Universitaet Viadrina.

Employee pension schemes

1.3.4. Directors’ remuneration

Exported / Printed on 8 Dec. 2022 by Europa-Universitaet Viadrina.

1.4. Business and professional income

- income earned by sole proprietorships;