Home » Germany. Information on Residency for tax purposes

Germany. Information on Residency for tax purposes

A progressive European Union country with a stable economy and, in addition, which refers to the fourth-largest economy in the world, Germany, its official name the Federal Republic of Germany, is a good place to commence your own business. It is a country with a high-income economy, with a GDP per capita of $56,956, and a population of about 83,02 million people. Thanks to its stable legal climate, highly developed and robust infrastructure, favorable social environment, qualified workforce, and extensive experience in world-class scientific research, as well as developments, Germany is an extremely appealing market both for investors and aspiring entrepreneurs. 

Ease of Doing Business in Germany

Business in Germany provides ample opportunities for foreign investors, ensuring a stable income and allowing them to get a resident permit (or residence permit) and even citizenship. All you need to do to start a business is to choose a good business idea, learn about the process of setting up, registering and running a company, as well as understand all the nuances of the German law.

Entrepreneurship in Germany is growing in popularity due to the great opportunities, prospects, and advantages. Some main advantages are:

  • No corruption and obstacles to entrepreneurship;
  • Products made and sold with the label “made in Germany” are recognized worldwide as high-quality;
  • The opportunity to open branches in Europe under simplified conditions.
  • Support from the government for promising companies.

According to the Doing Business 2020 report, ease of doing business ranking in Germany is: 

  • Rank: 22
  • DB score: 79.7

The ease of doing business score (DB score) serves as the basis for ranking economies on their business environment and shows an economy’s absolute position relative to the best regulatory performance, while the ease of doing business ranking is an indication of an economy’s position relative to that of other countries’ economies. 

Business Taxes in Germany

The taxation system in Germany has its own specific features and it can be a challenge to understand all these issues. Therefore, foreign entrepreneurs who want to launch a business in Germany often face some difficulties regarding business taxes. As a result, taxation in Germany may affect a foreign entrepreneur who wants to establish or acquire a business in Germany. Operating in this country means paying taxes like Income, Trade, VAT, Payroll Corporation, and even Church taxes, depending on the type of your business and annual income.

There are tax payments, known as the total number of taxes, that are paid by businesses (plus electronic filing). This tax is counted as paid once a year even if payments are more often. The World Bank research shows that Germany’s tax payments number is 9.

Income tax

An income tax is a tax imposed on individuals or business entities (taxpayers) in respect of their income or profits earned. Income tax rates may vary by the types or characteristics of the taxpayer and the type of the income.

As for Germany’s Personal Income Tax Rate, it is 45%.

Corporate tax

A corporate tax (also called corporation tax or company tax) is a direct tax imposed on the profits of a corporation. The corporate income tax (CIT) rate in Germany is 15% and Integrated Tax Rate on Corporate Income in Germany is 48.4%. Freelancers, partnerships, and sole proprietorships do not have to pay corporate taxes.

Capital gains tax is levied on the interest earned from deposits, securities, and dividends received by profit distribution between the shareholders. The rate of this tax is 25%, plus a 5.5% solidarity surcharge.

When you sell goods or provide services in Germany, you will be subject to VAT tax. Its rate is 19%.

There is also a tax on dividends. The Dividend Tax rate of 25% applies to subsidiaries registered in Germany. However, this rate can be reduced if there is an agreement with the federated state of Germany, in which the parent company is registered, to avoid double taxation.