Germany Income Tax (individual)

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.)

There are two types of income tax – tax on wages (Lohnsteuer) and tax on income (Einkommensteuer). The difference is the method of collection; tax on wages is withdrawn at source and paid to the tax office by the employer, while income tax (on income from self-employment, rental income, investments, etc) is paid directly by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 individual taxpayer. Based on the previous year’s 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 follow. Adjustments are made for eventual under- or overpayment.

Germany has been undergoing positive changes in its tax law in the last few years. The individual income tax rates have been decreased, from 53% (1998) to 42% (2005) in case of highest rate, and down to 15% from 25.9% as far as lowest rate. (The Merkel government has now agreed on a corporate tax reform to lower the total tax liability of corporations to 29.83% from current 38.65%, possibly effective 1 January 2008. To compensate, some of the many tax avoidance loopholes are to be closed.)

The non-taxable minimum is currently 7,664 euro for single persons (or 15,328 euro for married couples), however, there are some exceptions where this may not apply. OTHER.
Sources: PriceWaterhouseCoopers; Stb D. Roth; Bundesfinanzministerium