Types of tax in Germany
When living in Germany, you’ll come across several types of taxes. Some, like real estate property tax (Grundsteuer), are charged at the municipal level, while others are paid nationally. Below is an overview of each type.
German income tax
All residents in Germany pay income tax (Einkommensteuer) on their earnings from the previous year (1 January to 31 December). Taxable income can include:
- Your salary and other income from employment (e.g., bonuses)
- In kind employee benefits (geldwerter Vorteil)
- State benefits and pensions
- Business profits
- Interest on savings or investments
- Property, wealth, and royalties
- Received rent (if you rent out your property)
German employers and pension providers typically withhold a percentage of your gross monthly salary or pension aspayroll tax (Lohnsteuer). That way, when it’s time tofile a tax return, you won’t be stuck with a hefty bill.
Social security
Salaried workers and pensioners in Germany must make mandatory social securitycontributions, depending on their residence status. Employers and pension providers will deduct these payments directly from your monthly salary.
In 2024, the social security contribution rates are:
- Public health insurance (Krankenversicherung) – 15.8% (employers and employees both pay 7.9%)
- Long-term care insurance (Plegeversicherung) – 3.4% (employers and employees both pay 1.7%), though this could be lower if you have more than one child
- Pension insurance (Rentenversicherung) – 18.6% (employers and employees both pay 9.3%)
- Unemployment insurance (Arbeitlosenversicherung) – 2.6% (employers and employees both pay 1.3%)
Freelancers do not have to pay the mandatory contributions. However, they won’t be able to receive state benefits if they haven’t made any payments.
You can read more about social insurance and contributions in our article onSocial security in Germany.
Corporate tax
Companies based in Germanypay bothnational and municipal taxes(Körperschaftsteuer) on their business earnings.
In 2024, the totalcombinedcorporate tax rateis29.9%, much higher than in other EU member states. Germany’s economy and finance ministers haveproposed tax reform, though it is unclear what form this would take and when it is supposed to go into force.
In addition to corporate tax, businesses may need to pay capital gains tax on the sale of business assets, trade tax, and dividend tax (more on this below).
Eligible companiesand self-employed workers may offset certain tax credits and allowances against their corporate tax bills. These include municipal tax credits, andresearch and development credits(Forschungszulage).
Value-Added Tax
Value-Added Tax (Umsatzsteuer–USt, or more commonly,Mehrwertsteuer–MWSt) applies to the sale of most goods and services.
Thestandard VAT ratein Germany is19%, though a reduced rate of 7% is available for certain everyday goods (Waren des täglichen Bedarfs). These include art, books, cultural services, (some) foods, hotel stays,magazines, and newspapers.
Certain goods and services areVAT-exemptand pay a 0% tax rate. These includefinancial services, deliveries within the EU, andinsurance premiums.
Can you get a refund on VAT?
Visitors from outside the European Union may be eligible for aVAT refundon selected purchases in Germany. To reclaim VAT, you’ll need to have bought the items from a retailer that participates in the refund program. It’s worth noting that not every store participates; affiliated retailers generally display a sticker on their door.
You must inform the store owner at the time of purchase that the merchandise will be exported to a country outside the EU. You will then get a special export invoice (Ausfuhr- und Abnehmerbescheinigung). Please note that some retailers use the refund scheme as a private Tax-Free Shopping Service. In these cases, you’ll be issued a Tax-Free Shopping Check.
More information about reclaiming VAT can be found on the website of the German Central Customs Authority (Bundeszollverwaltung – ZOLL).
VAT for businesses and freelancers
Companies and freelancers making €22,000 (gross) in one financial year, or whose earnings are likely to exceed €50,000 in the next financial year, are liable for VAT in Germany. The amount must be clearly shown on the invoice.
Import and export taxes
Typically, anyone who imports products into Germany has to payimport duties and VAT. Excise items (e.g., alcoholic drinks, fuel, medicines, and tobacco products) are also subject to excise duties and other levies.
For more information about import and export duties, visit theZOLL website.
German property tax
When youbuy or sell property in Germany, such as a home or commercial real estate, you are liable for real estate transfer tax (RETT – Grunderwerbsteuer). This varies between 3.5–6.5% of thesale price, depending on the federal state you’re moving to.
Property owners must also pay an annual property tax (Grundsteuer) to the municipality. The amount of the tax differs based on the property type, value, and the local tax rate (between 0.26–1%). The local governments use the revenue to finance public services, such as schools, daycare centers, swimming pools, libraries, and infrastructure.
