Basic taxes in Germany: Tax deductions make up a large part of the German budget

The legislative framework for taxation in Germany is the basic and comprehensive law, which defines not only the general conditions and procedural principles of taxation (calculation procedure, relationships and powers to collect them), but also the types of taxes, as well as the distribution of tax revenues between the federation, the states and communities.

Value Added Tax in Germany

The most significant from a fiscal point of view in Germany among taxes on legal entities is the value added tax, which replaced the previously levied turnover tax.

The object of this tax is turnover, that is, the supply of goods, the provision of services, the importation of goods and their acquisition. In practice, this is a general excise tax on private and public consumption.

Like any other indirect tax, it is a burden on the consumer, and legal entities are its technical collectors. The tax is included in the price of the goods with a mandatory separate indication of its amount in the invoices.

The scheme for calculating this tax is constructed in such a way that all goods, services, getting to the final consumer, are subject to this tax to the same extent, regardless of the number of turnovers of the goods or services on the way to the consumer. This is ensured by a system of preliminary tax deductions carried out by legal entities in the financial department. The general tax rate of 16% applies to most turnovers of goods and services, a reduced rate of 7% applies to the supply of personal consumption products, importation and consumption within the EU of almost all food products (excluding drinks and restaurants), as well as services short-range passenger transport, turnover books.

Provisional tax deductions are made only if the goods or services are used by the legal entity for production purposes.

A number of goods and services are exempt from value added tax. These include export deliveries, certain turnovers of maritime navigation and air transport, as well as a number of other services related to import, export and transit export-import operations. These goods and services are exempt from VAT.

Other exempt goods and services that do not have a provisional deduction include the services of physicians and other medical professionals, the services of the Federal Insurance Company, the services of most hospitals, summer schools, theatres, museums, as well as the provision of loans and leasing of land, and some other.

Trade tax in Germany

The trade tax in Germany is one of the main local taxes.

As for the income component of the trade tax, taxation, except for profit, is subject to an amount equal to 0.5% of the interest for the use of borrowed funds of a capital nature taken for a long period. Losses received from the activities of other enterprises are also taken into account (with the taxpayer's equity participation in it).

A number of deductions are provided: for an amount equal to 1.2% of the cost of land plots, the amount of profit received from the activities of other enterprises, as well as from the activities of foreign branches. In the presence of past years, the taxable base is reduced by their amount.

The terms of taxation for this part of the tax are differentiated by categories of taxpayers.

The second component of the trade tax as an object of taxation, as already indicated, was represented by capital. The taxable base consisted of the value of the taxpayer's own capital according to the balance sheet plus 0.5 of the cost of borrowed capital. Subject to deduction: the cost of land, the cost of capital invested in the activities of other enterprises, the cost of capital in foreign branches.

The same non-taxable minimum was established for all categories of taxpayers. The tax rate was set the same for all categories of taxpayers and is equal to 0.2%.

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The final tax amount is determined by multiplying by the rate (tariff) set by each land independently.

Land tax

Land tax is imposed in Germany on land owned by legal entities and individuals.

The collection of taxes is carried out by communities. The tax rate consists of two parts, one of which is set centrally, the other is a community surcharge.

The size of the centralized rate is differentiated by land users, which is formally reflected in the existence of two types of land tax:

• A - for enterprises of agriculture and forestry;
• B - for land plots, regardless of their ownership.

Exempt from paying the tax are institutions financed from the state treasury, churches, various non-profit enterprises, as well as lands used for scientific purposes and public purposes.

Property tax in Germany

An important place in the German tax system is occupied by property taxes, the history of which goes back more than 920 years. Property tax is imposed on the property of legal entities and individuals. As in the case of income tax, the collection of this tax distinguishes between limited and unlimited tax liability.

The basis for calculating this tax is the value of the total property of the taxpayer by the beginning of the calendar year, reduced by the non-taxable minimum. It is provided with an additional non-taxable minimum in the amount if the taxpayer is 60 years old or has received a disability for three years.

The property tax rate for legal entities is 0.6% annually of the value of taxable property, for individuals - 1.0%.

Inheritance and gift tax in Germany

An inheritance tax is a tax paid by a person who inherits money or property from a deceased person, while An inheritance tax is a tax on the estate (money and property) of a deceased person.

International tax law distinguishes between inheritance tax and inheritance tax: inheritance tax is levied on the property of the deceased, and inheritance tax is levied on the inheritance received by the beneficiaries of the inheritance. However, this difference is not always observed; for example, inheritance tax in the UK is a tax on the estate of the deceased and therefore, strictly speaking, an inheritance tax.

Inheritance and gift tax in Germany is levied at rates differentiated depending on the degree of kinship and the value of the acquired property.