Key takeaways

• If you earn or receive money (inheritance or gift), you must pay tax on it.
• The German tax system offers different tax allowances on different types of taxes.
• The tax rate depends on various factors, such as the type of tax, income, employment status, and entity status.
• You must be aware of the tax filing deadlines for each type of tax. Failing to file a tax or inform the tax office may result in a heavy fine or imprisonment.

This is how you do it

• Filing an income tax return is usually required by law. But it’s optional for employed individuals with no other form of income.
• We highly recommend that you file an income tax return in Germany. This way, you can get back thousands of euros in taxes yearly.
• You can hire a tax advisor (Steuerberator) or use online tools to file it. We recommend SteuerGo*, Wundertax*, and Smartsteuer*.
• For employed people, filing an income tax return using online tools is the best and cheapest way.

Table of Contents

Germany has 13 types of taxes. You pay different taxes depending on your employment status, investments, and spending.

Here is a summary of different types of taxes in Germany.

Tax type	Tax rate	Basic tax-free allowance
Income tax for self-employed (Einkommensteuer)	Progressive tax rate (14% to 45%)	11,604 € per annum (as of 2024)
Income tax for employed (Lohnsteuer)	Progressive tax rate (14% to 45%)	11,604 € per annum (as of 2024)
Capital gains tax (Investmentsteuer)	25% plus 5.5% solidarity surcharge Church tax, if applicable	1000 € per annum
Withholding tax (Abgeltungsteuer)	25% plus 5.5% solidarity surcharge Church tax, if applicable	1000 € per annum
Crypto tax	Based on your personal tax rate	600 €
Value-added tax (VAT) (Umsatzsteuer)	19% on normal goods and services.  7% on goods and services like food, books, transport, etc.	NA
Trade tax (Gewerbesteuer)	Business income x 0.035 x Federal state’s tax rate	24,500 € (as of 2024) only for entities that are not corporations
Property tax (Grundsteuer)	The municipality calculates the property tax. On average, it’s between 270 € and 500 €.	NA
Property transfer tax (Grunderwerbsteuer)	The tax rate depends on the federal state. It’s between 3.5% (Bavaria) and 6.5% (Brandenburg).	NA
Motor vehicle tax (Kraftfahrzeugsteuer)
Inheritance and gift tax (Erbschaft- & Schenkungsteuer)	The tax rate depends on your relationship with the person from whom you inherited wealth. It’s between 7% and 50%.	The tax-free allowance depends on your relationship with the person from whom you inherited wealth. It’s 500,000 € for married couples or registered partners and 400,000 € for children.
Corporate tax (Körperschaftsteuer)	15% flat	There is no allowance for corporations like AG and GmbH. The allowance is 5000 € and 15,000 € for certain corporations, such as non-profits and agriculture.
Insurance tax (Versicherungsteuer)	Varies between 0% and 19%	NA
Fire protection tax (Feuerschutzsteuer)	Varies between 19% and 22%, but the tax office doesn’t consider the whole premium for taxation.	NA
Radio tax	18.36 € per month as of 2024	NA

Income tax for self-employed (Einkommensteuer)

What is it?

Income tax is the tax you pay on your earnings. The expenses you incurred to earn that income are tax deductible.

You should record all your expenses and keep the invoices as proof to get the most tax savings. How much tax you pay depends on your income.

Germany follows a progressive tax system. This means that the tax rate increases with your income. So, high earners in Germany pay more tax than the low earners.

However, there are ways to save taxes in Germany. Our guide explains them. You can also download the free cheatsheet summarizing all the expenses you can deduct from taxes in Germany.

Who pays the income tax?

Everyone working as a self-employed or freelancer in Germany pays income tax (Einkommensteuer). You don’t pay any tax if your income is below 11,604 € per annum (as of 2024).

This sum is referred to as the basic tax-free allowance (Grundfreibetrag).

When do you pay the income tax?

As a self-employed individual, you can pay income tax monthly, quarterly, or annually.

NOTE: Self-employed and freelancers in Germany are legally required to file income tax returns. Not filing income tax may lead to fines and imprisonment.

