Non-residents are taxed in Germany on income arising from German sources only. You are considered tax resident in Germany if you spend at least 183 days there per year or if your main resident home or centre of business is located in Germany.
You will also be obliged to file a tax return detailing your worldwide income in your home (tax resident) country.
Where a double taxation agreement exists between Germany and your home country, which provides for double taxation relief, then a deduction for tax paid in the foreign country can be offset against tax on the same income in your home country. A double taxation agreement exists between Germany and Ireland / UK.
Tax on purchase:
German Transfer Fees. The transfer of German real estate is subject to a real estate transfer tax (RETT). The rate varies per region but is generally 3.5% of the purchase price of the property (4.5% in Berlin).
VAT is charged at the standard rate of 19% (previously 16%) or a reduced rate of 7%. The transfer of real estate is not subject to VAT, however, it is possible to ‘opt to tax’ depending on the purchaser’s VAT status.
Ongoing property taxes:
German Income Tax rates vary between 14% - 45% (plus solidarity tax of 5.5% of tax paid) : see 2012 chart below. The previous minimum rate of 25% for non-residents no longer applies. The Tax Office (Finanzamt) estimate the tax liability for the current year based on the final payment for the previous year and require you to make quarterly payments of tax in March, June, September and December.
| Tax % | Tax Base (EUR) |
|---|---|
| 0 | Up to 8,004 |
| 14% | 8,004-52,881 |
| 42% | 52,882-250,750 |
| 45% | 250,751 and over |
The final tax liability is determined by filing an Income tax return, which must be filed by the 31 May.
Non residents are subject to German withholding tax on income from rental or leasing of certain property. The withholding tax rate is 25% (of gross income without deduction for costs). Non-Residents can avoid withholding tax on rents if they register with the German tax office and elect to be taxed on net rents after costs at rates varying from 14%-45%, similar to residents.
German Corporate Income Tax is payable if property is purchased through a company and is calculated @ 15% on the company profits after costs. No tax is withheld on rental payments to non-resident companies holding German property. Trade tax at varying rates depending on the location applies if a trade is carried out or if the income is earned by a permenant establishment in Germany. The average trade tax rate is 14-17%. A Solidarity tax of circ. 1.25% also applies.
Local German Property tax is a communal tax levied by the local authority in each region. There are 2 types: A. applies to agricultural property and B. to building land & buildings. The tax is calculated using the unit value (einheitswert) as fixed by the Finance Authority (ie assessed value which is usually lower than the purchase price) and rates depend on the location of the property. Rates in West Germany range from 2.6% - 6%. However the average rate for residential property is 3.5%. A multiplier is then applied to the % calculation.
Transfer taxes:
German Capital Gains Tax (CGT) rate is the same as the personal income tax rate. The profits from the sale of private real estate that has been held for more than 10 years is exempt from capital gains tax. Capital gains from the sale of real estate that is re-invested in the purchase of alternative real estate is exempt from tax, subject to certain conditions.
German Inheritance Tax and gift tax are assessed on the basis of the taxable property with rates varying between 7%-50%. This is the amount by which the beneficiary is enriched and which is not subject to tax exemption. The value of each asset is determined in accordance with the Valuation Law. The rates of German IHT or gift tax vary and depend on the relationship between the donor and beneficiary and the value of the inheritance/gift.