2 November 2016 Abc On Taxes

An ABC of Taxes | 1
An ABC of Taxes
2016 Edition
An ABC of Taxes | 3
Introduction
There are many tasks in society that cannot be performed by indivi-
duals alone. These tasks include the provision of education, public in-
frastructures, health care, a social safety net and internal and external
security. In such areas the state acts on society’s behalf. Its activities
are financed from tax receipts and they are the state’s most important
source of revenue. Without this resource, the state would not be able
to take action in the interests of all citizens.
This booklet provides information about the different types of tax-

es in effect in Germany. It tells you who has to pay taxes, what those
taxes are for and how much they are. It also reviews the historical de-
velopment of taxes and other charges, and describes the legal basis on
which they are levied.
The Federal Ministry of Finance

4 | An ABC of Taxes Contents
Contents
Taxes and fiscal charges: An overview in facts and figures
The Fiscal Code 5
Tax consultancy (assistance in tax matters) 10
Jurisdiction in tax matters 11
International and supranational tax law 12
Agricultural levies in the EU 15
Tasks and structure of the revenue administration 18
Classification of taxes 22
Tax jurisdiction at a glance 23
Taxation A to Z
Alcopops duty 25
Aviation tax 26
Beer duty 27
Betting and lottery tax 29
Beverage duty 30
Church tax 31
Coffee duty 33
Corporation tax 35
Customs duties 38
Dog tax 42
Electricity duty 42
Energy duty 45
Entertainment tax 48
Excise duties 49
Final withholding tax 50
Fire protection tax 52
Gaming casinos levy 53
Hunting and fishing tax 54
Import VAT 55
Income tax 56
Inheritance and gift tax 64
Insurance tax 70
Intermediate products duty 71
Licensing tax 72
Local taxes 72
Motor vehicle tax 73
Nuclear fuel duty 77
An ABC of Taxes | 5
Real property tax 78

Real property transfer tax 80
Secondary residence tax 82
Solidarity surcharge 83
Sparkling wine duty 84
Spirits duty 86
Spirits monopoly 88
Tax identification number 89
Taxes on income, property and transactions 90
Tobacco duty 91
Trade tax 94
VAT 96
Wages tax 102
Withholding tax on construction work 106
Withholding tax on income from capital 108
Withholding taxes on the income of non-residents 109
Eliminated or expired taxes: an overview

List of taxes mentioned (English – German) 125
List of laws mentioned (English – German) 127
Index 130
6 | An ABC of Taxes The Fiscal Code
Taxes and fiscal charges:

An overview in facts and
figures
The Fiscal Code
Rules The Fiscal Code as published on 1 October 2002 (Federal Law Gazette I,
p. 3866, 2003 I, p. 61; Federal Tax Gazette I, p. 1056) brings together the
rules applying to all taxes as a compendium of general tax law. Such
rules relate to taxation procedure especially, and range from arrange-
ments for determining the tax base to the assessment, collection and
enforcement of taxes, to out-of-court remedies and to fines and pen-
alties. The Fiscal Code is the basis of a taxation process that is designed
to be as un-bureaucratic and efficient as possible. As such, it creates
a balanced relationship between the interests of the community and
those of taxpayers.
Tax laws The individual tax laws stipulate the circumstances in which any
specific tax is payable. The Fiscal Code sets out the basic rules on how
taxes are determined and how they are to be paid. The Fiscal Code ap-
plies to all taxes and tax allowances governed by federal law or the law
of the European Union and administered by Land or federal revenue
authorities. Subject to the law of the European Union, the Fiscal Code
is applicable to customs duties and levies on surplus sugar that are
based on EU legislation. It is also applied to the collection of numer-
ous other levies as provided under Land regulations.
An ABC of Taxes | 7
The Fiscal Code is divided into nine parts. The first parts include
introductory rules and the legal provisions on tax liability. These sec-
tions explain, for instance, the basic principles valid for all taxes, and
thus include the following general definition for the concept of taxes
(cf. section 3 subsection (1) of the Fiscal Code):
“Taxes shall mean payments of money, other than payments in Taxes

consideration of the performance of a particular activity, which are
collected by a public body for the purpose of raising revenue and im-
posed by the body on all persons to whom the characteristic on which
the law bases liability for payment apply; the raising of revenue may
be a secondary objective.”
The term “taxpayer” as used in tax legislation is defined in sec-

tion 33 subsection (1) of the Fiscal Code:
“Taxpayer shall mean any person who owes a tax, is liable for a tax, The taxpayer
who is obliged to withhold and give to revenue authorities a tax which
is due for account of a third party, to file a tax return, to provide col-
lateral, to keep accounts and records or to discharge other obligations
imposed by the tax laws.”
The Fiscal Code further determines what claims arise from the tax
debtor-creditor relationship (such as a taxpayer’s claim to refunds),
what transactions enjoy tax relief, and on what conditions a person is
held liable for the tax debt of another.
The provisions on tax secrecy are of particular importance. As part Tax secrecy
of their obligation to assist the authorities, taxpayers have to submit a
full statement of their tax affairs to the revenue authorities; the confi-
dentiality of the information they furnish must therefore be assured.
The parties under an obligation to observe tax secrecy and the condi-
tions under which protected data may be disclosed or used are set out
in sections 30, 31 and 31a and 31b of the Fiscal Code.
Uniform and lawful The Fiscal Code also contains general rules of procedure. The rele-
taxation vant section of the Fiscal Code places particular emphasis on the prin-
ciple of uniform and lawful taxation prescribed by the Basic Law. It
contains rules on the obligation of individuals to provide information,
on the consultation of experts, on the presentation of documents and
valuables, as well as on the authority to enter premises. It also states,
however, the circumstances in which persons may refuse to give in-
formation and the instances in which the revenue authorities should
give guidance and information to taxpayers. Under the conditions of
section 89 subsection (2) of the Fiscal Code, the tax offices and the Fed-
eral Central Tax Office may, upon application, issue advance rulings
on the tax assessment of a specific, but still theoretical, set of circum-
stances if this could have a considerable impact on the taxpayer’s tax
situation. The Fiscal Code also includes rules on how time limits are
set and extended as well as general provisions on administrative acts.
The provisions concerning the implementation of the tax process

form the main part of the Fiscal Code. In the interests of legal certain-
ty, they contain a detailed description of the rights and obligations of
the revenue authorities on the one hand and taxpayers on the other.
The Fiscal Code gives particular weight to the cooperation expected
of taxpayers, because the revenue authorities depend to a significant
degree on such cooperation when determining the basis for assess-
ment. For this reason, the Fiscal Code contains rules about obligations
to file tax returns and keep accounts. The rules on accounting and
record-keeping do not require the use of any particular system; the
general principles of orderly accounting apply.
Tax number The Fiscal Code also sets out the legal basis and purpose, from the
allocation perspective of data protection law, for collecting and using the tax
identification number in accordance with section 139b of the Fiscal
Code. The tax identification number which the Federal Central Tax
Office assigns permanently to every taxpayer makes the taxation pro-
cess more effective and responsive to taxpayers’ needs, allowing the
various other pre-existing numbering systems to be gradually phased
out.
An ABC of Taxes | 9
The Fiscal Code lays down the form in which a tax may be assessed Tax assessment
as well as the conditions and time limits that apply. Section 155 sub-
section (1) of the Fiscal Code, for instance, states that taxes must gen-
erally be assessed by way of tax assessment notice. As a rule, the tax
assessment notice must be issued in writing (cf. section 157 subsec-
tion (1), first sentence, of the Fiscal Code). The tax assessment notice
specifies the tax to be paid or the tax rebate to be received and is the
official basis for enforcing the claim. Where taxpayers are required to
calculate the tax in their tax returns, such a tax return is referred to as
a self-assessed tax return and it generally replaces the tax assessment
notice that is otherwise required. The self-assessment system (cf. sec-
tions 167 and 168 of the Fiscal Code) reduces the workload of all par-
ties involved and enables tax and refund claims to be implemented
more quickly.
To avoid the submission of class-action lawsuits, section 165 of the Tax assessment
Fiscal Code allows tax assessment notices to be issued provisionally in notice
light of test cases before the Federal Constitutional Court, the Court
of Justice of the European Union or the supreme federal courts. Tax
may also be assessed provisionally if the Federal Constitutional Court
has obliged legislators to amend a tax law that is not compatible with
the Basic Law. The provisional tax assessment can then be cancelled
or amended on account of such a court decision or change in the law
without the need for an objection to be filed.
Section 169 of the Fiscal Code governs the time limit for assess- Period for
ment, stating that it is not permissible to undertake, cancel or amend assessment
an assessment once the period for assessment has expired. The time
limit for assessing excise duties and excise duty rebates is one year. In
the case of import and export duties, the Customs Code applies. This
states that assessment generally cannot be undertaken after the expi-
ry of a period of three years from the date on which the customs debt
was incurred. The time limit for the assessment of all other taxes and
tax refunds (especially income tax, VAT and corporation tax) is four
years. The limit is ten years if a tax has been evaded and five years if the
tax has been understated through gross negligence. Sections 170 and
171 of the Fiscal Code standardise the general beginning of the period
for assessment as well as various limits concerning the beginning and
end of the period so that the specifics of the cases they deal with are
accommodated better in the interests of ensuring fair taxation.
The provisions relating to the enforceability of tax assessment no-