Income tax for employed and pensioners (Lohnsteuer)

What is it?

Like self-employed and freelancers, employed people must also pay income tax. The same rules and taxation apply to salaried individuals.

The only difference between Einkommensteuer and Lohnsteuer is how and when the tax is deducted. 

The employer deducts taxes from the employee’s income. This means you get the salary after taxes (Lohnsteuer) have been deducted. 

On the other hand, self-employed or freelancers pay income tax later. So they have more disposable income during the year.

Who pays it?

Every employed person in Germany pays income tax on their salary. The tax is deducted automatically by the employer. 

The basic tax-free amount for the employed is the same as for the self-employed, i.e., 11,604 € per annum (as of 2024). In addition, you can deduct expenses to save tax. 

When do you pay the income tax?

The employer deducts the tax before transferring the salary to your account. Filing an income tax return is optional for employed individuals, but we highly recommend it.

By filing an income tax return, you can recover hundreds to thousands of euros in taxes. Use our cheat sheet to save taxes in Germany during tax declaration.

You can use one of the online services to file an income tax return. We recommend SteuerGo*, Wundertax*, and Smartsteuer*.

Capital gains tax or tax on the profits from your investments (Investmentsteuer)

What is it?

When you sell your investment, you pay taxes on the profits. The capital gain tax rate varies depending on the type of investment.

Stocks, ETFs, Mutual funds

The capital gain tax on profits from stocks, ETFs, and mutual funds is 25% flat plus a 5.5% solidarity surcharge. You also pay church tax on your capital gains if you are a church member.

The total capital gain tax rate is 26.375%, including the surcharge. After adding the church tax, the capital gains tax increased to 27.82% (Baden-Württemberg and Bavaria) and 27.99% (other federal states).

You also pay capital gain tax on dividends and interest. However, you get a tax-free allowance of 1000 € on income/gains from stocks, ETFs, and mutual funds.

Crypto

The tax authorities tax the profits from selling crypto based on your personal tax rate. So, if you are a high earner, you’ll pay 42 to 45% in taxes.

However, you don’t pay any taxes if you sell crypto after 1 year. So, it’s recommended that you hold crypto for at least 1 year.

The tax-free allowance on profits from crypto is 600 € (as of 2024). You can check on Koinly* for free (up to 10k transactions) how much profits you have made in a calendar year on which you must pay tax.

Real estate

Like crypto, you pay taxes on the profits from selling property in Germany. The tax rate is based on your personal tax rate.

However, you don’t pay any taxes if you sell the property after 10 years (if you were not living in it) or 3 years (if you were living in it).

Who pays it?

Everyone living in Germany must pay capital gains tax on their investments. 

When do you pay capital gains tax?

The banks and depots withhold the tax on income from dividends and interest. But you pay the profits from selling the crypto, stocks, ETFs, and mutual funds after filing the income tax return.

The tax on the profits from selling a property is due after you sell the property.

Withholding tax (Abgeltungsteuer)

What is it?

The tax office introduced a withholding tax to collect taxes in advance on capital gains. In withholding tax, your bank or broker withholds the tax on income from dividends and interests.

This means the bank or broker will deduct the withholding tax before paying you the dividend or interest. The withholding tax also applies to foreign securities held in German brokerage accounts.

The withholding tax rate is the same as the capital gains tax rate, i.e., 25% plus 5.5% solidarity surcharge and church tax (if applicable).

You don’t have to declare the income from capital gains in the tax return for which you already paid the withholding tax. 

When do you pay withholding tax?

Your bank or broker deducts the withholding tax before paying you the dividends and interests. The capital gains tax-free allowance of 1000 € applies to withholding tax.

You can submit an exemption order to your bank or broker to not deduct tax on the tax-free amount. We recommend submitting the exemption order, as you can invest the tax-free income to earn more.

Who pays withholding tax in Germany?

Everyone who has an account with a bank or broker operating in Germany.

Value added tax (VAT) (Umsatzsteuer)

What is it?

Sales tax, also known as value-added tax, is the tax you pay when you consume goods or services. Companies collect VAT from their consumers and pay it to the tax office.

