Tax in Germany

Tax is the compulsory financial charge imposed on taxpayers or on eligible people to pay by the government in order to meet the public expenditures. Not paying taxes even though being eligible is a punishable act according to laws. Taxes may be direct or indirect. The tax was first-ever collected in Ancient Egypt around 3000 – 2800 BC. 

Purpose and Effects of Tax

  • The imposition of taxes is to ensure revenue to fund governing or to alter the prices of the commodity to affect the demand.
  • Many functions are carried out by states by the taxation amount received from people.
  • Some of the functions completed by the government include; Construction of roads, sanitation, public transportation, public safety, legal systems, and health care systems.
  • Scientific researches, military, culture and the arts, data collection and dissemination, public works, operations of government itself, public insurance, etc are also done by the government with revenue.

Types of Taxes

The OECD (Organization for Economic Co-operation and Development) published an analysis of the taxes of member countries. Taxes are imposed on almost everything and thus are classified in different categories:


  • Income Tax


Income tax works on Pay as you Earn criteria. In this, the amount to be paid as tax is determined by the amount the taxpayer is earning. It is basically some percent of their annual income. 

For a businessman, it is determined by the net profit or net gain during the tax year. It is also some percent of their earning.


  • Capital gains


Generally, capital gains are a gain on sale of capital assets; assets that are not held for sale in the ordinary course of business. The taxes on capital gains may be on partial or preferential rates. 


  • Corporate


Income tax, capital tax, net – worth tax, or other taxes that impose on corporations are together called as corporate. The rates o tax on corporate may vary from individual taxes or other taxable persons. 


  • Payroll or workforce


Unemployment and similar taxes are often imposed on employers based on total payroll. These taxes may be imposed in both the country and sub country levels.

Goods and Services

Goods and services tax is also known as Value added Tax (VAT). It is usually administrated by requiring the company to complete the Value added tax (VAT). The accountability and auditability are improved by introducing Automated Value Added Tax in many Tax authorities by utilizing computer systems. 

Tax Criteria in Germany

Income tax in Germany is considered progressive. The rates of Income tax in Germany start at 14% and rises incrementally up to 42%. But the rates of tax on very high income are 45%. A maximum tax of 42 % is applicable to the income worth 55, 961 German currency, and for income above 265, 327 a tax of 45 % is applied.

To calculate tax on different incomes in Germany, check this tax calculator for Germany and do it on your ease. This calculator for Germany accounts for rates and income on its own and does not bother the user at any stage.


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