tices are also of significance. In the interest of legal certainty, tax as-
sessment notices may be cancelled, amended or adjusted only insofar
as is permissible by law. In this respect it is immaterial whether the
change is to the benefit or detriment of the taxpayer. It is not at the
revenue authorities’ discretion to override enforceability.
Adjustment Outside the appeals procedure (see below), a tax assessment notice
may be cancelled or amended in accordance with section 173 of the
Fiscal Code if facts or evidence leading to a higher or lower tax are
subsequently ascertained. If the new facts or evidence lead to a lower
tax, the tax assessment notice may be adjusted only if the subsequent
disclosure of such facts or evidence is not attributable to grave negli-
gence on the part of the taxpayer. In return, the principle of equity and
fair dealing (which also extends to tax law) prohibits the tax office from
amending a tax assessment notice in accordance with section 173 of
the Fiscal Code on the basis of the subsequent disclosure of facts or
evidence that would lead to higher taxation, if such facts or evidence
would not have remained unknown to the tax office when properly
fulfilling its duty of inquiry, provided that the taxpayer in turn has
fully complied with his/her obligation to cooperate. Section 174 of the
Fiscal Code governs the adjustment of tax assessment notices in the
event of conflicting assessments. Section 175 of the Fiscal Code stip-
ulates that a tax assessment notice is to be issued or corrected to the
extent that a basic assessment notice which has binding effect on this
tax assessment notice is issued or corrected, or to the extent that an
event has occurred which has a retroactive impact on taxation.
External audits The revenue authorities are entitled to verify the information pro-
vided by taxpayers, and the authorities may do this with the aid of
external auditors. External auditors generally conduct their audits
on site where the cases concern earnings from agriculture or forest-
ry, independent personal services and commercial undertakings. The
audits may, however, be conducted directly on official premises, i.e. at
the revenue authority offices. While the external audit procedure calls
for a broad degree of cooperation from taxpayers, it also ensures that
they have an extensive right to be heard and to lodge appeals. Further
rules that public authorities must follow in connection with auditing
and internal procedures are contained in administrative regulations.
Customs has special powers of search when ensuring tax compliance.
VAT inspections are governed by the VAT Act.
An ABC of Taxes | 11
Subsequent provisions in the Fiscal Code deal with collection and Enforcement
enforcement procedures which show when a tax is due and the con-
sequences of delayed payment. Where taxes are not paid when due,
the revenue authorities may compulsorily recover them in accor-
dance with the relevant legal provisions. The Fiscal Code also stipu-
lates the circumstances under which a tax may be deferred or a tax
remission granted on equitable grounds. Further provisions relate to
interest accruing on claims from the tax debtor-creditor relationship
(section 233 ff.) and the imposition of penalties for late payment (sec-
tion 240).
This is followed by the rules on out-of-court remedies (the appeals Appeals

procedure; cf. section 347 ff.). The appeals procedure serves to protect
taxpayers’ rights and enables the revenue authorities to review their
decisions without recourse to proceedings before the fiscal courts. The
procedure is free of charge to the taxpayer. The provisions on appeals
in court proceedings are set out in the Code of Procedure for Fiscal
Courts.
Finally, the Fiscal Code includes substantive regulations on tax Penalties

crimes and other tax offences, as well as special provisions on crim-
inal and administrative fines proceedings. These are imposed in ac-
cordance with the Administrative Offences Act. In certain cases, the
revenue authorities may themselves conduct investigations. These
are carried out on their behalf by the tax (or customs) investigation
services.
12 | An ABC of Taxes Tax consultancy / Jurisdiction in tax matters
Tax consultancy (assistance in tax matters)

Taxpayers may secure the help of third parties in fulfilling their tax
obligations. However, the privilege of giving professional assistance
of this kind is reserved for persons and companies who are authorised
by law to do so.
The group authorised to provide unrestricted assistance in tax

Who can provide matters primarily covers tax consultants, tax representatives, auditors
assistance? and certified accountants as well as the companies they form (part-
nerships, tax consulting companies, law firms, auditing firms and ac-
counting firms).
Persons who are professionally established in neither Germany nor

Switzerland but rather in another member state of the EU or another
contracting state to the European Economic Area, and who provide
professional assistance in tax matters there under the law of the state
of establishment, are authorised to provide temporary and occasional
assistance in tax matters in Germany. These persons are permitted to
do so in Germany only if the relevant association of tax advisers is
notified in writing before the service is first performed.
Other persons, businesses or entities may also render limited assis-

tance in tax matters, provided certain conditions have been met.
It is permitted for instance, for:
trades organisations to establish service facilities to address their

members’ tax-related questions
administrators of buildings and other properties to handle tax
matters connected with the objects they administer
banks advising their customers on investments to inform them,
for example, about the effects on income tax and state savings pre-
miums
trade unions, associations of property and real estate owners and
other organisations of a professional nature to advise their mem-
bers in tax matters connected with their professional interests
forwarding agents to provide assistance concerning import duties

or the charging of excise on intra-Community goods
other commercial operators to provide assistance concerning im-
port duties in connection with customs procedures
associations dedicated to assisting members on wage tax matters
to perform this service within the scope of their legal powers
The Tax Consultancy Act includes provisions on the tax advisory

profession and on the supervision of the profession.
Jurisdiction in tax matters
As in other fields of administrative law, taxpayers who do not agree Legal redress
with a decision taken by the tax authorities can assert their rights be-
fore the courts. Jurisdiction in tax matters is vested in the fiscal courts.
The administration of justice in tax matters serves first and foremost
to protect taxpayers against any unlawful measures taken by the tax
authorities with regard to taxes and duties. Additionally, it serves to
monitor the correct application of tax law by the administrative au-
thorities, and it provides tax legislators with suggestions/indications
regarding the further development of tax law.
Jurisdiction in tax matters is exercised by specialised independent

tribunals that are separate from the revenue authorities. The organ-
isation and procedures of these tribunals are regulated in the Code
of Procedure for Fiscal Courts. At the Länder level, fiscal jurisdiction
appertains to the fiscal courts proper, and at the federal level to the
Federal Fiscal Court, which is located in Munich.
The fiscal courts pass judgement in the first instance, being the only
instance where the facts of a case are established. There are no fiscal
courts dealing with appeals on a question of facts. Fiscal courts rank
as higher Land courts and generally have jurisdiction for the territo-
ry of one Land only. North Rhine-Westphalia has three fiscal courts
and Bavaria has two. Berlin and Brandenburg share a fiscal court. The
other Länder have one fiscal court each.
14 | An ABC of Taxes Jurisdiction in tax matters / International and supranational tax law
Legal action In general, an action may be taken to the fiscal courts only after
out-of-court remedies (involving objections under the relevant provi-
sions of the Fiscal Code) have been exhausted. These objections allow
revenue authorities to review their decision, and complainants also
have the opportunity to reconsider their standpoint. Over 98% of all
tax disputes are settled by these means.
Action may be brought before the fiscal courts in order to have an

administrative act cancelled or amended, to enforce the issuance of an
administrative act which the fiscal authority concerned has refused to
issue or refrained from issuing, to enforce some other action on the
part of the authority, or to achieve a declaratory judgement establish-
ing the existence or non-existence of a legal relationship between the
applicant and the authority or the invalidity of an administrative act.
Subject to certain conditions, an appeal against the decision of a

fiscal court may be carried to the Federal Fiscal Court. In an appeal of
this kind, the decision of the fiscal court can be examined for errors of
law and procedure. However, a re-determination of facts is not admis-
sible as a rule. In appeals to the Federal Fiscal Court, taxpayers must be
represented by a law firm, a tax consultant, tax representative, auditor
or certified accountant.
International and supranational tax law

The term “international tax law” refers to all tax provisions under Double taxation
Germany’s domestic tax law and international agreements. The tax
provisions relate to persons resident abroad or to tax-related matters
abroad involving German residents. International agreements govern
taxation in cross-border cases. The term “supranational tax law” is
mainly connected with the EU/European Community and involves a
transfer of nation-state jurisdiction, which leads, in the case of tax law
for instance, to higher rulings and arrangements of a binding nature
for the member states.
Agreements on the avoidance of double taxation and tax evasion

form the bulk of Germany’s international tax law.
Double taxation poses a considerable barrier to trade and invest-

ment where companies operate internationally. Double taxation
agreements are intended to dismantle such tax barriers in order to
promote and enhance international economic ties.
These agreements are international treaties that provide a con-

tractual means of avoiding cases where comparable taxes on the same
income are imposed on the same taxpayer by more than one country.
Double taxation can be avoided if the country where the income is
earned (the state of source) withdraws or restricts tax on the benefi-
ciary of the income. Another option is for the country of residence
not to tax income which is taxed in the state of source, or for the
country of residence to credit foreign tax against its own tax charge.
Arrangements regarding the exchange of tax information and mutual
assistance in assessing and recovering taxes are also covered in dou-
ble taxation agreements. The basic structure of the double taxation
agreements concluded by Germany is based on the model convention
developed by the Organisation for Economic Cooperation and De-
velopment (OECD). Germany has concluded double taxation agree-
ments with around 90 countries and thus created a very dense treaty
network. The agreements generally cover the taxation of income and
capital. Agreements have also been concluded with a number of coun-
tries to prevent double taxation with respect to inheritance and gifts,
as well as other agreements relating to motor vehicle tax in interna-
tional traffic.
16 | An ABC of Taxes International and supranational tax law
Tax legislation for Tax legislation for non-residents refers to those provisions of Ger-
non-residents man tax law dealing specifically with cross-border matters. This in-
cludes provisions of the Income Tax Act and the Corporation Tax Act
as well as provisions on the taxation of persons/companies resident
abroad and deriving income from domestic German sources (i.e. in
cases where the taxpayer has limited tax liability and where Germa-
ny has the right to exercise jurisdiction). The relevant provisions of
the Income Tax Act and the Corporation Tax Act are designed to avoid
double taxation (via tax credit relief) when taxing foreign income de-
rived by persons/companies resident in Germany (i.e. in cases where
the taxpayer has unlimited tax liability and the entirety of the taxpay-
er’s income is taxed regardless of whether it was acquired in Germany
or elsewhere).
Tax legislation for non-residents also includes the External Tax Re-
lations Act:
External Tax The External Tax Relations Act contains a provision on the adjust-
Relations Act ment of income arising from cross-border business relationships with
related foreign persons or companies, and on the allocation of income
between a domestic enterprise and its foreign permanent establish-
ment, based on the internationally developed and recognised arm’s
length principle. All double taxation agreements signed by Germany
include this principle. In addition to the rules in the Income Tax Act,
the Corporation Tax Act and in German double taxation agreements,
this provision is intended to facilitate the appropriate allocation of
multinational companies’ income to the states involved and, in par-
ticular, to prevent income from being shifted abroad artificially. To
achieve this, the provision empowers tax authorities to adjust the
income a taxpayer derives from cross-border business relationships
(i.e. from the exchange of goods and services within international en-
terprise groups especially). The adjustment is made in cases when a
taxpayer calculates income on the basis of conditions – particularly
prices (transfer prices) – that are different from those which indepen-
dent companies would have agreed to under the same or comparable
conditions.
The External Tax Relations Act also contains rules on taxation in- Unwarranted tax
volving controlled foreign companies. Such taxation aims to prevent advantages
unwarranted tax advantages that can be gained from exploiting the
differences in taxation from country to country by founding compa-
nies and permanent establishments in low-tax jurisdictions. This is
achieved primarily by attributing a foreign company’s profits as the
national taxpayer’s own income in certain circumstances.
In addition, the External Tax Relations Act pools the provisions on