In 2025, the German property tax structure will undergo reform to create more equality.
Road and vehicle tax
Vehicle owners must pay an annualmotor vehicle tax(Kraftfahrzeugsteuer) based on the engine size and CO2 emissions. This tax typically costs €100–130 per year.
The government provides thisvehicle tax calculatorto determine your yearly tax.
Environmental tax
Germany’senvironmental taxesinclude those levied on aviation, carbon emissions, energy consumption (e.g., fuel and electricity), and motor vehicles. The country also taxes mineral resources through a water withdrawal levy, wastewater charge, and mining royalty.
At the same time, the manufacturing, agriculture, and forestry industries canbenefit from tax breaksfor electricity, heating oil, and gas. The service sector and private households, on the other hand, are more heavily taxed.
To help reach its goal of climate neutrality by 2045, Germany has set the carbon price at€40 per tonin 2024. The price is expected to rise to €50 in 2025.
A much-debated plastic tax on single-use packaging is set to take effect in 2025.
Tourist tax in Germany
Local governments may charge tourists from outside their borders (including German citizens) aroom or lodging taxfor staying the night at a commercial business, like a hostel or hotel. The German term for it differs per region; for instance, it could be calledÜbernachtungsteuer(overnight stay tax),Bettensteuer(bed tax),Beherbergungsteuer(lodging tax), orTourismusbeitrag(tourism contribution).
Each locality may impose its own tax rates and regulations.For example, Berlin and Cologne (Köln) charge 7.5% of the room price, while Dresden and Frankfurt want €2 per person per night.
Similarly, selected regions may levy a daily spa tax (Kurtaxe) when you want to visit a spa or resort. These taxes differ per region as well, ranging from €2.90 to €4.50.
Tax on capital gains and wealth
Capital Gains Tax(Abgeltungsteuer) is a levy you must pay when you sell, get compensation, or get income from capital assets. Taxable items in Germany include:
- Dividends and interests
- Income from investment funds
- Sales of company shares and stakes
Capital gains are taxed at a flat rate of 25%.
If you sell real estate that you owned forless than 10 years, you are also liable for capital gains tax. The sale of property that has been in your possession for longer is exempt.
High-earners in Germany are liable for a 5.5% solidarity surcharge (Solidaritätszuschlag– Soli). In 2024, this levy is charged when your income, capital gains, and corporate tax bill is over €18,130 (for individual assessments) or €36,260 (for joint assessments).
Inheritance and estate taxes
After someone’s death, you are liable for tax on any inheritance you receive (Erbschaftssteuer). Similarly, if you are gifted something, you must paySchenkungssteuer.
Inheritance tax rates are consistent throughout Germany, ranging from 7% to 50%. They apply to savings, property, and other valuable assets.
Several allowances and exemptions are available, depending on your relationship with the deceased. For example, close relatives (e.g., spouses and children) have a higher tax-free allowance than more distant relatives. As such, a spouse or (grand)child won’t pay any tax on a €500,000 inheritance, but a sibling, niece, or nephew would pay a rate of 25% (after their tax-free allowance of €20,000).
You can read more about tax rates and allowances in our article onInheritance tax in Germany.
Other taxes in Germany
Dog licenses
Regular dog owners must register their pets with their local tax office and pay for a dog license (Hundesteuer). Service dogs, such as guide dogs for the blind and visually impaired, are exempt.
The license usually costs between €90–150 per year but may be higher if you have more than one dog. The municipality can use these funds to finance dog parks, for example.
Visit your local tax office’s website for more information on dog licensing, including fines for nonpayment.
Church or worship tax
German residents who officially declare themselves Protestant, Catholic, or Jewish may be liable for church tax (Kirchensteuer) or worship tax(Kultussteuer). The federal states collect the 8-9% of your salary on behalf of these religious institutions. However, you can deduct this amount in full asa specialexpense on your annual tax return.
While a similarmosque tax(Moscheesteuer) has been proposed, it has not been put into effect. Likewise, if you have not declared a religion, you won’t be charged the worship tax.
If you want to opt out of the payment, you must officially leave the church (Kirchenaustritt). The process typically involves a visit to the district court, civil registration office (Standesamt), or church office.
You can learn more about Kirchensteuer and Kirchenaustritt on theRed Tape Translations website.
