KNOWLEDGE BASE Taxation Triggers
The information on this page was current at the time it was published. Regulations, trends, statistics, and other information are constantly changing. While we strive to update our Knowledge Base, we strongly suggest you use these pages as a general guide and be sure to verify any regulations, statistics, guidelines, or other information that are important to your efforts.
Taxation Triggers In Germany
When doing business in Germany, you need to consider whether your activities will trigger tax obligations, even if you are not a German based business and have no physical presence in Germany. There are several ways in which you could trigger tax obligations by doing business in Germany or with German residents.
Because income tax is far too complicated and company specific, this tax information will only pertain to the other indirect taxes you might be responsible for when doing business in Germany. In general, if your business is based in Germany or the executive board is based in Germany, you will be liable for taxes on all globally generated income. On the other hand, if neither your business nor the board is based in Germany, you will be liable for only tax on income generated in Germany, i.e., from a permanent establishment or representative, dividends, or licenses.
Because taxes are one of the most complex areas of law, and are completely business specific, you should speak with a tax attorney and/or accountant to learn about and understand your tax obligations in Germany.
Value Added Tax
Value Added Tax (VAT) applies to your company if you, as a business entity or individually, carry out any economic activity in any place in Germany. In 2023, the standard VAT rate is 19%, with a reduced rate of 7% applying to certain goods and services. For more detailed information on VAT, see Value Added Tax In Germany in the Product Localization section.
Your business may be liable for exit taxation if a transaction precludes or restricts German tax authorities’ right to tax gains received from an asset sale across national borders or for when an entity moves its headquarters or assets out of Germany.
Recent Developments and Clarifications:
New Anti-Avoidance Rules (AEAStG): Introduced in July 2023, these rules tighten the scope of exit taxation and introduce additional triggers.
Supreme Court Ruling on Return: A 2023 Supreme Court decision clarified that companies returning to Germany within five years after leaving might be exempt from exit taxation.
EU Member State Influence: EU regulations and interpretations can impact the application of exit taxation in Germany, adding another layer of complexity.
Real Estate Tax
Real estate taxes are imposed annually on all real property, and are levied by local municipalities. There is also a real estate transfer (for the sale of real property) tax, the rate of which varies depending on the location of the real property. The Grundsteuer is calculated based on the property's "Einheitswert," a standardized value determined by the German tax authorities. However, reform measures are underway to gradually shift to a market-based valuation system by 2025, potentially impacting tax calculations in the future.
KNOWLEDGE BASE Taxation Triggers