GERMANY Law and Practice Contributed by: Christian von Oertzen and Philipp Windeknecht, Flick Gocke Schaumburg
1. Tax 1.1 Tax Regimes Income Tax
visions by which losses can be carried backwards or forwards. A taxpayer can deduct special expenses such as pension contributions, health insurance, school fees and charitable donations, and extraordi - nary expenses such as the cost of medical treatment (in each case, up to a prescribed threshold). There are also tax reliefs for those with children, and rules that allow married couples and registered partnerships to be taxed jointly. A special tax regime applies to income from capital assets, which is subject to with - holding tax at a rate of 25% and is not subject to supplementary taxation at the taxpayer’s usual rate. The income tax rates for 2025 are as follows: • the tax-free personal allowance includes income up to EUR12,096 per annum; • the tax rate for income above EUR12,096 per annum starts at 14% and increases up to 45% for income above EUR277,826 per annum; and • in addition to income tax, a solidarity surcharge will be levied as a separate tax, at a rate of 5.5% of the definite income tax liability – this solidar - ity surcharge applies only to taxpayers with an annual income tax liability amounting to more than EUR19,950 (for a single person) and to income from capital assets. Corporations and other types of legal entities listed in Section 1 (1) of the CITA are subject to corporation tax on their worldwide profits if their place of manage - ment or registered office is in Germany. Non-resident legal entities are subject to corporate tax from certain German sources mentioned in Section 2 of the CITA in connection with Section 49 of the ITA. Partnerships are not subject to corporation tax, but the partners are individually subject to income tax. Partnerships may choose to be taxed as a corporation and for their partners to be taxed as shareholders of a corporation. Corporation tax is levied on a corpora - tion’s income, which is determined in accordance with the income schedules in Section 2 (1) of the ITA, as mentioned above (the CITA refers comprehensively to provisions of the ITA that deal with determining the income). After the deduction of any available allow - ance, profits are subject to corporate tax at a rate
Germany imposes a federal personal income tax on the worldwide income of resident individuals, under the Income Tax Act (ITA). Resident corporations, asso - ciations and certain segregated pools of assets are subject to federal corporate income tax, under the Corporate Income Tax Act (CITA). Both taxes are lev - ied annually. An individual who has a place of residence or a place of habitual abode in Germany has a worldwide income tax liability, pursuant to Section 1 (1) of the ITA. While a place of residence is defined as the possession of a property with the intention to occupy (not necessar - ily on a full-time basis), a place of habitual abode is where the taxpayer remains for more than six months. Non-resident individuals are subject to income tax from certain German sources specified in Section 49 of the ITA, especially on income derived from German real estate. The following types of income are subject to income tax pursuant to Section 2 (1) of the ITA: • income from farming and forestry; • business income; • income from self-employment; • employment income; • income from capital assets; • rental income; and • other types of income listed in Section 22 of the ITA. There are specific rules for each category, which regu - late the types of expenses that may be deducted and the tax-free allowance available for those categories. Gains on the sale of privately held assets are subject to income tax under Section 22 of the ITA if they have been held for less than ten years in the case of real estate, or one year in the case of other assets. In calculating the individual’s taxable income, the income from each of the above categories is added together, and losses can be deducted. There are pro -
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