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GERMAN TAX LAW:

AN OVERVIEW
A MY GERMAN PROPERTY FACTSHEET
POST: PHONE:
MY GERMAN PROPERTY LIMITED USA TOLL FREE: 1855-810-6781
CAPITAL OFFICE, KEMP HOUSE 152-160, UK: (+44) 020 376 91179
LONDON, ENGLAND EC1V 2NX EMAIL:
OR:
MY GERMAN PROPERTY LIMITED ENQUIRIES@MYGERMANPROPERTY.EU
BORSIGSTRASSE 9, 10115, BERLIN GERMANY
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2014 EDITION
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GERMAN TAX LAW IS VERY COMPLEX AND NUMEROUS EXEMPTIONS (AND DEDUCTIONS)
APPLY. EVERY SITUATION AND CIRCUMSTANCE IS DIFFERENT DEPENDING ON THE
INDIVIDUAL. THEREFORE WE ADVISE CONSULTING A GERMAN TAX ADVISOR/ACCOUNTANT
IN ALL INDIVIDUAL CASES.. MY GERMAN PROPERTY LTD, ITS DIRECTORS AND AGENTS
PROVIDE THIS INFORMATION MERELY A BRIEF INTRODUCTION FOR INDIVIDUAL
NON-RESIDENT INVESTORS HOLDING PROPERTY IN GERMANY (AS PRIVATE ASSET), PURELY
FOR INFORMATIONAL PURPOSES AND STRESS THIS MUST NOT BE VIEWED AS AN EXHAUSTIVE
TAX GUIDE OR AS ANY LEGALLY BINDING TAX ADVICE.
BUSINESS INCOME AND OTHER TYPES OF INCOME (GERMAN TAX LAW DISTINGUISHES SEVEN
DIFFERENT FORMS OF INCOME FOR TAX PURPOSES) ARE OUT OF SCOPE OF THIS BRIEF
GUIDE.
THE INFORMATION CONTAINED HERIN APPLIES TO PROPERTY HELD AS A PRIVATE ASSET
ONLY; PROPERTY HELD AS A BUSINESS ASSET IS TAXED DIFFERENTLY.
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*****DISCLAIMER*****
Every property owner in Germany is liable to pay real property tax (Grundsteuer). The tax rate depends on the
type of real property. This is sorted into two distinct categories property tax A. Real property used for
agriculture and forestry, and property tax B. Constructible real property or real property with buildings.
Real Property Tax Rate
The tax burden is calculated by multiplying:
the assessed value of the real property
the real property tax rate
the municipal multiplier
The assessed real property value is determined by the tax authorities according to the German Assessment Code
(Bewertungsgesetz). The German Assessment Code refers to historical property values that are usually significantly
lower than current market value.
The real property tax rate depends on the type of real property. The tax rate is, for example, 2.6 (0.26 percent)
for detached or semi detached houses with a value of up to EUR 60,000 and 3.5 (0.35 percent) for all
remaining types of real property (including commercially used real property).
A municipal multiplier applied to real property tax is stipulated by each municipality. Municipalities determine a
municipal multiplier for both real property tax A and real property tax B, with the rate for B usually being
higher. It is necessary to contact the municipality where the property you are considering buying, is located.
Depreciation
Real estate is subject to tax depreciation on an annual basis. (Land cannot be depreciated, however buildings are
depreciated over 40-50 years, depending on the year of construction. (2% annual
depreciation applies to buildings constructed in/after 1925, 2.5% for buildings constructed post 1925.) This effectively
lowers the annual tax payable in Germany.
Special rates apply to modernisation of listed (Denkmalschutz) buildings modernisation costs can be depreciated
over 12 years (9% p.a. for the first eight years and 7% p.a. in the next four
years). Modernisation of non listed properties follow the standard depreciation rates.
KEY POINTS OF THE GERMAN LAND TAX SYSTEM AT A GLANCE:
1. German property is subject to a real estate tax (Grundsteuer), levied annually.
2. Tax is based on an assessed value (Einheitswert).
3. Properties that are detached or semi detached will be subject to B taxation class.
4. The federal tax rate is 0.26 PA for detached or semi detached houses with a value of up to EUR 60,000
plus a municipal multiplier.
5. The federal tax rate is 0.35% PA for all other properties including commercial plus the municipal multiplier.
6. Depreciation of 2% for 50 years on property after renovation plus special rates for listed buildings.
RENTAL INCOME:
Rental income is taxed as income (see section on Income Tax) and is subject to the progtax rate. Interest on loans
provided to finance real estate, expenses and property related comanagement fees, insurance, etc) can be
deducted from the taxable rental income.
GRUNDSTEUER (ANNUAL REAL ESTATE TAX)
2014 EDITION
Transfer of German property is subject to a transfer tax (Grunderwerbsteuer) the equivalent of UK
stamp duty. Since 2007 this tax is no longer set at federal level and comes under authority of local governments.
The current level of property transfer tax is Germanys federal states is:
Baden-Wrttemberg: 5%
Bavaria: 3,5%
Berlin: 6%
Bremen: 5%
Brandenburg: 5%
Hamburg: 4,5%
Hessen: 5% (6% from 01.01.2015)
Mecklenburg-Vorpommern: 5%
Lower Saxony: 5%
North Rhine-Westphalia: 5%
Rhineland-Palatinate: 5%
Saarland: 5,5%
Saxony: 3,5%
Saxony-Anhalt: 5%
Schleswig-Holstein: 6,5%
Thuringia: 5%
GRUNDERWERBSTEUER (PROPERTY TRANSFER TAX)
2014 EDITION
Income tax is levied on all German income. As a general guide, the tax is progressive and levied at rates of 15-42%.
