Taxes in Germany in 2026

Who pays tax in Germany: residency and its traps

Residents are taxed on worldwide income, non-residents only on German-source income. The trap is that residency is decided by housing, not by days. There are two independent tests and either one is enough:

• Wohnsitz (section 8 Abgabenordnung) - you have a home in Germany that you keep and use. There is no day count at all: a rented flat, a room at a relative's place with your belongings, or a house you hold the key to is enough.
• Gewöhnlicher Aufenthalt (section 9 Abgabenordnung) - a continuous stay of more than six months, short trips abroad do not break it.

So you can spend two months in the country and still be a resident if the flat stayed yours. Most reassessments after a relocation start exactly here.

What a non-resident pays

If at least 90% of your worldwide income is German, section 1(3) EStG lets you elect unlimited liability and access family reliefs.

German income tax in 2026: the scale, solidarity surcharge, church tax

Tax is computed from the formula in section 32a EStG rather than from steps: inside zones two and three the marginal rate rises continuously with every euro. The 2026 thresholds were indexed by roughly 2%.

For jointly assessed spouses (splitting) every threshold doubles: the allowance is 24,696 EUR and 42% starts at 139,758 EUR. This is the main tax benefit of marriage in Germany.

Solidarity surcharge

The Solidaritätszuschlag is 5,5% of the tax, not of income. Since 2021 only a minority pays it: in 2026 it starts once assessed income tax exceeds 20,350 EUR for singles and 40,700 EUR for joint filers, and inside the transition band it cannot exceed 11,9% of the excess. The exemption does not apply to corporate income tax or to tax on investment income, where the surcharge is always withheld.

Church tax

Kirchensteuer is paid only by registered members of churches that collect it: 9% of the income tax, 8% in Bavaria and Baden-Württemberg. A classic newcomer mistake is to state a denomination on the residence registration form - payroll starts deducting immediately, and the only way out is a formal church exit, with no retroactive refund.

What reduces the base

• Employee expense allowance - 1,230 EUR a year without receipts.
• Commuting allowance - from 2026 it is 38 cents per kilometre from the first kilometre.
• Insurance contributions: pension in full, health and long-term care at the basic level.
• Child allowance 9,756 EUR or child benefit of 259 EUR a month - the tax office applies whichever is better.

German tax classes (Steuerklassen) 1-6

Your tax class does not change the annual tax bill - only the size of the monthly withholding. The final figure is set by the tax return, and the difference is refunded or paid in.

The III/V combination maximises monthly cash and almost always ends in a spring back-payment. IV/IV with factor splits the burden honestly but leaves less in hand each month.

The effect people forget: benefits calculated from net pay depend on the class - parental allowance, sick pay, unemployment benefit. A future parent should therefore switch class at least seven months before the reference period. With classes V and VI, with the factor method and with allowances entered in ELStAM, a tax return is mandatory.

Abolishing classes III and V has been debated since 2024 with 2030 named as the date, but the provision was removed from the enacted law: in 2026 both classes still apply.

Social contributions and 2026 ceilings

For mid-range salaries contributions weigh more than income tax and are barely optimisable. They are split with the employer and are charged only up to a ceiling (Beitragsbemessungsgrenze).

Each health fund sets its own surcharge and the spread reaches about 1,5 percentage points - the one easy saving available. Saxony splits the care contribution differently.

The threshold for compulsory statutory health insurance is 77,400 EUR a year; above it you may switch to private cover. That decision is close to irreversible: after 55 a return to the statutory system is effectively impossible, private premiums rise with age and do not cover non-working family members for free.

The minimum wage is 13.90 EUR an hour from 1 January 2026 and 14.60 EUR from 2027. Hence the mini-job limit of 603 EUR a month, on which the employer pays about 30% in flat contributions and the employee pays nothing.

Self-employed people are usually outside the pension system, but the exceptions are broad: certain craft trades, teachers without employees, and creative professions through the Künstlersozialkasse.

Worked example: an 80,000 EUR salary and 200,000 EUR of GmbH profit

Figures are rounded: Berlin, average health fund surcharge, no church tax.