enhanced limited tax liability and capital gains taxation for natural
persons who transfer their place of residence outside Germany.
As supranational law, the provisions contained in the Treaty on Eu-

ropean Union which concern the harmonisation of taxes within the
Community are of special significance. The considerable progress al-
ready made on the harmonisation of VAT is an essential step towards
Community-wide alignment of competitive conditions.
The Parent-Subsidiary Directive, the Merger Directive, the Interest

and Royalties Directive and the Arbitration Convention for transfer
prices remove fiscal obstacles that international companies face in the
field of direct taxation.
Mutual administrative and legal assistance between the tax author- Administrative and
ities of different countries also falls under the heading of internation- legal assistance
al and supranational tax law. The provision of assistance is conditional
upon the other country’s ability to (i) guarantee the legal protection
of taxpayers and (ii) ensure tax secrecy at a similar level to that estab-
lished in the Federal Republic of Germany. Mutual assistance enables
tax authorities to effectively assess and collect taxes even where busi-
ness relations cross international borders. Corresponding provisions
can be found in the Fiscal Code; in agreements on double taxation,
administrative and legal assistance, and the exchange of information;
as well as in the EU Mutual Assistance Act and the EU Recovery Act.
18 | An ABC of Taxes International and supranational tax law
A guidance note on the principles applying to international as-

sistance in assessing taxes was most recently published by the Fed-
eral Ministry of Finance on 25 May 2012 (see Federal Tax Gazette I,
p. 599). The guidance note is also available on the Federal Central Tax
Office website. The provision of mutual assistance between the tax
authorities of the EU member states concerning direct taxes is gov-
erned, inter alia, by Council Directive 2011/16/EU of 15 February 2011
(OJ L 64, 11.3.2011, p. 1). This Directive, which was last amended by
Council Directive (EU) 2015/2376 of 8 December 2015, was transposed
into German national law by the Act Transposing the Mutual Assis-
tance Directive and Amending Tax Provisions, which was adopted on
26 June 2013 (Federal Law Gazette I 2013, p. 1809). The EU Mutual As-
sistance Act also applies to assisting member states in assessing tax on
insurance premiums. Mutual administrative assistance in the area of
customs and the levy on surplus sugar is based on Council Regulation
(EC) No 515/1997 (on mutual assistance between the administrative
authorities of the member states and cooperation between the latter
and the Commission to ensure the correct application of the law on
customs and agricultural matters) in conjunction with Regulation
(EC) No 967/2006 (application rules with regard to sugar production
in excess of the quota).
In the field of VAT, international administrative assistance is gov-

erned by “Council Regulation (EU) No 904/2010 of 7 October 2010 on
administrative cooperation and combating fraud in the field of val-
ue added tax” (OJ L 268, p. 1). This Regulation enhanced and recast
“Council Regulation (EC) No 1798/2003 of 7 October 2003 on coop-
eration in the field of value added tax and repealing Regulation (EEC)
No 218/92” (OJ L 264, p. 1).
Harmonised excise duties (on tobacco products, alcohol, alcoholic

beverages, energy products and electricity) are covered by “Council
Regulation (EU) No 389/2012 of 2 May 2012 on administrative co-
operation in the field of excise duties and repealing Regulation (EC)
No 2073/2004” (OJ L 121, 8.5.2012, p. 1), which is also applied directly
in the member states.
The principles of international assistance in collecting (and recov-

ering) taxes were most recently published by the Federal Ministry of
Finance in a guidance note dated 29 February 2012 (see Federal Tax
Gazette I, p. 240). The guidance note is also available on the Federal
Central Tax Office website. The provision of mutual assistance be-
tween EU member states’ tax authorities in collecting taxes (such as
direct and indirect taxes) is handled in line with “Council Directive
2010/24/EU of 16 March 2010 concerning mutual assistance for the
recovery of claims relating to taxes, duties and other measures” (OJ
L 84, 31.3.2010, p. 1). This Directive was transposed into German na-
tional law by the EU Recovery Act of 7 December 2011 (Federal Law
Gazette I, p. 2592). The Federal Ministry of Finance first published a
guidance note on the principles applicable to international legal assis-
tance concerning criminal matters on 16 November 2006 (see Federal
Tax Gazette I, p. 698).
20 | Steuern von A bis Z Agricultural levies in the EU
Agricultural levies in the EU

Levies The imposition of levies under the Common Agricultural Policy (CAP)
is governed directly by EU law. The Basic Law makes allowance for
these levies in Article 106 paragraph (1) number 7 and Article 108 pa-
ragraph (1). The common basis for such levy arrangements is provi-
ded in Article 40 in conjunction with Article 38 and Article 39 of the
consolidated version of the Treaty on the Functioning of the Euro-
pean Union. The Treaty provides for the establishment of a common
organisation of markets for agricultural products (products listed in
Annex I to the Treaty). The purpose is to achieve the CAP objectives
described in Article 39. These objectives are:
to increase agricultural productivity

to increase the individual earnings of persons engaged in agricul-
ture
to stabilise markets
to ensure that supplies reach consumers at reasonable prices
As far as most agricultural products are concerned, the aim is to

reach these objectives through extensive regulation of the market by
way of prices. The different types of levies are briefly described below.
Import levies Agricultural import levies are imposed on imports of agricultural

products to EU member states at rates set under the EU’s common
organisation of agricultural markets. They are classified as taxes un-
der section 3 subsection (1) of the Fiscal Code. The Community target
prices, decided annually, must be offset and maintained against third
countries whose prices are substantially determined by world price
levels. To put it simply, this is achieved by applying the difference be-
tween the world market price and the Community price as a levy to
imports of agricultural products or by refunding the difference in the
case of exports. If, in exceptional cases, the world market price should
be higher than the Community price, the difference can be refunded
for imports and levied on exports.
The statutory bases for the collection of import levies are: Legal basis
a) Regulation No 1308/2013 of the European Parliament and of the

Council establishing a common organisation of agricultural mar-
kets and on specific provisions for certain agriculture products, to-
gether with numerous implementing regulations.
b) Regulations made by the European Commission setting the
amount of each individual agricultural levy. As the EU issues some
3,000 agricultural regulations each year, most of which have only
a limited period of validity, listing them in detail would go beyond
the scope of this booklet.
Like all customs duties, the agricultural levies are collected by the
federal customs authorities and paid into the EU budget as own re-
sources.
Export levies are applied where world prices for goods covered by Export levies
common market organisation are higher than Community prices and
the internal market could suffer serious disturbance as a result of ex-
cessive exports. Export levies may also be imposed on goods subject to
market organisation for which no export licence is required when the
existence or the threat of serious imbalances in the internal market
would require protective measures of this kind to prevent any unwel-
come outflow of products. Export levies are not, therefore, part of the
permanent machinery, but are collected only under special market
conditions. Export levies in trade with third countries were first intro-
duced as of 8 April 1971 for certain products falling under the com-
mon organisation of markets, for example milk and milk products.
Export levies are collected by the customs offices (the Federal Customs
Administration), applying (mutatis mutandis) the provisions of cus-
toms laws governing the collection of duties.
22 | An ABC of Taxes Agricultural levies in the EU
The national implementing regulations on export levies are set out

in sections 23 to 25 of the Implementation of the Common Organisa-
tion of Markets Act as published on 20 September 1995 (Federal Law
Gazette I, p. 1146). The Hamburg-Jonas Main Customs Office has gen-
erally been responsible for the collection of export levies for the whole
of the Federal Republic since 1 August 1974.
There is currently no provision for export levies on agricultural

products.
Levy on surplus sugar The Single CMO Regulation contains a quota system for the sug-
production ar sector – which has also included isoglucose since 1 July 1981 and
inulin syrup since 1 July 1994 because these are substitutes for liquid
sugar. The quota arrangement is intended to keep surplus production
within reasonable limits, as the production of sweeteners in the Com-
munity constantly exceeds consumption. Each sugar and isoglucose
producer in the Community has been allocated a quota. There are no
restrictions on the sale of products produced within these quotas.
Sugar and isoglucose produced in excess of the quotas may not be

sold freely on the internal Community market. Manufacturers have a
number of options:
Export these products to third countries without benefiting from

any export relief
Deliver them to processors for the purposes of manufacturing cer-
tain industrial sugar products
Deliver them to the outermost regions
Destroy them
Failure to do so will result in the imposition of a surplus levy on the

amount in excess of the quota.
In order to compensate for unforeseen fluctuations in production

(resulting, for example, from bumper harvests or crop failures), sug-
ar producers may also transfer part of any production exceeding the
quota to the following crop year. They must hold the amount of sug-
ar thus transferred in store until the end of the fiscal year. The trans-
ferred amount is then deemed to be the first sugar output of the new
fiscal year. Failure to observe the storage obligation also results in the
imposition of a surplus levy.
As part of the reformed sugar market, producers of sugar, isoglu- Sugar production
cose and inulin syrup are charged production levies on what they pro- levies
duce up to their quota amount.
Sugar producers can pass on part of these production levies (as well
as part of the costs connected with the sale of sugar produced over
quota) via the prices they pay to sugar beet growers. The aim of this
is to discourage the growers from producing surpluses. Production
and surplus levies are charges imposed for the purpose of regulating
the economy and, as such, do not directly come under the definition
of taxes provided in section 3 of the Fiscal Code. In accordance with
section 12 of the Implementation of the Common Organisation of
Markets Act, however, the provisions of the Fiscal Code are applied
accordingly to production and surplus levies. The production and sur-
plus levies are collected from sugar producers by the main customs
offices responsible for the sugar producer in question.
A production/surplus levy was introduced in 1977 to regulate the Levy on surplus milk
milk sector. Most recently it took the form of a levy on any milk pro- production
duced in excess of the specific quota assigned to each producer. This
applied only if the total national quota for Germany was exceeded.
The local main customs offices were responsible for collecting the
milk levy. The milk quota, and therefore the collection of the surplus
levy, expired on 31 March 2015.
24 | An ABC of Taxes Tasks and structure of the revenue administration
Tasks and structure of the revenue administration
The revenue administration is that part of the public administration

responsible for assessing and collecting taxes. In Germany, the re-
venue administration is divided among the Federation and the Län-
der. The structure is defined in the Revenue Administration Act.
Tasks and structure of the revenue administration
Supreme federal authority
Federal Ministry of Finance
Higher federal authorities of the federal revenue administration (narrowly defined)
Central Customs Authority Federal Central Tax Office Federal Office of