How much VAT you pay depends on the type of goods or services you consume. You pay 19% VAT on normal goods and services. However, you pay a reduced VAT of 7% on goods and services like food, books, transport, etc. 

Who pays value-added tax in Germany, and when?

Companies, self-employed, and freelancers collect VAT from their customers and pay it to the tax office. You must regularly inform the tax office about how much sales tax you have collected. 

You can submit an advance sales tax return every month or quarter. But you must do so only if your sales exceed a certain amount. 

In addition, you submit a sales tax return at the end of the year. This summarizes all the sales for the year.

Trade tax (Gewerbesteuer)

What is it?

Trade tax is the tax that companies pay on their business income. Do not confuse business income with profits. They are two different terms.

The tax office considers business income when calculating the trade tax. This guide does not discuss how the tax office calculates business income.

The trade tax varies based on which federal state you registered your business in. 

How do you calculate trade tax in Germany?

1. Add the appropriate additions to your annual profit and subtract the reductions to get your “business income.” Round down the business income to the full 100 €. For example, round down 150,170 € to 150,100 €.
2. If you do not run a corporation, you can deduct the tax-free amount of 24,500 € (as of 2024) from your business income.
3. Multiply the result by the tax measure of 3.5%. It’ll give you your tax base amount.
4. Multiply the tax base amount by your state’s business tax rate. The result is the trade tax you must pay.

Example

You are a self-employed individual registered in Berlin.

• Annual profit: 150,000 €
• Taxable profit: 150,000 € – 24,500 € = 125,500 €
• Trade tax measurement amount: 125,500 x 0.035 = 4,392.50 €
• Trade tax: 4,392.50 x 4.10 (Berlin’s business tax rate) = 18,009.25 €

Property tax (Grundsteuer)

What is it?

If you own a property in Germany, you must pay property tax. The municipality calculates the property tax and communicates it to the owner. In Germany, the average property tax is between 320 € and 770 €.

Who pays it?

Property owners must pay the property tax annually. You can transfer the property tax to the tenant if you are a landlord.

You cannot deduct property tax from your income tax return.

When do you pay the property tax?

Property tax is due annually and can be paid quarterly, semi-annually, or annually. You can sign a “SEPA Lastschriftmandat,” and the municipality will automatically deduct the property tax.

Property transfer tax (Grunderwerbsteuer)

What is it?

You pay property transfer tax when you buy a property or land in Germany. Each federal state sets the property tax transfer (Grunderwerbsteuer).

As of 2024, the property transfer tax rates in individual federal states are the following:

• Bavaria, Saxony: 3.5%
• Baden-Württemberg, Bremen, Lower Saxony, Rhineland-Palatinate: 5%
• Hamburg, Saxony-Anhalt: 5.5%
• Berlin, Hesse, Mecklenburg-Western Pomerania: 6%
• Brandenburg, North Rhine-Westphalia, Saarland, Schleswig-Holstein, Thuringia: 6.5%

Who pays it?

The buyer pays the property transfer tax. You pay the tax at the rate in the federal state in which you bought the property. The state where you live doesn’t matter.

You can also deduct the property transfer tax from your income tax return if you rent the property. Suppose you live in the property yourself. In this case, you can’t deduct the property transfer tax from your tax return.

When do you pay property transfer tax?

Property transfer tax is due once you sign the purchase contract (Kaufvertrag).

Motor vehicle tax (Kraftfahrzeugsteuer)

What is it?

The federal government collects the motor vehicle tax in accordance with Articles 106 and 108 of the Basic Law. With annual tax revenue of around nine billion euros, it represents the government’s fourth-largest source of income.

Since 2021, vehicle tax has been based more on the CO₂ value of a vehicle. Moreover, newly registered cars with high fuel consumption pay a higher vehicle tax.

The German federal government exempts the following types of vehicles from motor vehicle tax.

• Fire brigades, ambulances, disaster control vehicles, etc. 
• Vehicles used for agriculture and forestry purposes
• Public transport or vehicles used to transport people
• Vehicles used for showman business
• Delivery vehicles
• Vehicles with foreign registration
• Electric vehicles are exempt from vehicle tax until the end of 2030
• Cars with low CO2 emissions (95g/kg) can get tax relief.
• Motor vehicle trailers are exempt from the tax if you pay the trailer surcharge.

