Germany

Corporate - Other taxes

Last reviewed - 30 June 2022

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). The taxpayer generally is entitled to deduct the VAT charged on inputs from that payable on outputs.

In response to the COVID-19 pandemic, a temporary reduction of the VAT rate on meals (excepting beverages) provided in restaurants and through other catering services from 19% to 7% will be in force (ostensibly) until 31 December 2022 - (ostensibly). 

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. 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.

With effect from 1 July 2021, the previous 'Mini-One-Stop-Shop' for telecommunication services, broadcasting services, and electronically supplied services by taxable persons established abroad (e.g. to private individuals) was replaced by a 'One-Stop-Shop' (OSS) taxation procedure. This procedure 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 was implemented with respect to specific distance sales where the goods are shipped from a country outside the European Union (e.g. 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.

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%.

A challenge for many companies is the increasingly IT-based customs processing and the increased focus of the customs administration on an internal control system.

In addition, Brexit has given rise to major customs-related issues. Despite the agreement on trade and cooperation between the EU and the United Kingdom (TCA), the EU withdrawal by the United Kingdom has resulted in particular in clearance difficulties and questions regarding the correct EORI number, as well as problems with the tariff classification of goods and frequent questions in the area of origin of goods and preferences.

Finally, in 2021, the COVID-19-pandemic continued to occasion a number of special regulations in the area of customs law. Based on Regulation DVO (EU) 2021/111, a licensing requirement exists in principle with regard to the export of vaccines against SARS-associated corona viruses (SARS-CoV species) of CN code 3002 20 10, regardless of their packaging. With respect to medical supplies, new CN codes (e.g., SARS-CoV-2 vaccines) and TARIC subheadings have been created in part to facilitate trade flow crossings.

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.

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) on the consideration on conveyances of German property. The rate varies by province; from 2021 the rate is 3.5% for property in Bavaria and Saxony; 4.5% in Hamburg; 5% in Baden-Württemberg, Bremen, Lower Saxony, Rhineland-Palatinate, and Saxony-Anhalt; 6% in Berlin, Hesse, and Mecklenburg-Western Pomerania; and 6.5% in Brandenburg, North Rhine-Westphalia, Saarland, Schleswig-Holstein, and Thuringia.

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 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 ultimate interest in the property 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 a prepayment on the income tax due after filing one’s annual income tax return. As such, the payroll tax is a 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 set monthly limits. There are four separate types of insurance: for old-age pensions, unemployment benefits, health care, and invalidity care. Employees regularly earning more than EUR 64,350 in 2022 can opt out of the health and invalidity insurances if they take out appropriate coverage with a private insurance company. The pension and unemployment insurances are compulsory for all employees. The upper monthly salary limit is EUR 7,050 in 2022 in the western part of Germany and EUR 6,750 in 2022 in the eastern part of Germany for the pension and unemployment insurances and EUR 4,837.50 in 2022 for the health and invalidity insurances. Currently (2022), the rates are as follows:

  • Pension insurance: 18.6%, of which the employee’s share is one half.
  • Unemployment insurance: 2.4%, of which the employee’s share is one half.
  • Health insurance: 14.6%, of which the employee’s share is one half. The health funds may levy a supplement (1.3% on average).
  • Invalidity insurance: 3.05%, of which the employee’s share is one half. In certain cases, there is a surcharge of 0.35%.