(GZD) (BZSt) Services and Unre
Property Issues (B
Local authorities of the customs administration
43 main customs offices (HZÄ) 8 customs investigation offices (ZFÄ
Other agency
Federal Information Technology Centre

(ITZ Bund)
Ministry’s wider portfolio

Tasks performed by legally independent entities
Federal Financial Supervisory Federal Agency for Institute fo

Authority Financial Market Stabilisation
(BaFin) (FMSA)
Deutsche Bundespost Federal Posts Museum Foundation for Posts and

and Telecommunications Agency Telecommunications
(BAnst PT) (MSPT)
The federal revenue administration is largely responsible for cus-

toms; excise duties regulated by federal statute, including import VAT;
and motor vehicle, insurance and fire protection tax. The other taxes
are administered by the Länder acting as agents of the Federation (in
the case of joint taxes) or in their own right (e.g. in the case of inheri-
tance tax).
f Central Federal Equalisation of Federal Spirits Monopoly

esolved Burdens Office (BAA) Administration (BfB)
BADV)
Ä)
or Federal Real Estate (BImA) Federal Institute for Special Tasks

Arising from Unification (BvS)
26 | An ABC of Taxes Federal revenue administration / Länder revenue administration
Federal revenue administration

The Federal Ministry of Finance is the highest authority within the
federal revenue administration. Next in the chain are various higher
federal authorities (such as the Federal Central Tax Office, the Fe-
deral Office for Central Services and Unresolved Property Issues, and
the Central Customs Authority), which perform functions that fall
within the jurisdiction of the Federation. At the local level are the
main customs offices (including the customs offices) and the customs
investigation offices.
The main customs offices administer customs duties, federally reg-

ulated excise duties including import VAT and beer duty (the revenue
of which accrues to the Länder), aviation tax, motor vehicle tax, and
levies required by the EU. The main customs offices are further re-
sponsible for conducting customs controls of goods moving across
the frontiers, monitoring foreign trade and payments, enforcing the
Federation’s monetary claims under public law, especially the claims
of federal social security institutions (the health, pension, accident
and unemployment insurance agencies), as well as countering illegal
work and unlawful employment.
The federal revenue administration proper encompasses addition-

al agencies such as the Federal Information Technology Centre (ITZ
Bund). The wider portfolio includes all public-law corporations and
agencies overseen by the Federal Ministry of Finance (e.g. the Federal
Financial Supervisory Authority).
Länder revenue administration

The Land finance ministries are the highest authorities in the Länder
revenue administration. Regional finance offices/Land agencies make
up the intermediate level. At the local level are the tax offices.
The finance ministries head the respective revenue administra-

tions of the Länder.
The intermediate authorities support and have oversight over the

tax offices. At the same time they serve as the link between the finance
ministries and tax offices. Not all Länder have established intermedi-
ate authorities.
The tax offices are local Land authorities and generally administer
on behalf of the Federation the taxes on income, property and trans-
actions accruing wholly or partly to the Federation, as well as the tax-
es accruing to the Länder and certain local authority taxes unless the
Länder have tasked local authorities with administering the latter. In
this context one of the tax offices’ tasks is to determine assessed values
for real property in Germany. A number of taxes, e.g. real property tax,
are calculated using these values. In addition to this, the tax offices are
responsible for granting premiums under the Housing Construction
Premium Act, implementing the Capital Formation Act, and granting
allowances under the Investment Grants Act Law and the Berlin Pro-
motion Act (with regard to standing cases).
28 | An ABC of Taxes Classification of taxes
Classification of taxes
According to assignment of Taxes on income, property and

revenue transactions
Taxes on income and property
Taxes accruing to the Federation Income:

Taxes accruing to the Länder Income tax
Joint taxes (shared by Federation (including wages
and Länder) and withholding tax on income
Local authority taxes from capital)
Church taxes Corporation tax
Solidarity surcharge
Trade tax
Church tax (in part)
Property:
Inheritance tax
Real property tax
Church tax (in part)
Transactions taxes:
VAT
(excluding import VAT)
Real property transfer tax
Motor vehicle tax
Aviation tax
Betting and lottery tax
Gaming casinos levy
Insurance tax
Fire protection tax
Classification of taxes
Customs and excise duties Other classification methods
Customs duties: Direct taxes/indirect taxes

on imports and exports Examples: wages tax/tobacco duty
Excise duties: Personal taxes/non-personal taxes

Alcopops duty Examples: income tax/real property
Beer duty tax
Coffee duty
Electricity duty Taxes based on profits/taxes
Energy duty chargeable as expenses
Intermediate products duty Examples: income tax/trade tax
Nuclear fuel duty
Sparkling wine duty General-purpose taxes/single-pur-
Spirits duty pose taxes
Tobacco duty Examples: income tax/energy duty
(in part)
On imports:
Import VAT Recurrent/non-recurrent taxes
Examples: income tax/real property
transfer tax
Assessed taxes/taxes automatically

due
Examples: income tax/insurance tax
Interdependent taxes/stand-alone
taxes
Examples: trade tax/motor vehicle
tax
30 | An ABC of Taxes Tax jurisdiction at a glance
Tax jurisdiction at a glance
There is jurisdiction for three areas: tax legislation, revenue assignment, and
tax administration.
Type of tax Who legislates Who gets the Who administers the tax
revenue**
1. Agricultural levies EU/Federation EU Federation (Customs)

2. Alcopops duty Federation Federation Federation (Customs)
3. Aviation tax Federation Federation Federation (Customs)
4. Beer duty Federation Länder Federation (Customs)
5. Betting and lottery tax Federation Länder Länder
6. Beverage duty Federation Local authorities Local authorities
7. Church tax Länder Churches Länder/churches
8. Coffee duty Federation Federation Federation (Customs)
9. Corporation tax Federation Federation/Länder Länder*
10. Customs duties EU/Federation EU Federation (Customs)
11. Dog tax Länder Local authorities Local authorities
12. Electricity duty Federation Federation Federation (Customs)
13. Energy duty Federation Federation Federation (Customs)
14. Entertainment tax**** Länder Local authorities Local authorities
15. Export levies EU/Federation EU Federation (Customs)
16. Final withholding tax Federation Federation/Länder Länder*
(incl. local authorities’
share)
17. Fire protection tax Federation Länder Federation
18. Gaming casinos levy Federation/ Länder Länder
Länder
19. GNI-based own EU/Federation EU Federation
resources
20. Hunting and fishing tax Länder Districts/local Districts/local authorities
authorities
21. Import VAT Federation Federation/Länder Federation (Customs)
22. Income tax Federation Federation/Länder Länder*
share)
23. Inheritance and gift tax Federation Länder Länder
24. Insurance tax Federation Federation Federation
25. Intermediate products Federation Federation Federation (Customs)
duty
26. Licensing tax Länder Districts/local Districts/local authorities
authorities
27. Motor vehicle tax Federation Federation Federation (Customs)
28. Nuclear fuel duty Federation Federation Federation (Customs)
29. Real property tax Federation Local authorities Länder/Local authorities
30. Real property transfer Federation*** Länder Länder
tax
31. Secondary residence tax Länder Local authorities Länder/local authorities
32. Solidarity surcharge Federation Federation Länder*
Type of tax Who legislates Who gets the Who administers the tax
revenue**
33. Sparkling wine duty Federation Federation Federation (Customs)

34. Spirits duty Federation Federation Federation (Customs)
35. Sugar production levy EU/Federation EU Federation (Customs)
36. Tobacco duty Federation Federation Federation (Customs)
37. Trade tax Federation Local authorities (incl. Länder/local authorities
apportionment for
Federation and Länder)
38. VAT Federation Federation/Länder Länder*
39. VAT-based own EU/Federation EU Federation
resources
40. Wages tax Federation Federation/Länder Länder*
share)
41. Withholding tax on Federation Federation/Länder Länder*
income from capital
42. Withholding taxes on the Federation Federation/Länder Länder*
income of non-residents
Legislative powers
Article 105 of the Basic Law sets out the scope available to the Federation and the Länder
to introduce or abolish taxes. Whereas the Federation has exclusive power to legislate on
customs duties and the spirits monopoly, the Basic Law also assigns concurrent legisla-
tive power to both the Federation and the Länder. In the case of concurrent legislative
power, the Federation takes precedence if it is entitled to all or part of the tax revenue or
if there is a need for regulation by federal law. The Länder have power to legislate if, for
example, the Federation has not exercised its legislative powers.
Assignment of revenue
Article 106 of the Basic Law governs the assignment of revenue to the Federation, the
Länder and the local authorities. There are taxes whose revenue accrues exclusively to
the Federation, Länder or local authorities, and there are joint taxes whose revenue is
divided between the three levels of government in accordance with specific formulas.
Administrative powers
Article 108 of the Basic Law stipulates which levels of government (the federal revenue
authorities, the Land revenue authorities or the local authorities) are responsible for ad-
ministering the individual taxes.
* On behalf of the Federation

