Individuals continuously living in Germany for a period of six months, or longer, in a two-year period are considered ‘fiscal residents’ and are liable for income tax in Germany. However, to avoid such individuals been taxed more than once, Germany has entered into tax treaties with over 100 countries. These double tax treaties are administered by the Federal Central Tax Office (Bundeszentralamt für Steuern) rather than local tax offices.
Paying Business Taxes
All German companies are liable for corporate income tax, at 15%, and may be liable for other taxes, depending on the size of the company, its legal form and the tax classification of the owner. Note that a solidarity surcharge of 5.5% is levied on the total corporate income tax due.
Stock corporation (AG) or German limited liability (GmbH) companies are liable for corporate tax (Körperschaftsteuer) at 25%, while small to medium sized enterprises are liable for trade tax (Gewerbesteuer) at 7-17.5% and value added tax (Mehrwertsteuer) at 7% or 19%, depending on the nature of their business. Corporations are required to pay corporate income tax and trade tax quarterly, in advance, based on an estimate of the tax bill for the current financial year. If a company is affiliated with a recognised faith, it is also liable for church tax (Kirchensteuer) at 8% or 9%.
Corporate income tax and the solidarity surcharge are flat-rate, nationwide components of business taxation. Trade tax, on the other hand, is a municipal tax, starting at 7% with no statutory upper limit, at least in theory. The tax rate of a specific municipality is therefore the determining factor in the overall tax bill of any German company.