Germany

Value-added tax (VAT)

Proceeds of sales and services effected in Germany are subject to VAT under the common system of the European Union at the standard rate of 19% (7% on certain items, such as food and books, and 0% for the sale and installation of photovoltaic systems and certain related devices). The taxpayer is generally entitled to deduct the VAT charged on inputs from that payable on outputs.

VAT is generally administered by the tax office in the district where the taxable person operates one's business, wholly or predominantly; for taxable persons established abroad, the responsible tax office depends upon the taxable person’s country of establishment. As a general rule, preliminary VAT returns are filed on a monthly or quarterly basis by the tenth day of the following month (e.g. monthly where the VAT payable in the previous calendar year exceeded EUR 7,500). The taxpayer may be relieved from the obligation to file preliminary returns if the VAT payable in the previous calendar year did not exceed EUR 1,000 (EUR 2,500 from 2025 onwards). A permanent filing extension of one month is generally available against an advance payment of one-eleventh of the total net tax due during the previous year. Otherwise, payment is due by the tenth day of the following month as well.

Legally, VAT is an annual tax. Each taxpayer must, as a general rule, file an annual return for each calendar year, regardless of the actual accounting date for the business. If the sum total of the annual return does not agree with the total of the monthly or quarterly returns, the tax office can generally be expected to ask for a detailed explanation.

The so-called 'One-Stop-Shop' (OSS) taxation procedure generally allows for a single registration in the European Union for the supplies covered by the OSS. It is applicable to certain distance sales and to cross-border services from taxable persons to certain customers including, but not limited to, private individuals. In addition, an 'Import-One-Stop-Shop' procedure is generally available with respect to specific distance sales where the goods are shipped from a country outside the European Uni, for example, to a private individual in the European Union. If OSS procedures are applied, different rules for VAT returns are applicable.

There are additional reporting obligations in certain cases, particularly in cases of cross-border intra-EU supplies of goods and services to other taxable persons.

The Growth Opportunities Act (Wachstumschancengesetz) of 27 March 2024 introduced mandatory electronic invoicing for supplies of goods and services between taxable persons (B2B) established in Germany (in the case of a local establishment via a fixed base: provided that establishment is involved in the respective supply). The electronic invoice must be issued, transmitted, and received in a specific structured electronic format and also enable electronic processing. The law contains various transitional provisions starting 1 January 2025. The general transition period is two years (up to and including 2026), and the transition period for small entrepreneurs with a total turnover of up to EUR 800,000 in the previous calendar year is three years (up to and including 2027). Another transition period of three years relates to the transmission of e-invoices in other formats if transmitted by means of electronic data interchange (EDI). Please note that the transitional provisions merely refer to the issuing of e-invoices while the receipt of e-invoices is obligatory domestic B2B cases already from 2025. In cases not subject to obligatory e-invoicing, any e-invoicing (including but not limited to e-invoicing in the above format) is subject to approval of the recipient.

Customs duties

Customs duties are levied under a common system on imports into the European Union. The rate is set at zero on most imports from EU candidate countries and on many imports from countries with which the European Union has an association agreement. 

For manufactured products from other countries, the rates generally lie within the range of 0% to 15%. The basis is the import value of the goods and thus includes uplifts for royalty or other payments associated with their use but not apparent from the transit documents.

The European Commission (EC) also sets ‘countervailing’ duties from time to time on specific imports from specific countries in order to counter attempts at dumping. The countervailing duty rate is set to fully absorb the dumping margin and is therefore usually much higher than 15%.

In terms of customs valuation, the eagerly awaited ruling of the German Supreme Tax Court (17 May 2022 /VII R 2/19) in the Hamamatsu case was issued. While the relevant European Court of Justice (ECJ) ruling (C-529/16) had already raised questions of implementation, associated companies that declare a transfer price as the basis for customs valuation are now facing severe problems, as the dicta of the Supreme Tax Court can partly be interpreted in many ways. A first interpretation was made by the Munich tax court (14 K 588/20), which ruled that subsequent adjustments to levies based on flat-rate transfer price adjustments were also unjustified. Now the Federal Fiscal Court (VII R 36/22) must decide in the appeal proceedings.

A further challenge for many companies is that customs processing is increasingly becoming IT-based and the customs administration are increasingly focusing on internal control systems. Recently, the EU commission published a proposal for a general customs reform that suggests, in particular, a new EU database. The envisaged comprehensive reform of the EU Customs Code is going to bring innovations in the near future. Numerous changes are planned, including the establishment of an EU customs authority.

Since the 2022 escalation of the war of Russia against Ukraine, not only political representatives, but also companies and the general population have been increasingly impacted. The 15th EU sanctions package against Russia was published in the Official Journal of the EU on 16 December 2024. These measures are also far-reaching. For example, ships in the Russian shadow fleet are sanctioned and the sanctions list was expanded by 94 additional listings. In addition, 32 further companies were subjected to stricter export restrictions in relation to dual-use goods. Also further measures were imposed in the financial sector.  In order to comply with the sanction regulations, many companies needed to improve the control of operational processes, to clearly define personnel responsibilities and to audit standardized processes.  