** Local authorities/associations of local authorities may be assigned a share of Land taxes by
means of Land legislation (cf. the second sentence of paragraph (7) of Article 106 of the Basic Law).
*** Länder have the power to determine the tax rate for real property transfer tax (cf. the second
sentence of paragraph (2a) of Article 105 of the Basic Law).
**** Gambling machines are (in part) taxed separately.
32 | An ABC of Taxes Alcopops duty / Aviation tax
A
Taxation A to Z
Alcopops duty
What is the duty As defined in the Alcopops Duty Act, alcopops are alcoholic sweetened
payable on? beverages (including frozen beverages) that (i) are produced by mixing
soft drinks or fermented beverages with products liable for spirits
duty, (ii) have an alcoholic strength by volume of more than 1.2% and
less than 10% and (iii) are mixed ready to drink and bottled in sealed,
ready-for-sale containers.
Who is liable for If the duty originates from the withdrawal of alcopops from a tax
duty? warehouse or from the consumption of alcopops therein, liability at-
taches to the tax warehouse keeper, regardless of whether the duty
originated as a result of actions by the warehouse keeper or whether
it originated without his/her knowledge or even against his/her will
(e.g. due to unlawful withdrawal such as theft, in which case addition-
al persons would become liable for duty). In this case duty attaches to
other persons, namely the person who unlawfully withdrew the alco-
pops and any persons involved in such unlawful withdrawal.
If alcopops are produced without the necessary permission of the

main customs office, the producer and all persons involved in the pro-
duction are liable for duty.
If irregularities in the movement of alcopops occur while a duty

suspension arrangement is in place, liability for duty attaches to the
tax warehouse keeper as consigner, the registered consigner, and any
other persons involved in such irregularities.
How much is the Alcopops duty, which is levied alongside spirits duty, is €5,550
duty? per hectolitre of pure alcohol at 20°C. That would be approximately
84 cents in the case of a 0.275l bottle with an alcoholic strength by
volume of 5.5%.
What is the legal Alcopops duty was introduced in Germany by the Alcopops Duty
basis? Act that was contained in legislation of 23 July 2004 to improve the
protection of young people against the dangers of alcohol and tobacco
consumption (Federal Law Gazette. I, p. 1857).
A
The duty is administered by the customs authorities, and the reve- Who collects the
nue accrues to the Federation. duty?
Aviation tax
Aviation tax is a transactions tax regulated by federal statute. It is im- What is the tax
posed on legal transactions enabling passengers to depart to a destina- payable on?
tion from an airport in Germany by means of aeroplane or helicopter
operated by an airline. Examples of legal transactions entitling an air
passenger to departure include transport contracts in the form of the
purchase of tickets, the booking of package holidays involving several
related contracts, flights earned through reward schemes, and gifts of
flights. The tax originates when the passenger departs on a flight from
a German airport. No tax is imposed on connecting departures from
Germany in the case of transit flights, or on departures of internal
flights connecting from an initial internal flight, provided the planned
stop-over at the German airport does not exceed a certain time limit.
Liability for the tax attaches to the airline responsible for the de- Who is liable for tax?
parture from a German airport.
Any airline that does not have a registered office in Germany or in

another EU member state must nominate a suitable tax representative
to assume its rights and obligations as regards taxation under the Avi-
ation Tax Act. Liability for tax also attaches to this tax representative.
Certain legal acts are exempted from tax. These include:
departures of passengers under two years of age who are not allot-
ted a seat of their own
departures of passengers by aeroplane or helicopter if the flight
serves exclusively military or other sovereign purposes
renewed departures of air passengers who have returned to the
German place of departure due to an aborted flight
departures of air passengers to and from German islands not con-
nected to the mainland by a road or rail link that is independent of
the tide, as long as the air passenger’s main place of residence is on
the island or the flight serves the purposes of (i) providing medical
care or (ii) exercising public authority
34 | An ABC of Taxes Aviation tax / Beer duty
A
departures of passengers by aeroplane or helicopter that serve ex-
clusively medical purposes
departures of passengers for sight-seeing flights in aeroplanes with
a maximum take-off weight of 2,000kg (2,500kg for helicopters)
departures of flight crews
The person liable for tax must file a monthly self-assessed tax re-
turn. That person must submit the tax return by the 10th calendar day
of the following month and pay the tax by the 20th calendar day of
that month.
How much is the tax? The tax payable is based on broadly defined categories of distance
to the destination, and amounts to the following per departure from
a German airport:
€7.38 for destinations in EU member states, EU candidate coun-

tries, EFTA countries and third countries within the same distance
€23.05 for destinations in countries not covered by the first dis-
tance category, up to a distance of 6,000km
€41.49 for destinations at a distance of more than 6,000km
Departures from and to German, Danish and Dutch North Sea is-
lands are subject to a reduced tax rate of €1.48, as long as such islands
are not connected to the mainland by a road or rail link that is inde-
pendent of the tide.
Aviation tax rates are established by ordinance every year. If reve-

nue comes in from the aviation industry’s EU trading in greenhouse
gas emission certificates, the legal provisions envisage a reduction in
the above tax rates by a certain percentage.
What is the legal The legal basis for imposing aviation tax is the Aviation Tax Act in
basis? the currently applicable version, as well as the ordinances issued for
its implementation.
Who collects the tax? Aviation tax is collected by the Federal Customs Administration,
and the revenue accrues to the Federation.
The Bundestag decided on 28 October 2010 to introduce an avia-

tion tax as part of the legislation accompanying the 2011 budget. The
A/B
background to this was the cabinet meeting held on 6-7 June 2010, How did the tax
where a decision was passed providing for the introduction of an avi- develop?
ation levy designed to generate revenue for the Federation of €1bn a
year, as part of the government’s budget consolidation strategy.
Beer duty
Duty is payable on products under heading 2203 of the Combined What is the duty
Nomenclature (for beer made from malt) and any product containing payable on?
a mixture of beer and non-alcoholic beverages under CN heading
2206.
If the duty originates from the withdrawal of beer from a tax ware- Who is liable for
house or from the consumption of beer therein, liability attaches to duty?
the tax warehouse keeper, regardless of whether the duty originated
as a result of actions by the warehouse keeper or whether it originated
without his/her knowledge or even against his/her will.
In addition, duty attaches to persons who unlawfully withdraw

beer from a tax warehouse (e.g. by theft), persons on whose behalf
such products were unlawfully withdrawn, and persons involved in
such unlawful withdrawals.
However, if beer is produced without the necessary permission

from the main customs office, the duty originates upon production.
In this case, the producer and all persons involved in the production
process are liable for duty.
If beer is put into free circulation by removing it from a duty sus-

pension arrangement for the purpose of entering the commercial
operations of a registered consignee’s firm, the registered consignee
becomes liable for the duty.
If irregularities in the movement of beer occur while a duty sus-

pension arrangement is in place, liability for duty attaches to the tax
warehouse keeper as consigner or the registered consigner and, along-
side them, any other persons involved in such irregularities.
Furthermore, liability for the duty attaches to the person with-

drawing the beer from movement, the person on whose behalf the
36 | An ABC of Taxes Beer duty / Betting and lottery tax
B
beer was withdrawn and any person who participated in the unlaw-
ful withdrawal and knew or ought reasonably to have known that the
withdrawal was unlawful.
If beer is released from a tax warehouse to persons who do not pos-

sess valid authorisation to use the beer commercially and free of duty,
both the tax warehouse keeper as well as, upon taking possession, any
such unauthorised persons are liable for duty.
How much is the The amount of the duty depends on the beer’s original gravity. It is
duty? measured in degrees Plato. The standard rate per hectolitre is €0.787
per degree Plato. One hectolitre of beer with an original gravity of
12 degrees Plato (i.e. beer of average strength) will carry duty of €9.44
(= 12 x €0.787). Breweries with a total annual production of less than
200,000 hectolitres may take advantage of reduced rates of duty. Such
breweries must be legally and economically independent of any other
brewery. The maximum reduction of 56% of the standard rate is af-
forded to breweries producing 5,000 hectolitres or less each year.
Exemption from duty
Beer is exempt from duty in certain cases, e.g.:
when it is used either inside or outside a tax warehouse as a sample

for analysis and testing that is required for operational reasons, or
when it is withdrawn for inspections by the tax or trade authorities
when it is used inside the tax warehouse to produce beverages that
are not subject to beer duty
when it is presented to the competent authorities for quality con-
trol purposes or withdrawn at the instigation of these authorities
when it is destroyed under the supervision of the tax authorities
when it is concessionary beer provided by breweries to their em-
ployees and workers free of charge
What is the legal The legal basis for imposing beer duty is the Beer Duty Act of
basis? 15 July 2009 (Federal Law Gazette I, p. 1870).
Who collects the Beer duty is collected by the federal revenue authorities (specifi-
duty? cally, the customs administration). The revenue accrues to the Länder.
B
Beer duty is one of the oldest levies on consumable goods. As early How did the duty
as the Middle Ages, beer duty was imposed in German towns under develop?
many different names (Bierungeld, Bierziese, Bierpfennig, Trankgeld,
Schankaufschlag or Malzaufschlag) as a tax on trade, production,
equipment or raw materials. From the 15th century onwards, it was
taken over by the German princes and transformed into an important
component of their systems of taxation (in Bavaria, for instance, by
statutes dating from 1543, 1572 and 1751). The duty was placed on a
sounder legal basis in the 19th century (in 1806 in Bavaria and 1819 in
Prussia), and the Reich Constitution of 1871 subsequently assigned to
the German Reich the legislative power over and the revenue from the
North German brewing tax area. Bavaria, Baden and Württemberg re-
tained their regional powers over the duty by paying compensation to
the Reich until 1919 and then adopted the newly enacted Reich Beer
Duty Act of 26 July 1918, thus securing for themselves a certain per-
centage of the revenue from the now standardised beer duty.
The Basic Law of 1949 gave beer duty special status among the ex-
cise duties (whose revenue generally accrues to the Federation) in that
the revenue was assigned exclusively to the Länder, whereas the ad-
ministration of the duty was assigned to the federal revenue authori-
ties (specifically, the customs administration).
Betting and lottery tax
Betting tax is levied on horse race bets that use a totalisator (pari- What is the tax
mutuel betting) or are placed with a bookmaker. Lottery tax is charge- payable on?
able on public lotteries and draws. Bets on sporting events (sports bets)
are subject to tax if the betting system is organised in Germany or if
the person placing the bet is a resident of Germany.
The legal basis for betting and lottery tax is the Betting and Lot- What is the legal
tery Act, together with the ordinances and implementing provisions basis?
enacted in connection with this legislation. The taxes are collected by
the Länder, which also receive the revenue. Winnings derived from
betting and gaming are not subject to income tax. Betting tax, lottery
tax and tax on sports bets are administered by local tax offices. The
amount of tax payable is determined by the tax office in a written no-
tice of assessment to the operator of the totalisator or the organisers
of lotteries, draws or sports bets. Tax is payable on (i) in the case of
38 | An ABC of Taxes Betting and lottery tax / Beverage duty
B
horse races, the amount that a bettor or player stakes with a totalisator
or bookmaker; (ii) in the case of sports bets, the nominal value of the
betting slip or stake; or (iii) in the case of lotteries, the regular price of
each separate ticket. Lottery tax is levied at a rate of 16% on the stake
or ticket price; betting tax and tax on sports bets are imposed at a rate
of 5% of the stake or nominal value of the betting slip. Foreign lottery
tickets and betting vouchers are subject to tax when imported from
abroad, at a rate of €0.25 for each euro of the regular price.
How did the tax There is evidence that lotteries in which lots were drawn to win
develop? silver utensils and other non-monetary prizes, and which served to
finance public expenditures in emergencies, were held as early as 1470
in Augsburg, 1477 in Erfurt, 1487 in Nuremberg, 1502 in Cologne and
1521 in Osnabrück. The concept of lotteries with regular draws came
from Holland to Hamburg in 1610, and the numbers lottery came to
Germany from Italy by way of Vienna in 1751 and Berlin in 1763. By
the 18th century lotteries had become the prerogative of the territo-
rial rulers and in some instances were exploited by the imposition of
excise taxes, but in the 19th century the right to derive revenue from
lotteries was assumed by the individual German states. The Reich
Stamp Duty Act of 1881 introduced uniform taxation throughout the
Reich, with lottery tickets stamped by the authorities. Betting slips for
horse races were treated in the same way from 1891 onwards; where
the tax was levied from totalisator betting operators (using machines
to speed up the calculation of the odds for pari-mutuel bets) it was
also known as totalisator tax. The form of taxation currently in oper-
ation was introduced in the Betting and Lottery Act of 1922. After the
Second World War taxation was extended to include football betting,
with Bavaria being the first of the German Länder to authorise busi-
nesses organising this form of betting in 1948, after which it spread
throughout the Federal Republic of Germany. Since 2012, tax is also
charged on (i) all sports bets organised in Germany that are not subject
to betting tax and (ii) all sports bets organised abroad in which a bet is
placed by a resident of Germany.
B
Beverage duty
Beverage duty is a local tax and essentially has the characteristics of What is the duty
a local excise duty. It is charged on the sale of specific alcoholic and payable on?
non-alcoholic beverages. The Länder laws on local authority taxation
form the legal basis for the imposition of this duty, along with the by-
laws of the towns and local authorities concerned. Duty is payable by
the person who sells the beverages. The question of whether and how
particular towns and local authorities impose a beverage duty is best
referred to their administrations or possibly to the revenue authori-
ties at Länder level.
Duties on beverages are among the oldest excise duties, and have How did the tax
been levied in Germany since the 12th century under various names develop?
(such as Ungeld or Akzisen) initially in the form of local duties of the
towns and cities and subsequently as Länder taxes or joint local au-
thority and Länder duties. In the 19th century the states making up the
customs union agreed that local duties of this kind were to be levied
only on products destined for local consumption. The Reich constitu-
tion of 1871 limited the extent and amount of such duties imposed by
the local authorities. On the basis of the Reich Financial Equalisation
Act of 1923 the local authorities were for the first time empowered to
levy a beverage duty intended to impose a standard charge on all lo-
cal consumption of beer, wine, sparkling wine, potable sprits, mineral
water, etc. This arrangement was progressively pared down until in
1927 only the local beer duty remained, which was abolished in 1930
to make way for the Reich beer duty. Restricted in its most recent form
to the local consumption of specific beverages, the duty may be traced
to an emergency ordinance issued by the Reich President in 1930, the
provisions of which were retained after 1945 as Länder law or were
integrated in the new Länder legislation on local authority taxes (in
part under the description of duties on the purveyance of drinks for
consumption; an example of this was the Act passed by the Land of
Rhineland-Palatinate on 30 May 1950).
40 | An ABC of Taxes Church tax
C
Church tax
What is the tax The tax is on an individual’s affiliation to a religious community that
payable on? is a recognised public-law corporation.
Who is liable for tax? Persons who are affiliated to or members of a community that im-
poses church tax are liable for the tax. Whether or not a person be-
longs to a church is decided under the internal law of the church.
A further criterion for deciding whether a person must pay church