Employee, class I, gross 80,000 EUR a year

• Pension insurance: 9,3% of 80,000 EUR = 7,440 EUR
• Unemployment insurance: 1,3% of 80,000 EUR = 1,040 EUR
• Health insurance: 8,75% of the 69,750 EUR ceiling = 6,103 EUR
• Long-term care: 1,8% of the 69,750 EUR ceiling = 1,256 EUR
• Employee contributions: about 15,840 EUR

After the expense allowance and the deductible insurance contributions taxable income is roughly 64,200 EUR, and income tax under section 32a is about 15,900 EUR. The solidarity surcharge is zero because the tax stays below the 20,350 EUR threshold. Church membership would add roughly 1,430 EUR.

Net pay is around 48,300 EUR, about 60% of gross. The employer adds some 16,600 EUR in contributions, so the full cost of the employee is about 96,600 EUR a year.

GmbH in Berlin, pre-tax profit 200,000 EUR

• Corporate income tax 15% = 30,000 EUR
• Solidarity surcharge 5,5% of it = 1,650 EUR
• Trade tax: 3,5% of profit = 7,000 EUR, multiplied by Berlin's 410% = 28,700 EUR
• Total 60,350 EUR, an effective rate of 30,2%

In Munich, at 490%, the same 200,000 EUR costs 65,950 EUR, or 33,0%. If the remaining 139,650 EUR is distributed as a dividend, another 26,375% is withheld - about 36,830 EUR - so the combined burden from company profit to money in a personal account is around 48,6%. That is why profit is often retained or paid out as salary, which reduces the base of both corporate taxes.

Capital, property and crypto taxes

Investment income of individuals is taxed separately from earned income, at a flat rate.

• Abgeltungsteuer - 25% plus the solidarity surcharge, 26,375% in total. With church tax the effective rate is 27,82% at 8% and 27,99% at 9%.
• Investor allowance - 1,000 EUR a year, 2,000 EUR for spouses. To stop the bank withholding automatically you file a Freistellungsauftrag.
• Vorabpauschale - a deemed minimum return on accumulating funds and ETFs: the tax is taken in January even if you sold nothing. The base rate is published annually by the finance ministry, so check it at the time of the deduction.
• Teilfreistellung - partial exemption for funds: 30% for equity funds, 15% for mixed funds, 60-80% for real estate funds.
• Günstigerprüfung - if your marginal rate is below 25% it is better to declare investment income in the return.
• A stake of 1% or more falls out of the flat rate: 60% of the result is taxed on the normal scale.

Real estate

Gains on private property are exempt after 10 years of ownership, and immediately if the property was your own home in the year of sale and the two preceding years. Rental income is taxed on the scale after interest, costs and depreciation of 2-3% a year. Real estate transfer tax is set by the federal state: from 3,5% in Bavaria up to 6,5%, and 6% in Berlin.

Crypto

For a private individual crypto is other property: a sale more than a year after purchase is not taxed at all, an earlier one is taxed on the normal scale. There is an annual exemption limit of 1,000 EUR for private disposals, and once it is exceeded the whole gain is taxable. Staking and lending do not extend the holding period to ten years, but the income they produce is taxed in the year it arises.

Business taxes: corporate income tax, trade tax, VAT

A German company pays two profit taxes at once: the federal corporate income tax and the municipal trade tax, whose rate each municipality sets itself.

• Körperschaftsteuer - 15% plus a 5,5% solidarity surcharge on it, 15,825% in total.
• Gewerbesteuer - 3,5% of profit multiplied by the municipal multiplier (Hebesatz). The statutory minimum is 200% and the national average is around 420%. Trade tax is not deductible from its own base and does not reduce corporate income tax.

Under the law of July 2025 corporate income tax falls by one point a year from 2028: 14% in 2028 and onwards to 10% from 2032. In 2026 and 2027 the rate stays at 15%. The rate on retained profits of entrepreneurs and partnerships drops from 28,25% to 25% by 2032, and 30% declining-balance depreciation applies to movable assets.

Sole traders and partnerships get a 24,500 EUR trade tax allowance and credit the trade tax against income tax at four times the base amount, so up to a multiplier of roughly 400% it is close to neutral for them. A GmbH gets neither the allowance nor the credit.

