Social security contributions
The following social security contributions (as of January 2022) are levied on employment income. Employer contributions are generally tax-free.
- Pension insurance: 18.6%, up to an income ceiling of EUR 84,600 annually (EUR 81,000 in the new federal states). A contribution of 9.3% each is borne by both the employer and the employee.
- Unemployment insurance: 2.4%, up to an income ceiling of EUR 84,600 annually (EUR 81,000 in the new federal states). A contribution of 1.2% each is borne by both the employer and the employee.
- Health insurance: 14.6%, up to an income ceiling of EUR 58,050 annually. A contribution of 7.3% each is borne by both the employer and the employee.
- Long-term care insurance: 3.05% (3.4% for childless individuals, beginning with age 23), up to an income ceiling of EUR 58,050 annually. The contribution is borne 1.525% by the employer and 1.525% (1.875% for childless individuals, beginning with age 23) by the employee.
- Work accident scheme depends on the industrial sector and the accident risk; these contributions are borne by the employer.
- Insolvency contribution only payable by the employer amounts to 0.09%, up to the income ceiling of EUR 84,600 annually (EUR 81,000 in the new federal states).
An individual can apply for private health and long-term care insurance if certain conditions are met.
Self-employed individuals generally do not have to pay mandatory social security contributions.
Value-added tax (VAT)
Proceeds of sales and services provided in Germany are subject to VAT under the common system of the European Union (EU) at the standard rate of 19% (7% on certain items, such as food and books). For an interim period between 1 July 2020 and 31 December 2020, the rates were reduced to 16% and 5%. An entrepreneurial taxpayer generally is entitled to deduct the VAT charged on input from that payable on output.
Net wealth/worth taxes
At this point of time, no wealth taxes are levied in Germany.
Inheritance, estate, and gift taxes
Inheritance and gift tax is a tax levied on lifetime gifts and on transfers of value passing on death. This tax is imposed on transfers, if testator/donor and/or heir/donee is a German tax resident. If no individual is involved, who is resident in Germany under national tax rules, only the transfer of assets situated in Germany is liable. Tax benefits for business assets are possible.
Progressive tax rates of 7% up to 50% and tax-free amounts between EUR 20,000 and EUR 500,000 apply, depending on the value and the degree of the relationship between testator/donor and beneficiary. For the calculation of the tax, acquisitions within the last 10 years are taken into account. The allowances are granted once every 10 years. For a surviving spouse, an additional tax-free allowance of EUR 256,000 is granted. This allowance is reduced by the discounted value of any pension entitlements, which are not subject to inheritance tax. For surviving children, an additional tax-free allowance of up to EUR 52,000, depending on age at the time of inheritance, may apply.
There is a local tax on real estate property. The respective municipality is responsible for the final tax assessment. As the current system of the property tax has been declared unconstitutional by the German Federal Constitutional Court, it can only be levied in its current form on a transitional basis until 31 December 2024. From 1 January 2025, property tax will then be levied on the basis of the new law. The current calculation of the property tax is based on decades-old property values (the so-called standard values). Therefore, all real property must be revalued. Much of the data required for the revaluation of real property is not available to the tax authorities in electronically usable form, so it is currently collected from the owners of the real property. The declaration to establish the value of the real estate tax must be submitted by 31 October 2022. Even if the reform as a whole is designed to be revenue-neutral, i.e. all taxpayers do not pay more or less property tax, individual tax payments will change.
There are no additional taxes on luxury goods in Germany.
Real estate transfer tax
Real estate transfer tax is levied at 3.5% to 6.5% of the consideration on all conveyances of German property.
It is also levied on indirect transfers on acquisition of at least 90% of the shares (directly or indirectly) in property owning companies.
The tax is not levied on direct or indirect transfers without consideration in the course of a corporate reorganisation, under the laws of a member state of the European Economic Area (EEA), provided that at least 90% of the ultimate interest in the property remains unchanged for ten years before and after the transaction.
Tax exemptions are available, among others, for transfers between relatives in a direct line and transfers that are already subject to the German Inheritance and Gift Tax Act.
Customs duties are levied under a common system on imports into the European Union, and the rates depend on various criteria. The basis is the import value of the goods. The European Commission also sets 'countervailing' duties from time to time on specific imports from specific countries in order to counter dumping attempts.