tax is that person’s place of residence or habitual abode within the
meaning of the Fiscal Code.
How much is the tax? Church tax is a surcharge levied on top of > income tax, > wages tax
and (as of 1 January 2009) > final withholding tax. The amount of this
surcharge tax is determined by resolutions on church tax adopted by
the religious communities entitled to impose the tax. It varies in the
different Länder, ranging from 8% to 9%.
The tax base for church tax is the amount of > income tax, > with-
holding tax on income from capital or > wages tax an individual pays.
Tax allowances for children are taken into account even if they are not
claimed as deductions from taxable income because it is more advan-
tageous for the taxpayer to claim child benefit instead.
Besides > income tax (wages tax), most church tax acts also permit
assessment on the basic tax amount calculated for the purposes of real
property tax, although this tax base is now seldom used.
If married couples practise different faiths and if they file a joint

tax return, the church tax is either (i) computed for each faith on half
of the joint income tax or (ii) first computed as if both persons were
members of the same faith, and then divided between the two reli-
gious communities. The second method of computation can be ap-
plied only when both communities’ church tax rates are the same. If
only the husband or the wife is a member of a church entitled to levy
church tax, the tax is always computed on an individual basis. Tax pay-
able by the spouse who is a church member will in this case be based
on his or her share of the joint income tax or wages tax.
C
Some church tax acts include provisions under which
a special church contribution is imposed if a church member earns
no or only minimal income, while his or her spouse is the primary
earner but does not belong to a church
a minimum amount of church tax applies, which is collected if the
church member does not have to pay any income tax or wages tax
a legal minimum is stipulated for the amount of church tax pay-
able
The church tax paid (minus any refunds) can be deducted as a spe-
cial expense. However, this does not apply if it has been paid as a sur-
charge on either > withholding tax on income from capital or > final
withholding tax. Nevertheless, the effect of the deduction of church
tax as a special expense is taken into account when calculating the >
withholding tax on income from capital, provided the two taxes are
paid together.
Church tax is levied on the basis of church tax acts enacted by the What is the legal
legislative bodies of the Länder. The Länder authorities are also re- basis?
sponsible for supervising the relevant church regulations.
Church tax is collected by the state, but the revenue accrues to the Who collects the tax?
churches. The different churches that are entitled to impose the tax
use the revenue to perform their functions.
As a rule, church tax is assessed and collected by tax offices in the

course of income tax assessment. If the taxpayer is subject to wages
tax, his or her employer computes the church tax at the rate valid
for the employee’s place of residence and remits it together with the
wages tax to the tax office.
The payment of tithes, deriving from the biblical practice of sacred How did the tax
offerings and made compulsory by a synodal decree of 585, is held develop?
to be the oldest regular source of ecclesiastical revenue on German
soil. The payment of ecclesiastical tithes was enforced by civil law
throughout the empire by a statute of Charlemagne passed in 779,
and in the following centuries became a substantial source of revenue
for funding ecclesiastical functions. It took the form of a tenth of the
produce from crops, vineyards and fruits, as well as from cattle and
other animals. In the Middle Ages, and notably during the crusades,
the popes also assumed the right to levy tax for ecclesiastical purposes.
42 | An ABC of Taxes Church tax / Coffee duty
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In Protestant areas, the reformation led to widespread secularisation
of the sovereign rights and possessions of the churches, after which
the Protestant churches were initially compelled to depend on volun-
tary contributions. In the course of general secularisation following
the Final Recess of the Reich Deputation of 1803 the churches finally
forfeited not only their possessions but the right to collect tithes as
well, although the territorial rulers who benefited were at the same
time placed under an obligation to render financial compensation to
the churches. This obligation was gradually replaced at regional level
by arrangements to introduce a modern form of church tax, beginning
in Oldenburg in 1831 and followed by church tax acts in Hesse-Darm-
stadt in 1875, Prussia in 1875/1905, Württemberg in 1887/1906, Baden
in 1888 and Bavaria in 1912. The right of religious communities that
are public corporations to levy taxes in accordance with the provi-
sions of Länder legislation was guaranteed throughout the territory of
Germany for the first time by Article 137 paragraph (6) of the Weimar
Constitution of 1919.
This right was reaffirmed by both sides in the Reich Concordat of

1933, in Länder Concordats (Bavaria, Baden) and in agreements be-
tween the state and the Protestant Church.
In 1949 the above-mentioned article from the Weimar Consti-

tution was included in the Basic Law enacted in Bonn. The right of
religious communities to levy taxes has also been expressly acknowl-
edged in the constitutions of several Länder (Bavaria, Hesse, Rhine-
land-Palatinate, Saarland).
Coffee duty
What is the duty The Coffee Duty Act uses the term “coffee” to refer to both roasted and
payable on? instant coffee.
Roasted coffee may or may not be decaffeinated (in line with head-
ing 0901 of the Combined Nomenclature).
Instant coffee comprises extracts, essences and concentrates
of coffee, which may or may not be decaffeinated (in line with
sub-heading 2101 11 of the Combined Nomenclature). Where in-
stant coffee is in the form of liquid extracts, essences or concen-
trates, the amount is specified as the dry weight.
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The duty also applies to products containing between 10g and 900g
of coffee per kg.
If the duty originates upon the withdrawal of coffee from a tax Who is liable for
warehouse or the consumption of coffee therein, liability attaches to duty?
the tax warehouse keeper, regardless of whether the duty originated
as a result of actions by the warehouse keeper or whether it originated
without his/her knowledge or even against his/her will. In addition,
duty attaches to persons who unlawfully withdraw coffee from a tax
warehouse (e.g. by theft), persons on whose behalf such products were
unlawfully withdrawn, and persons involved in such unlawful with-
drawals.
However, if coffee is produced without the necessary permission

from the main customs office, the duty originates upon production.
In this case, the producer and all persons involved in the production
process are liable for duty.
If coffee or a product containing coffee is procured for commer-

cial purposes from another member state, the duty originates upon
receipt of the coffee or product in the fiscal territory. The duty is owed
in this case by the person receiving the coffee. In the case of distance
selling, where coffee or a product containing coffee is delivered from
a source in another member state to a private individual in Germa-
ny, the duty originates upon delivery to that individual. The distance
seller is required to appoint a representative within Germany’s fiscal
territory to ensure the consignments are processed for tax purposes.
Liability for the duty attaches to that representative.
If the duty originates upon importation from a third country or

territory (e.g. the Canary Islands), the person required under customs
legislation to declare the coffee, or the person on whose behalf the
coffee is declared, is liable to pay the duty. In the event of illicit im-
portation, liability also attaches to the person involved in such im-
portation.
The duty rates are as follows: How much is the

