Taxation in Germany

Taxes in Germany—as it is a federal republic—are levied by the federal government (Bund), the states (Länder) as well as the municipalities (Städte/Gemeinden). Many direct and indirect taxes exist in Germany; income tax and VAT are the most significant. The German word for tax is die Steuer which originates from the Old High German word stiura meaning help. The Financial Secrecy Index ranks Germany as the 8th safest tax haven in the world, ahead of Jersey but behind Lebanon.

The German constitution (Grundgesetz) lays down the principles governing taxation in the following articles:

The right to decide on taxes is subdivided:

So even if Germany is a federal state, 95% of all taxes are imposed on a federal level. The income of these taxes is allocated by the federation and the states as following (Art. 106 Grundgesetz):

Most of the revenue is earned by income tax and VAT. The revenues of these taxes are distributed between the federation and the states by quota. The municipalities receive a part of the income of the states. In addition, there is a compensation between rich and poor states (Länderfinanzausgleich, Art. 107 para. 2 Grundgesetz).

Germany’s fiscal administration is divided into federal tax authorities and state tax authorities. The local tax offices (Finanzämter) belong to the latter. They administer the “shared taxes” for the Federation and the States and process the tax returns. The number of tax offices in Germany totals around 650.

As a result of discussions in 2006 and 2009 between Federation and States (Föderalismusreform) the Federation will further on also administer some taxes. The competent authority is the Federal Central Tax Office (German: Bundeszentralamt für Steuern, abbreviated: BZSt) which is also competent authority for certain applications of tax refund from abroad. Since 2009, the BZSt allocates an identification number for tax purposes to every taxable person.

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