Excise taxes

Excise taxes on fuel, electric power, and some other products are not a compliance issue for businesses other than dealers in bonded goods, although they can be a significant additional cost factor for business users. These excise taxes also have an environmental element in as much as the rates are set to discourage excessive use of pollutants. However, an air passenger duty is the only tax on pollution per se. Energy producers (such as power stations) can claim a refund of the excise tax borne in the cost of the energy products used in the production process. In the area of both refunds and taxation, reforms have been announced, meaning that both the basis for refunds and, in particular, the tax rates on special energy products will have to be reviewed. The system will give preference to sustainable energy products in the future.

The draft law to modernise and reduce bureaucracy in energy and electricity tax law (Gesetz zur Modernisierung und zum Bürokratieabbau im Strom- und Energiesteuerrecht), which was published in May 2024, is intended to modernise and reduce bureaucracy in energy and electricity tax law. The laws are to be updated with regard to electromobility, among other things. Due to the dissolution of the governing coalition it is not clear whether it will still be implemented in this legislative period.  

What is certain, however, is that digitalisation at the administrative level is well advanced in the area of excise duty; from 2025, it will only be possible to submit many applications via the customs portal. 

Environmental taxes

Besides the air passenger duty and environmental elements in excise taxes, there are no environmental taxes, as such, in Germany.

Property taxes

There are no taxes on wealth or capital employed. There is a minor local authority tax on property, but the effect of this is partly offset by an additional trade tax deduction.

Stamp taxes

The only significant German stamp tax is the real estate transfer tax (RETT) charged on the consideration on conveyances of German property. The rate varies by province; from 2024 the rate is 3.5% for property in Bavaria; 5% in Baden-Württemberg, Bremen, Lower Saxony, Rhineland-Palatinate, Saxony-Anhalt, and Thuringia; 5.5% in Hamburg and Saxony; 6% in Berlin, Hesse, and Mecklenburg-Western Pomerania; and 6.5% in Brandenburg, North Rhine-Westphalia, Saarland, and Schleswig-Holstein.

This tax may also be levied on the direct or indirect transfers of at least 90% of the shares in property-owning companies or the interest in property owning partnerships (so-called 'share deals') to new shareholders/partners within a ten-year period. This applies to shares/interests of the shareholder/partner throughout the chain of participation. Further an (economic) 'unification' of 90% of the shares/interest in a property-owning corporation/partnership can also give rise to a taxable event.

In any case of a transfer of German real property or a transfer of real property-owning companies subject to RETT, the tax authorities have to be notified. While notification requirements are in general fulfilled by the responsible notary if German real property is transferred, there are special notification obligations for the parties involved if shares in a real property-owning company are transferred. Missing a timely notification may result in penalties and, under certain circumstances, even to a substantial additional tax burden.

In general, RETT is calculated based on the value of the consideration. Where RETT is triggered due to a restructuring, transfer of shares in a corporation or interest in a partnership of at least 90%, or in cases where no consideration exists, the tax base is determined based on the valuation principles applied for inheritance tax purposes.

Subject to certain conditions, German RETT is not levied on direct or indirect transfers (without the payment of consideration) in the course of a corporate reorganisation under the laws of a member state of the European Economic Area (EEA), provided at least 95% of the interest of the controlling entity in the parties involved in the reorganisation remains unchanged for five years before and after the transaction (group privilege).

Payroll taxes

Employers are required to pay employee remuneration under deduction of the income tax due. The amounts deducted are paid over to the tax office at regular, usually monthly, intervals. The actual deductions are calculated from the gross pay, taking the employee’s marital, family, and other personal circumstances into account. The necessary personal details can be downloaded from a government database. For the employee, the payroll tax deduction is in general a prepayment on the income tax due after filing one’s annual income tax return. As such, the payroll tax is a withholding tax (WHT) and not a financial burden on the employer. However, employers are required to deduct the correct amounts and are thus exposed to the risk from a later tax audit assertion of under-deduction, especially as there are often legal or practical impediments to recovery from the employees after the event. The administrative effort involved is also far from insignificant.

Social security contributions

All employers are required to account for social security contributions on wages and salaries paid, up to an income ceiling (monthly limits). There are five branches of social security insurance: pension insurance, unemployment benefits, health care insurance, nursing care insurance, and work accident insurance. All branches are compulsory for all employees. However, employees regularly earning more than EUR 73,800 in 2025 can opt out of the health and nursing care insurances if they take out appropriate coverage with a private insurance company. The pension and unemployment contributions are capped by a monthly upper salary limit of EUR 8,040 (2025) with a monthly upper salary cap of EUR 5,512.50 (2025) for health and nursing care insurances.

From 1 January 2025, the rates are as follows:

• Pension insurance: 18.6%, of which the employee’s share is one half.
• Unemployment insurance: 2.6%, of which the employee’s share is one half.
• Statutory health insurance: 14.6%, and an individual supplement of each statutory health insurance (2.5% on average), of which the employee’s share is one half. 
• Statutory nursing care insurance: 4.2%, of which the employee’s share is 2.9%. Relief is available for employees with children.
• Private health and nursing care insurance: Rates depend upon the individual contractual arrangements.
• The contribution regarding accident insurance is determined by the accident risk involved in the particular job and is only paid by the employer.