Taxation in Germany

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Taxation
An aspect of fiscal policy
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Research Academic Mihir A. Desai Dhammika Dharmapala James R. Hines Jr. Ronen Palan Joel Slemrod Gabriel Zucman Advocacy groups Institute on Taxation and Economic Policy (ITEP) Oxfam (UK) Tax Foundation (US) Tax Justice Network (TJN) Tax Policy Center (US)
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Taxes in Germany are levied at various government levels: the federal government, the 16 states (Länder), and numerous municipalities (Städte/Gemeinden). The structured tax system has evolved significantly, since the reunification of Germany in 1990 and the integration within the European Union, which has influenced tax policies. Today, income tax and Value-Added Tax (VAT) are the primary sources of tax revenue. These taxes reflect Germany's commitment to a balanced approach between direct and indirect taxation, essential for funding extensive social welfare programs and public infrastructure. The modern German tax system accentuate on fairness and efficiency, adapting to global economic trends and domestic fiscal needs.

The legal basis for taxation is established in the German Constitution (Grundgesetz), which lays out the basic principles governing tax law. Most taxation is decided by the federal government and the states together, some are allocated solely at the federal level (e.g., customs), some are allocated to the states (excise taxes), and districts and municipalities may enact their own tax laws. Notwithstanding the division of tax law jurisdiction, in practice, 95% of all taxes are imposed at the federal level.

At the federal level, the government receives tax revenues from residents in the form of individual income tax, property sales taxes, and capital gains. The amount of federal tax liability may be reduced by various deductions, and mitigated by various allowances for children. Some non-residents are liable in Germany if they have certain types of income there. Generally, public and private corporations are liable for taxes in Germany, with certain exemptions such as charitable foundations and religious institutions. Products and services generated in Germany are subject to value-added tax (VAT) under EU rules, with certain exemptions. Other types of tax revenue include real property transfers, inheritance and gift taxes, capital gains, aviation, and motor vehicle taxes.