Who pays it?

Every car owner who is not exempted from the motor vehicle tax must pay it.

If you are self-employed, you can deduct vehicle tax as a business expense from your tax return. However, you should use the vehicle 50 to 100% for business purposes.

On the other hand, employed people can claim a travel allowance as a business expense if they travel to work by car.

When do you pay motor vehicle tax in Germany?

You pay the vehicle tax once a year in advance. It will be due from the day you register the car in your name. 

You can pay the tax sime-annually if the vehicle tax is more than 500 €. Quarterly payment is also possible if the vehicle tax is more than 1,000 €. Monthly payment is not possible

Inheritance and gift tax (Erbschaft- & Schenkungsteuer)

What is it?

When you receive an inheritance on the death of your relative, you are required to pay tax on it. The tax you pay is called inheritance tax.

For example, a distant aunt died, leaving behind a small fortune. Anyone who achieves unexpected wealth in this way must inform the tax office.

Who pays it?

Everyone living in Germany is legally required to pay inheritance and gift tax, regardless of nationality. The tax office sends you an official declaration form for the inheritance or gift received. 

The tax office offers high tax-free allowances on inheritance tax for close relatives. 

• The tax-free allowance for spouses and registered life partners on inheritance tax is 500,000 €. 
• The tax-free allowance for children is 400,000 €
• The tax-free allowance for grandchildren is 200,000 €.

When do you pay the inheritance and gift tax?

You must inform the tax office (Finanzamt) about the inheritance or gift within three months of becoming aware of it. 

Corporate tax (Körperschaftsteuer – KSt)

Natural persons pay income tax, but what about legal entities like AG, GmbH, etc.? Legal entities or corporations pay corporate tax on their profits or taxable income.

Corporate tax in Germany is 15% flat and independent of a corporation’s earnings. You might think it’s not much, but corporations also pay sales and trade taxes.

In 2018, the Germany-wide average trade tax was 14.7%.

Tax allowances on corporate tax?

• Non-profit organizations and legal entities owned by the state get a tax allowance of 5,000€
• Under certain conditions, agricultural and forestry associations get a tax allowance of 15,000 €.
• Corporations, such as AG or GmbH, don’t receive any tax allowance.

Insurance tax (Versicherungsteuer)

Insurance companies pay insurance tax on the premiums they collect from their customers. In other words, insurance providers collect the tax from their customers as part of the insurance premium and pay it to the tax office.

Insurance tax is a transaction tax. This means that when a transaction between two entities occurs, that transaction is liable for taxation.

Here is how much tax you pay on different types of insurance in Germany.

Insurance	Tax rate
Car insurance	19.00%
Private liability insurance	19.00%
Building insurance without fire	19.00%
Building insurance with fire	16.34%
Hail insurance	0.03%
Occupational disability insurance	0.00%

Source: [2]

Fire protection tax (Feuerschutzsteuer)

Certain types of insurance in Germany are liable for fire protection tax. The insurance company pays this tax.

The federal central tax office levies the fire protection tax to promote preventive fire protection and fire extinguishing. The insurance policies on which fire protection tax is levied.

Insurance	Taxable amount	Tax rate
Fire insurance (Feuerversicherungen)	40% of the insurance contribution	22%
Residential building insurance. You pay tax on the portion that covers fire insurance.	14% of the insurance premium	19%
Household contents insurance. You pay tax on the portion that covers fire insurance.	15% of the insurance premium	19%

Source: [1]

References

• https://lstn.niedersachsen.de/steuer/steuermerkblaetter_und_broschueren/informationen-zur-abgeltungsteuer-67733.html
• https://www.buhl.de/steuer/ratgeber/umsatzsteuer
• https://gruenderplattform.de/unternehmen-gruenden/gewerbesteuer
• https://www.deubner-steuern.de/themen/grunderwerbsteuer
• https://www.hausfrage.de/grundsteuer-berechnen
• https://www.steuertipps.de/lexikon/f/feuerschutzsteuer