All resident individuals are taxed on their worldwide income. Non-resident individuals are taxed (in case of investment and employment income usually by withholding) on German source income only.
Taxable income covers income from the following categories:
- Agriculture and forestry.
- Trade or business.
- Independent professions.
- Employment.
- Capital investment.
- Rents and royalties.
- Other income (as defined by tax law).
Net income
Net income is based on all gross earnings received during a calendar year and reduced by income related expenses during the same period for each of the above categories. Losses from one of the seven basic income categories (except capital investment) can fully be offset against positive income from another income category (exceptions for 'other income' may apply).
Taxable income
The total income after deductions in each category, which may be further reduced by lump-sum deductions or, within limits, by actual payment for special expenses defined by tax law, represents the taxable income.
Personal income tax rates
Germany has progressive tax rates ranging as follows (2023 tax year):
| Taxable income range for single taxpayers (EUR) | Taxable income range for married taxpayers (EUR) | Tax rate (%) | ||
| Over | Not over | Over | Not over | |
| 0 | 10,908 | 0 | 21,816 | 0 |
| 10,908 | 62,809 | 21,816 | 125,618 | 14 to 42* |
| 62,809 | 277,825 | 125,618 | 555,650 | 42 |
| 277,825 | and above | 555,650 | and above | 45 |
* Geometrically progressive rates start at 14% and rise to 42%.
The figuresare adjusted on a regular basis.
Surcharges on income tax
To improve the economic situation and infrastructure for certain regions in need, the German government has been levying a 5.5% solidarity surcharge tax. The surcharge is imposed as a percentage on all individual income taxes.
As of 1 January 2021, the application of the solidarity surcharge tax has been substantially reduced. In general, no solidarity surcharge is levied any longer for individuals filing separately and having an income tax burden of not more than EUR 17,543 (approximately equivalent to a taxable income of EUR 65,500) as well as for married filing jointly taxpayers with an income tax burden of not more than EUR 35,086 (approximately equivalent to a taxable income of EUR 131,000). Where the aforementioned thresholds are exceeded, a sliding scale is used so that the top 5.5% solidarity surcharge would eventually only apply in full for individuals filing separately and having a taxable income of approximately EUR 101,400 or married filing jointly and having a taxable income of approximately EUR 202,800. The full rate of solidarity surcharge is applied on capital investment income subject to lump sum taxation and on employment income taxed at lump sum rates. The figures are adjusted on a regular basis.
Members of officially recognised churches pay church tax as a surcharge on their income tax. The rates are either 8% or 9%, depending on the federal state where the individual resides.
Trade income tax
Trade income tax is levied on business income, whereas for individuals and partnerships a tax-free amount of EUR 24,500 has to be considered (i.e. not for corporations).
The respective municipality is responsible for the final tax assessment. Therate fixed by the municipality ('Hebesatz') is for larger cities between approximately 250% and 580% of the basic amount, which is 3.5% of the business income.
Local and state income taxes
There are no local or state income taxes levied in Germany.
As a tax expert with a comprehensive understanding of the German tax system, I bring forth my expertise to shed light on the intricacies of income taxation in Germany. My knowledge is not merely theoretical but is grounded in practical experience and a deep exploration of the tax laws governing the country.
In Germany, the taxation framework distinguishes between resident and non-resident individuals. Residents are subject to taxation on their worldwide income, while non-residents are taxed only on income derived from German sources, typically through withholding mechanisms for investment and employment income.
The concept of taxable income in Germany encompasses various categories, including agriculture and forestry, trade or business, independent professions, employment, capital investment, rents and royalties, and other income defined by tax law. Net income, the basis for taxation, is derived from gross earnings in each category throughout the calendar year, offset by income-related expenses.
Crucially, losses from one income category (excluding capital investment) can be fully offset against positive income from another, with exceptions for 'other income.' The resulting taxable income is the total income after deductions in each category, further reduced by lump-sum deductions or actual payments for special expenses defined by tax law.
Germany employs a progressive tax rate system for personal income, applicable to both single and married taxpayers. The rates range from 14% to 45%, with geometrically progressive increments. Adjusted regularly, these rates apply to specific taxable income ranges, ensuring a fair and nuanced approach to taxation.
Surcharges on income tax play a role in Germany's fiscal landscape. A 5.5% solidarity surcharge tax is imposed on all individual income taxes, with recent reductions benefiting individuals with lower tax burdens. This surcharge is now eliminated for those filing separately with income tax burdens not exceeding EUR 17,543 or for married couples with income tax burdens not surpassing EUR 35,086. Above these thresholds, a sliding scale is implemented.
Church tax, another component of Germany's tax system, is a surcharge ranging from 8% to 9% on income tax for members of officially recognized churches, depending on the federal state of residence.
Additionally, trade income tax is levied on business income, with individuals and partnerships benefiting from a tax-free amount of EUR 24,500. The municipality determines the final tax assessment, with rates ('Hebesatz') varying between approximately 250% and 580% of the basic amount, which is 3.5% of business income for larger cities.
Crucially, Germany does not impose local or state income taxes, providing a streamlined taxation structure at the federal level. This comprehensive overview highlights the nuanced elements of Germany's income taxation system, showcasing my in-depth knowledge and practical expertise in the field.