VAT

The standard rate is 19% and the reduced rate 7% - food, books, short-distance transport, and from 1 January 2026 restaurant meals as well (drinks stay at 19%). The small business exemption applies with prior-year turnover up to 25,000 EUR and current-year turnover up to 100,000 EUR, and the status is lost from the very transaction that breaks the threshold. VAT advance returns are filed monthly or quarterly by the 10th.

E-invoicing: every German business has had to be able to receive structured B2B e-invoices since 2025; issuing them becomes mandatory in 2027 above 800,000 EUR of turnover and in 2028 for everyone. Minimum GmbH capital is 25,000 EUR with half paid in at registration; a UG starts at 1 EUR.

Inheritance and gift tax

The recipient pays, and the calculation is made per recipient: the rate depends on the family relationship and on the amount above the personal allowance.

The allowances have not changed since 2010 and reset every 10 years, which is why large gifts in Germany are spread over ten-year cycles. Specific exemptions matter more than the rates: the family home passes to a spouse or children tax free if the recipient lives there for ten years (for children within 200 sq m of living space); rented residential property is valued with a 10% discount; business assets qualify for an 85% or 100% exemption if the payroll conditions are met.

Tax arises if either the deceased or the recipient is a German resident, or if German assets pass - real estate, a stake of 10% or more in a German company, permanent establishment assets. German citizens remain under unlimited liability for five years after leaving.

Filing, deadlines and the treaty with Russia

Many employees do not have to file, but the obligation appears with almost any complication: class V or VI, the factor method, non-employment income above 410 EUR, several employers, self-employment, foreign income.

The late filing penalty is 0,25% of the assessed tax per started month, with a minimum of 25 EUR. Interest on underpayments and refunds is 0,15% a month (1,8% a year) and starts only 15 months after the end of the tax year. Filing runs through ELSTER. Separately, foreign holdings must be reported under section 138 Abgabenordnung: a stake of 10% or more, or an acquisition value above 150,000 EUR.

The treaty between Germany and Russia

This has changed radically and older guides are misleading. The treaty of 29 May 1996 formally exists but does not work:

• On 8 August 2023 Russia unilaterally suspended the key provisions - the distributive rules for income (articles 5 to 22) and the non-discrimination clause (article 24).
• On 30 June 2026 Germany notified Russia that the treaty is suspended in full from 1 January 2027.

From 2027 there are no reduced withholding rates on dividends, interest and royalties between the two countries, and neither the exemptions nor the treaty residency tie-breakers apply. What remains is the unilateral foreign tax credit under section 34c EStG, capped at the German tax on the same income, which does not fully prevent double taxation. Any structure built on the old treaty rates should be reviewed now, not in 2027.

What can go wrong, and who Germany does not suit

• The flat that makes you a resident. Wohnsitz needs no day count: an unterminated lease or a key to your own house can let the tax office assert unlimited liability retroactively, over your entire worldwide income.
• Exit tax (section 6 AStG). On leaving Germany a stake of 1% or more in a corporation is taxed as if sold - with no sale proceeds. The condition is residency for at least 7 of the last 12 years. Payment in instalments over 7 years against security is possible, and the tax lapses if you return within 7 years. From 2025 the same rule covers fund units: from 1% of the units issued or from 500,000 EUR of acquisition cost, measured per fund.
• Extended limited liability (section 2 AStG). A German citizen who moves to a low-tax jurisdiction is taxed on a broader list of German income for another 10 years where substantial economic interests in the country remain.
• CFC rules. Control of more than 50% of a foreign company with passive income taxed below 15% means the profit is attributed to the German owner before any distribution.
• Disguised self-employment. Freelancing for a single client is the classic trigger for retroactive social contribution assessments.
• The III/V class combination and church tax by registration form are the two most common everyday mistakes newcomers make.

Germany does not suit you as a tax residence if you are after a low effective rate on employment income, if you hold a large stake in an operating business and expect to leave within a few years, or if you are used to territorial taxation. There is no non-dom or lump-sum regime here, only targeted reliefs. Compare the alternatives: taxes in Cyprus, taxes in Portugal, taxes in Switzerland.

Germany makes sense when you need the market, the talent pool, the banking infrastructure and free movement across the EU. If the brief is rate minimisation, the country is the wrong choice. Related: work visa, digital nomad visa, German citizenship.

What to know about German taxes

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