Employees in Germany
      Back to home
      1. Help Center
      2. Taxes in Germany
      3. Employees in Germany

      Taxes: The German tax system

      And what it means for companies in Germany, especially when a company also employs employees in Germany

      German Taxes for Companies

       

      Profit-Based Taxes:
      • Corporate Income Tax (CIT): 15% of your company's profit (revenue - costs).
      • Trade Tax: Around 15% of your profit, but the exact rate varies by municipality.
        • You'll receive an estimated trade tax bill from your local trade office based on your previous year's profit.
        • This estimated tax is paid in quarterly installments.
        • At the end of the year, the final trade tax is calculated based on your actual profit. Any overpayment or underpayment from your quarterly installments is settled then.
      Important Notes on Profit-Based Taxes:
      • No Profit, No Tax: If your company doesn't make a profit, you won't owe corporate income tax or trade tax.
      • Potential for Overlap: Even if you don't expect to make a profit in the current year, you might still have to pre-pay trade tax based on the previous year's estimate. Don't worry, you'll be reimbursed if your year-end report shows no profit.
      Employee-Related Taxes and Costs:
      • Gross Salary: The agreed-upon salary stated in the employee's contract.
      • Employer Contributions: As an employer, you'll pay approximately 30% of the employee's gross salary in social security contributions (health insurance, pension, unemployment insurance, etc.).
      • Employee Tax Withholding: You'll withhold income tax from your employee's gross salary each month. The exact rate varies depending on their income and tax bracket, but it's typically around 40-50%.
      • Taxable Benefits: Most employee benefits (company car, gym membership, etc.) are considered taxable income.
      Audits and Back Payments:
      • Tax audits are a normal part of doing business in Germany.
      • Auditors ensure that all taxable income, including employee benefits, has been properly declared and taxed.
      • If an audit reveals untaxed benefits, you may be required to make back payments for both the employer and employee portions of the taxes.
      Addressing Your Specific Situation:
      You mentioned an audit that resulted in back payments due to untaxed employee benefits. This is a common issue. To avoid this in the future, make sure to:
      • Properly classify all employee benefits.
      • Calculate and withhold the correct taxes on all benefits.
      • Keep accurate records of all compensation and benefits.
      • Consult with a tax advisor if you have any questions or uncertainties.

      By understanding the German tax system and staying organized, you can ensure compliance and avoid unexpected tax liabilities.

       

       

      FAQ

      German Tax System FAQ

      1. What are the main profit-based taxes for companies in Germany?

      There are two main profit-based taxes:

      • Corporate Income Tax (CIT): This is a flat rate of 15% of your company's profit (revenue minus costs).

      • Trade Tax: This tax averages around 15% of your profit but the exact rate varies depending on the municipality where your business is located.

      2. How is the trade tax calculated and paid?

      Your local trade office will send you an estimated trade tax bill based on your previous year's profit. This estimated tax is paid in quarterly installments. At the end of the year, the final trade tax is calculated based on your actual profit. If you are overpaid or underpaid during the year based on your quarterly payments, this will be settled at the end of the year.

      3. Do I have to pay profit-based taxes if my company doesn't make a profit?

      No. If your company doesn't make a profit, you will not owe corporate income tax or trade tax. However, you may still need to pre-pay trade tax based on the previous year's estimate even if you don't expect to make a profit in the current year. You will be reimbursed if your year-end report shows no profit.

      4. What employer-related taxes and costs should I be aware of in Germany?

      As an employer in Germany, you will be responsible for the following:

      • Employer Contributions: You will need to pay approximately 30% of your employee's gross salary in social security contributions, which include things like health insurance, pension, and unemployment insurance.

      • Employee Tax Withholding: You are required to withhold income tax from your employee's gross salary each month. The exact rate will vary depending on their income and tax bracket, but it is typically around 40-50%.

      • Taxable Benefits: Most employee benefits such as company cars or gym memberships are considered taxable income.

      5. What are tax audits and why are they important?

      Tax audits are a normal part of doing business in Germany. Auditors ensure that all taxable income, including employee benefits, has been properly declared and taxed.

      6. What happens if an audit reveals untaxed employee benefits?

      If an audit finds untaxed benefits, you may be required to make back payments for both the employer and employee portions of the taxes.

      7. How can I avoid issues with untaxed employee benefits in the future?

      To avoid problems with tax audits and back payments, ensure you are doing the following:

      • Properly classify all employee benefits.
      • Calculate and withhold the correct taxes on all benefits.
      • Keep accurate records of all compensation and benefits.
      • Consult with a tax advisor if you have any questions or uncertainties.