In addition, a solidarity surcharge (to pay for the former East Germany integration) of 5.5% of the total tax due is
payable. (The top rate of 42% is only levied on profits exceeding 52,152 euro.) The full tax table can be found in
table 1.
There are two types of income tax tax on wages (Lohnsteuer) and tax on income (Einkommensteuer). The differ-
ence is the method of collection; tax on wages is withdrawn at source and paid to the tax office by the employer,
while income tax (on income from self-employment, rental income, investments, etc) is paid directly by the individ-
ual taxpayer.
Based on the previous years tax assessment tax payers have to make tax pre-payments in quarterly installments
(March, June, September, December). The tax return for the year needs to be filed by 31st May of the year to fol-
low. Adjustments are made for eventual under or overpayment.
KEY POINTS OF THE GERMAN INCOME TAX SYSTEM AT A GLANCE:
1. The financial year is same as calendar i.e. January to December
2. The tax rate is based on your marital & familiar status.
"Bescheinigung fr der lohnsteuerabzug" (table 2).
3. Tax rate is progressive, not flat.
4. A Tax card, or Lohnsteuerkarte is issued from the Rathaus adetailing your tax class and your tax office for
that year.
5. No provision is made to declare any tax savings to your employer.
6. Tax paid in excess (details in FAQs) needs to be claimed back through tax return filing.
TABLE 1
TABLE 2
LOHNSTEUER & EINKOMMENSTEUER (INCOME TAX)
Tax Class Description
I Those single or separated, but not falling into either categories II or III.
II Single and separated, with a child, entitling them to a child's allowance.
III Married, or widowed employees who are within the first year of a spouse's death
IV Married employees both of whom receive income
V Married persons who would normally fall into category IV, but whose spouse is in tax class III.
VI Employees who receive income from other employment on other, or several different tax cards (Lohnsteuerkarte).
Tax % Tax Base (EUR)(For Class I) Tax Base (EUR) (For Tax class III)
0 Up to 8004 Up to 16009
14% - 42 % 8005 -52,882 16,010 -105,764
42% - 45 % 52,883-250,730 105,764 - 501,462
45% 250,731 and over 501,462 and over
There is a number of other taxes, including VAT (Umsatzsteuer or Mehrwertsteuer), additional sales taxes on certain
goods such as alcohol, tobacco, gasoline, etc, other business taxes. The most common tax encountered on a day to
day basis would be VAT: the most interesting for an investor is the Abgeltungsteuer, and the most unusual for
foreigners is the church tax.
VAT
VAT is currently 19% since 2007, although a lower rate of VAT applies to certain products, while others (such as
medical goods) are exempt.
ABGELTUNGSTEUER
The Abgeltungsteuer, or Captial gains tax, is a standard unified tax on all profit made on any capital gains, IE
property sales. The flat rate tax, is 25% of any and all profit made from the sale of goods not subject to other
taxation. Property sales fall under the Abgeltungsteuer.
CHURCH TAX.
About 70% of church revenues come from church tax. Article 137 of the Weimar Constitution of 1919 and article 140
of the German Basic Law of 1949 are the legal basis for this practice.
The church tax is only paid by members of the respective church. People who are not members of a church
tax-collecting denomination do not have to pay it. Members of a religious community under public law may
formally declare their wish to leave the community to state (not religious) authorities. With such a declaration, the
obligation to pay church taxes ends. Some communities refuse to administer marriages and burials of (former)
members who had declared to leave it.
In Germany, on the basis of tax regulations passed by the communities and within the limits set by state laws,
communities may either require the taxation authorities of the state to collect the fees from the members on the
basis of income tax assessment (then, the authorities withhold a collection fee), or choose to collect the church tax
themselves.
In the first case, membership in the community is entered onto a tax document (Lohnsteuerkarte) which employees
must surrender to their employers for the purpose of withholding tax on paid income. If membership in a
tax-collecting religious community is entered on the document, the employer must withhold church tax
prepayments from the income of the employee in addition to other tax prepayments. In connection with the final
annual income tax assessment, the state revenue authorities also finally assess the church tax owed. In the case of
self-employed persons or of unemployed taxpayers, state revenue authorities collect prepayments on the church
tax together with prepayments on the income tax.
If, however, religious communities choose to collect church tax themselves, they may demand that the tax
authorities reveal taxation data of their members to calculate the contributions and prepayments owed. In
particular, some smaller communities (e.g. the Jewish Community of Berlin) choose to collect taxes themselves to
save collection fees the government would charge otherwise.
THIS DOCUMENT IS PRODUCED BY MY GERMAN PROPERTY LIMITED
OTHER TAXES
POST: PHONE:
MY GERMAN PROPERTY LIMITED USA TOLL FREE: 1855-810-6781
CAPITAL OFFICE, KEMP HOUSE 152-160, UK: (+44) 020 376 91179
LONDON, ENGLAND EC1V 2NX EMAIL:
OR:
MY GERMAN PROPERTY LIMITED ENQUIRIES@MYGERMANPROPERTY.EU
BORSIGSTRASSE 9, 10115, BERLIN GERMANY
ON THE WEB: FACEBOOK:
WWW.MYGERMANPROPERTY.EU FACEBOOK.COM/MYGERMANPROPERTY