All residents in Germany are taxed on their worldwide income with non-resident individuals taxed on German source income only.
Income from the following categories is taxable:
• Trade and Business
• Capital Investment
• Independent Professions
• Other Income as defined by Tax Law.
German Income Tax Rates: Net Income
Net income is centred on all gross earnings received during one calendar year with the amount reduced by income related expenses. These expenses are from the same period for the above categories.
Losses can be fully offset against positive income from another category of income, so long as they are one of the seven basic categories of income – except capital investment with exceptions for ‘other income’ that may apply.
The income total following deductions represents the taxable income for each bracket. Special expenses defined by the taxation laws may (within certain limits) be reduced further by lump sum deductions.
German Income Tax Rates: Personal Income Tax Rates
For the 2015 tax year, Germany works with progressive tax rates:
€0 – €8,354 0%
€8,355 – €52,881 14%
€52,882 – €250,730 42%
€250,731 + 45%
German Income Tax Rates: Surcharges on Income Tax
To advance the economic situation and the German infrastructure with the five ‘new’ eastern states of Germany, the government of Germany has started levying a 5.5% solidarity surcharge tax, the time period for this levy is unspecified. The surcharge imposes over a percentage of all individual income taxes.
German Income Tax Rates: Churches
Officially recognised churches and their members pay church tax as a surcharge on their income tax. The rate is either 8% or 9%, all depending on the federal state where the individual resides.
German Income Tax Rates: Trade Income Tax
Income tax on trade is levied on business income. For individuals and partnerships an amount of €25,500 (tax-free) has to be considered. This rule does not stretch to corporations.
The respective municipality is responsible for the final tax assessment. The tax rate is fixed by the municipality between 200% and 450% of the basic amount, which sits at 3.5% of the business income.