Income Tax

Income tax is always the tax on income of a private person and never a company or corporation! This income can be from employment or from a business or from renting out – this is not relevant.

Who is subject to income tax?

Every physical person and private partnership are subject to income tax. This also includes minors, and elderly people. They all fall under the same rules. Sometimes it might be a good idea to share income – especially with minors. This will be able to use the statutory set-offs.
§§§§

How high is income tax?

Taxable income starts at € 8,652 with 14% income tax and leads in brackets up to approx. 52% starting € 52,882. Double these values for married persons (§32a EStG).
§

How is the taxable business income to be determined?

The general principle income taxation in Germany is based on the individual performance. Your world-wide income will generally be taxed in Germany but double taxation agreements will usually prevent you from paying taxes in Germany and at home.
§

Who is subject to income tax?

Every physical person is subject to income tax. This also includes minors, and elderly people. They all fall under the same rules. Sometimes it might be a good idea to share income – especially with minors. This will be able to use the statutory set-offs.
§§§§

Computing the Taxable Income
– pursuant to §2 EStG. (N.B. This overview covers about 90% of the rules!)
  Turnover
(earnings before
operational deductions)
Einnahmen
(Einkünfte vor Abzug
von Betriebsabgaben
)
  earnings (= profit) Einkünfte (= Gewinn)
minus contribution to assistance for old-age Altersentlastungsbeitrag
minus relief for single parents Entlastungsbeitrag für Alleinziehende
  = total amount of earnings = Gesamtbetrag der Einkünfte
minus special expenses Sonderausgaben
minus extraordinary expenses Außergewöhnliche Belastungen
  income = Einkommen
minus Kindergeld oder Kinderfreibetrag
  = income to be taxed or taxable income = zu versteuerndes Einkommen

 

Why is the tax law and taxation in Germany so very complicated?

The law on taxes in Germany is as regular as the irregular verbs in the English language. This fact is due to the Germans’ attitude toward the fiscal authority. It is considered as a sport, comparable to a cat and mouse game, for a German to outwit the fiscal authority in order to reduce tax payments as much as possible. This corresponds with the difficulty of tax law. The eagerness for this game supposedly derives from the general dissatisfaction with Germany’s political and/or commercial situation.
§

Do I not have to pay any value added or sales tax when I buy something? I have been always paying the price on the tag and nothing more.

Sure, you are paying value added tax. Here we typically have all inclusive prices. Taxes and service fees must be included in prices for the end consumer (§1 I 1 PAngV). As a businessman on the other hand, you will often find two or three sums as the “price” (net/gross sum, VAT). What ever the price structure may be, do take a good look for the final price.
§