€2.19 per kg for roasted coffee duty?
€4.78 per kg for instant coffee
44 | An ABC of Taxes Coffee duty / Corporation tax
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Duty exemptions and relief
Some examples of when coffee can be exempted from duty are:
if the coffee is destroyed under the supervision of the tax author-

ities
if the coffee is taken as a sample for analysis and testing that is re-
quired for operational reasons, or for inspection by the tax or trade
authorities
if the coffee is made when testing machines for the manufacture of
coffee and is not provided to third parties for consumption
if the coffee is produced as a sample by raw-coffee traders to estab-
lish and verify the quality and properties of the raw coffee
if the coffee is produced by a household for its own private con-
sumption
These exemptions from duty apply only to coffee, not products

containing coffee.
What is the legal The legal basis for imposing coffee duty is the Coffee Duty Act of
basis? 15 July 2009 (Federal Law Gazette I, p. 1870).
Who collects the Coffee duty is collected by federal revenue authorities (specifically,
duty? the customs administration). The revenue accrues to the Federation.
How did the duty As its consumption spread rapidly throughout 17th century Eu-
develop? rope, coffee obtained significance as a source of state revenue. From
the outset up to recent times, levies on coffee have taken the form
of import duties. Under Frederick the Great a state coffee monopoly
was established in Prussia in 1781 but was abandoned as unproductive
in 1787. Coffee duties were among the most important of the reve-
nue-raising duties imposed by the German states in the 19th century.
They were substantially reduced in the German customs union from
1853 to 1860, and after having been assigned to the Reich as from 1871
were again appreciably raised from 1909 onwards in the course of the
Reich finance reform.
The rates of duty on coffee were to be restructured after the cur-

rency reform of 1948, but this would have required a decision by the
Allied Control Council, which at that time was no longer effectively
operative. Instead, coffee duty was introduced as a new excise duty in
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the bizonal economic area by a law passed on 22 June 1948 (in 1949
in West Berlin as well); the Basic Law adopted in 1949 assigned the
revenue to the Federation.
On completion of the single market and the abolition of controls at

internal frontiers within the European Community as from 1 January
1993, the taxation of unprocessed coffee as it crossed the border as
provided in the Coffee Duty Act was changed to taxation of the man-
ufactured product, and the law was brought into line with the other
excise duties that are harmonised within the Community. Coffee duty
itself, however, is not one of the harmonised excise duties.
Corporation tax
Corporation tax is a special type of > income tax for legal entities (in What is the tax
particular incorporated businesses such as the AG, GmbH or Europe- payable on?
an Company), other organised groupings of persons (such as associa-
tions) provided they are not partnerships as defined in the Income Tax
Act, and conglomerations of assets (such as foundations). The basis of
taxation, as with income tax, is the income earned during the calendar
year. What constitutes income, and how it is to be determined, is regu-
lated in accordance with the Income Tax Act. However, the Corpora-
tion Tax Act also sets out specific provisions that have to be observed
in the process. Corporation tax, like income tax, is a direct tax. It is a
tax imposed on the person of the taxpayer and is not deductible from
income.
Corporation tax and > income tax exist side by side. Companies
are liable for corporation tax on their profits. If profits are distributed
to shareholders who are natural persons, the latter are liable for > in-
come tax on the distribution.
In the same way as the Income Tax Act, the Corporation Tax Act Who is liable for tax?
distinguishes between limited and unlimited tax liability. Unlimited
liability applies to corporations, associations of persons and conglom-
erations of assets whose registered office or place of management is
located in Germany. Unlimited liability for corporation tax extends to
income from all sources worldwide.
46 | An ABC of Taxes Corporation tax
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Bodies incorporated under public law are liable for tax only to the
extent that they carry on an enterprise of an industrial or commercial
nature.
Among the entities subject to limited corporation tax liability are

corporations, associations of persons and conglomerations of prop-
erty whose registered office or place of management is located in
Germany. They are liable for tax on their domestic income within the
meaning of section 49 of the Income Tax Act.
How much is the tax? Corporation tax is levied at the rate of 15%.
Profit distributions from one company to another are generally not

included when calculating the income of the company that holds a
stake in the other. This tax exemption for income from holdings pre-
vents the taxation of profit distributions more than once in an owner-
ship chain consisting of multiple companies. The intended outcome is
that tax is imposed only (i) at the level of the corporation that generat-
ed the profit which is distributed and (ii) at the level of the individual
who is the shareholder at the end of the ownership chain.
The only profit distributions that are not tax-exempt are those that
a corporation receives from holdings that amount to less than 10%
of a company’s share capital at the beginning of a calendar year (free
float).
If the profits are further distributed to an individual, a distinction

is made based on whether the individual holds the shares in the cor-
poration as business assets or as private assets.
At the level of a shareholder who holds shares as business assets, al-

lowance is made for the corporation tax charged on distributed profits
by including only 60% of the dividends in the shareholder’s personal
income tax base (this is known as the partial income system). When
the shareholder is assessed for income tax, a credit is granted for the
25% > withholding tax on income from capital that has already been
imposed.
Where a shareholder’s stake in a corporation is held as part of his

or her private assets and that shareholder receives a distribution of
profits, the distribution is classified as income from capital assets and
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is subject to > income tax. This investment income has already under-
gone a deduction of > withholding tax on income from capital, at a
rate of 25%. This means that, as a rule, any income tax liability has al-
ready been discharged (this is the effect of the > final withholding tax).
The legal basis for corporation tax can be found in the current What is the legal
version of the Corporation Tax Act and the Corporation Tax Imple- basis?
menting Ordinance. Corporation tax law makes extensive use of the
principles and provisions of income tax law, especially as regards the
determination of profits and the assessment and payment of tax. Cor-
poration tax guidelines have also been issued in the form of general
administrative regulations to clarify uncertainties and points calling
for interpretation.
Corporation tax is collected by the Länder. It is a joint tax, meaning Who collects the tax?
that the Federation and Länder share the revenue (taking half each).
The taxation of incorporated companies has its origins in the pe- How did the tax
riod of rapid industrial expansion after 1871. It began in the German develop?
states with the inclusion of companies in the newly created system of
income taxation, which up to the First World War resulted in broadly
divergent treatment as regards types of company and tax rates. In 1913
stock corporations were subjected for the first time to an extraordi-
nary Reich income tax, known as the defence contribution. The Reich
also included legal entities in the taxation of war profits from 1916 to
1918. When the right to impose income tax was assigned to the Reich
under Erzberger’s financial reform in 1920 it was found expedient to
introduce a separate, standardised Corporation Tax Act for legal enti-
ties. This was the first codification of its kind. The tax rate of 10% was
subsequently raised several times and ultimately reached 65% in 1946.
In 1953 the double charge on incorporated companies was lessened
by reducing the rate of tax on distributions (split tax rate). From 1958
onwards it was lessened even further by changes in the tax rates.
The year 1977 saw the introduction of the crediting system, which
allowed shareholders to claim the corporation tax paid on distribu-
tions as a credit towards their personal income tax. This provided a
means of avoiding double taxation on distributed profits. The cred-
iting system was replaced in 2001 by what was known as the half-in-
come system, under which the shareholder only had to pay tax on half
of the distribution.
48 | An ABC of Taxes Corporation tax / Customs duties
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The 2008 reform of business taxation transformed the existing
half-income system into the part-income system for businesses, while
the > final withholding tax was introduced for private investors’ in-
come from capital.
Customs duties
How much are the The duty rate applied to goods released for free circulation is the duty
duties? rate applicable under the Common Customs Tariff or other relevant
regulations on the date the customs declaration is accepted. As a
rule, the date of acceptance of the customs declaration also governs
customs treatment in terms of the quantity, value and nature of the
goods as well as the incurrence of customs debt. The customs duty to
be paid is communicated to the declarant either verbally or in writing
(via a customs notice).
The Basic Law grants the Federation exclusive authority to legislate

on and to receive the revenue from customs duties. However, with the
development of Community law, this authority has been transferred
almost completely to the European Union. Germany’s national cus-
toms law is essentially comprised of the Customs Administration Act
and the Customs Ordinance.
What is the legal The legal basis for collecting customs duties is comprised of:
basis?
a) Community customs law (in particular, the Council Regulation es-
tablishing the Community Customs Code, the Customs Code Im-
plementing Provisions, and the Council Regulation on reliefs from
customs duty)
b) the Common Customs Tariff of the European Communities (Coun-
cil Regulation (EEC) No 2658/87 of 23 July 1987, OJ L 284/2010) as
supranational law, and the Customs Tariff Ordinance of 24 Sep-
tember 1986 (Federal Law Gazette I, p. 896) as national law govern-
ing the national part of the tariff
c) the Customs Administration Act of 21 December 1992 (Feder-
al Law Gazette I, p. 2125) with subsequent amendments, and the
Customs Ordinance of 23 December 1993 implementing the
Customs Administration Act (Federal Law Gazette I (1993),
p. 2449; Federal Law Gazette I (1994), p. 162) with subsequent
amendments
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Completing the customs union of the European Union required
not only the continuation of the already existing tariff union but also
the comprehensive harmonisation of national customs provisions.
Since 1 January 1994, a Community Customs Code combining all

of the basic provisions of customs law has been applied in its entirety
in all member states. The Customs Code’s provisions on exports have
been in force since 1 January 1993. The Customs Code contains the ba-
sic provisions of Community customs law. The Code is supplemented
by comprehensive implementing provisions that were adopted by the
European Commission on 2 July 1993. These provisions have been ap-
plied in conjunction with the Code since 1 January 1994. Together, the
Code and the implementing provisions essentially comprise existing
Community customs law.1
Simplified procedures can make the release of goods for free cir-
culation much less complicated and – depending on the type of pro-
cedure – less time-consuming. The main simplification allows declar-
ants to submit customs declarations that do not contain all of the
information that is otherwise required. The omitted information can
then be submitted at a later date. Subject to appropriate authorisation,
this information can be reported in a single supplementary customs
declaration for goods imported during a specific time period and the
import duties paid in a single payment.
Simplified procedures include:

the option of submitting to the customs office an incomplete
declaration for the imported goods that does not contain all the
required information and/or does not include all the required doc-
umentation
the simplified declaration procedure, in which a simplified dec-
laration (i.e. containing only essential information) for individual
consignments may be submitted to the customs office
the local clearance procedure, in which goods are entered into
the records at the premises of the consignee and placed under a
customs procedure, largely without any direct involvement on the
part of the customs office
1
With effect from 1 May 2016, the Customs Code and the implementing provisions were
replaced by the Union Customs Code and various rules adopted for its implementation.
50 | An ABC of Taxes Customs duties
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In 1951, as a party to the Geneva General Agreement on Tariffs and
Trade (GATT) and the Brussels Conventions on the Valuation of Goods
for Customs Purposes and on Nomenclature for the Classification of
Goods in Customs Tariffs, the Federal Republic of Germany replaced
the majority of specific duties (levied according to weight, volume or
number) with ad valorem duties. The International Convention on
the Harmonised Commodity Description and Coding System entered
into force on 1 January 1988, replacing the Brussels Convention on
Nomenclature and introducing an updated nomenclature. The Com-
munity’s Combined Nomenclature (CN) was set up on the basis of
this Harmonised System (cf. Council Regulation (EEC) No 2658/87
of 23 July 1987 on the tariff and statistical nomenclature and on the
Common Customs Tariff). The customs union within the European
Communities first took the form of a tariff union, which was created
when the Common Customs Tariff between the six original member
states of the EEC (Belgium, France, Germany, Italy, Luxembourg and
the Netherlands) entered into force on 1 July 1968.
Since then,
EU member states have applied a common customs tariff with re-
spect to third countries, and
customs duties have no longer been levied on the movement of
goods between member states.
On 1 July 1973, the customs union was extended to include Den-

mark, Ireland and the United Kingdom. Since then, the following
countries have joined the customs union: Greece (on 1 January 1981);
Portugal and Spain (on 1 January 1986); Austria, Finland and Sweden
(on 1 January 1995); Cyprus, the Czech Republic, Estonia, Hunga-
ry, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia (on 1 May
2004); Bulgaria and Romania (on 1 January 2007); and Croatia (on
1 July 2013).
Since 1 July 1977, customs duties on nearly all industrial goods

have been abolished in trade with the EFTA countries – i.e. Iceland,
Norway and Switzerland (including Liechtenstein). Furthermore, the
European Communities have concluded agreements containing ex-
tensive tariff concessions with numerous countries across the world.
In addition, preferential customs treatment is given to many develop-
ing countries. The Communities also grant generalised tariff prefer-
ences to all developing countries.
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Since 1975 (or 1988 in the case of goods covered by the Treaty Who collects
establishing the European Coal and Steel Community), cus- customs duties?
toms revenue has accrued to the EU. In 2014, this amounted to
€4.3 billion. Customs duties are administered by federal customs au-
thorities.
In their present form, customs duties serve primarily as an instru-

ment to regulate the economy. Customs duties of a fiscal nature – i.e.
those that aim solely to generate revenue for the state – no longer ex-
ist in Germany and the other member states of the EU.
How do customs administrations cooperate internationally?
Regulation (EC) No 515/97, last amended by Regulation (EC)

No 2015/1525, lays out the legal basis for fast and effective customs
cooperation among the EU member states themselves and between
the member states and the European Anti-Fraud Office (OLAF) for the
purpose of ensuring the proper application of EU customs legislati-
on. OLAF also coordinates administrative investigations in important
cases that affect more than one EU member state.
Furthermore, OLAF and the EU member states work together with

third countries.
The customs administration also cooperates with other EU mem-

ber states and with third countries on the investigation and prosecu-
tion of customs law violations, i.e. in the area of enforcement. This in-
cludes, for example, efforts to combat the smuggling of cigarettes and
drugs, as customs administrations are tasked not only with collecting
customs and excise duties but also with the surveillance of import
and export prohibitions. To this end, the member states adopted the
Convention on Mutual Assistance and Cooperation between Customs
Administrations “Naples II” (Federal Law Gazette 2002 II, p. 1387). This
convention has led to even more effective cooperation between cus-
toms authorities, for example in the form of joint investigation teams.
In addition, the customs administrations coordinate their investiga-
tions, for example in the areas of counterfeit goods and cash controls.
Additional legislation to promote cooperation among customs

authorities is in preparation. Despite certain remaining differenc-
es between the member states when it comes to legal provisions
52 | An ABC of Taxes Customs duties / Dog Tax
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governing customs policies in the internal market, it is crucial for
customs administrations to work together as if they were a single en-
tity.
The World Customs Organization (WCO) is headquartered in Brus-

sels. It was founded in 1952 as the Customs Cooperation Council. Its
foundation was based on the principles of the General Agreement on
Tariffs and Trade (GATT). It currently has 180 members. As one of the
founding members, Germany has been part of the WCO since 1952.
The WCO developed the Harmonised System, a six-digit code system
for the classification of goods. The Harmonised System is used across
the world and has simplified international trade and customs clear-
ance procedures significantly.
Further aims of the World Customs Organization are to simplify

and harmonise customs formalities, to develop strategies for combat-
ing cross-border crime, to improve security in international trade in
the face of terrorist threats, and to foster cooperation among customs
administrations across the world.
How have customs Customs duties are among the oldest of all levies, with roots
duties developed? in Greece (telos, meaning tax or toll, and teloneion, meaning toll-
house) and Rome (teloneum in Low Latin) before being introduced
by the Germanic peoples. From the 4th century onwards, the term
mota (meaning toll) spread from the Gothic kingdom on the Black
Sea along the Danube River, eventually giving rise to the term Maut
now mostly used in Austria and southern Germany. Nearly contem-
poraneously, from the 5th and 6th centuries onwards, the Latinised
Greek term spread from the Frankish Kingdom into the central and
northern Germanic regions, evolving from toloneum into tol, tsol and
finally the modern German Zoll.
In medieval Germany, tolls or customs duties initially tended to

take the form of fees for the use of roads, waterways, bridges, port
facilities and markets or fees for the protection of commercial trade.
The revenue from tolls initially accrued to the king as a royal preroga-
tive. However, from the 12th and 13th centuries onwards, these sover-
eign rights were increasingly awarded or leased out to territorial rul-
ers and to cities that soon developed their own customs jurisdictions
with territorial and municipal duties that evolved from use fees into
tax-like fiscal duties involving tariff schedules for different categories
C/D
of goods. In particular, customs duties along the Rhine River gained
major significance: more than 60 customs stations were in operation
here around the year 1400. In 1521 and 1524, unsuccessful attempts
were made under Emperor Charles V to introduce a uniform border
customs duty of 4% (in the form of an ad valorem duty on exports). In
the 17th and 18th centuries, the concept of protective duties gained
increasing prominence under the spread of mercantilism. This result-
ed in the imposition of high import duties to shield domestic produc-
tion from foreign competition. In the early 19th century, the German
states began to eliminate the imposition of internal duties and gener-
ally shifted toward a system of levying duties at their external borders.
However, this new system greatly impeded trade between the German
states as a result. The burdensome import, transit and export duties
between the German states were gradually replaced with regional cus-
toms unions, which in turn paved the way toward the creation of the
German Customs Union in 1834 and the imposition of common ex-
ternal tariffs. The Customs Union Act (Vereinszollgesetz) of 1869 was
transformed into Reich law in 1871 when the authority to legislate on
customs duties and collect the revenue was transferred to the German
Reich. Starting in 1879, customs policy under Bismarck returned to an
emphasis on protective duties, particularly against English goods, and
to this day customs duties have continued to serve as an instrument
for attaining trade policy objectives. In 1919, the authority to admin-
ister customs duties – which had been retained by the German states
– was transferred to the Reich as well. Following the Second World
War, the Basic Law of 1949 assigned all jurisdiction over customs to
the Federation.
Dog tax
Dog tax is a local tax and is collected by the local authorities. It is What is the tax
linked to the keeping of dogs. Its primary objectives involve influen- payable on?
cing behaviour in society; for example, it is intended to assist in cont-
rolling the number of dogs. The legal basis is provided by Länder dog
tax laws or Länder laws on local authority taxation. These laws either
oblige the local authorities to impose dog tax or entitle them to ad-
opt appropriate tax by-laws. The question of whether and how par-
ticular towns and local authorities impose dog tax is best referred to
their administrations or possibly to the revenue authorities at Länder
level.
54 | An ABC of Taxes Dog Tax / Electricity duty
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How did the tax A tax known as Hundekorn, sometimes referred to as a Bede, is re-
develop? corded for the first time around 1500 in eastern and central German
sources and was levied in the form of dues of grain (rye, barley, oats).
It was intended to replace the obligation of the peasants to provide
dogs for the feudal lord’s hunting. Baked into dog food and later re-
ferred to as Hundebrot, this levy was used (as stated for instance in the
Hildesheim local government accounts of 1658/59) “to sustain com-
mon municipal hunting rights”. In the 19th century modern dog tax-
es were introduced in the German states mainly as a police measure,
in part as a luxury tax (for instance in Prussia from 1810 to 1814 and
from 1824 onwards), in part as a charge on use (for instance in Bavaria
in 1876).
From the outset the local authorities generally had the right to im-
pose the tax and to collect the revenue, though for a long time some
states (such as Baden and Hesse-Darmstadt) still demanded a share.
Dog tax was classified as a local levy under relevant regional laws
at the time of the Weimar Republic. When the Basic Law was enact-
ed in Bonn in 1949, the tax was placed within the category of taxes
having a locally restricted effect (referred to as local excise taxes since
the 1969 financial reform) and was treated as a purely local authority
tax.
Electricity duty
What is the duty Electricity duty is an > excise duty on electric current. The duty is
payable on? regulated by federal statute and taxes the consumption of electricity
within Germany’s fiscal territory (i.e. the Federal Republic of Germany
excluding the territory of Büsingen and the island of Heligoland). The
duty originates when electricity is withdrawn from the supply grid in
German fiscal territory.
Who is liable for As an excise duty, electricity duty is intended to be borne by the
duty? consumer. However, collecting the duty from the vast number of con-
sumers is clearly impractical. Therefore, for reasons of administrative
efficiency, electricity duty generally attaches to the supplier, who can
then transfer the cost to consumers by including it in the price of elec-
tricity. Electricity duty law designates suppliers as those who provide
electricity to others.
D
Autoproducers who generate electricity for their own use are also
liable for duty. Duty is payable when electricity is withdrawn by the
autoproducer for own use.
Finally, consumers themselves are liable for duty if they procure

electricity from other countries or withdraw electricity unlawfully
from the power grid.
The person liable for duty must file a self-assessed tax return and
may generally opt to do so on a monthly or a yearly basis. For returns
filed on a monthly basis, the duty for each calendar month must be
declared by the 15th calendar day of the following month and paid
by the 25th calendar day of that month. For returns filed on a yearly
basis, monthly prepayments toward the expected duty liability must
be made by the 25th calendar day of each following month. The duty
liability for the entire year must be declared by 31 May of the follow-
ing calendar year and paid, after deducting the monthly prepayments,
by 25 June of that year.
The duty amounts to €20.50 per megawatt hour (2.05 cents per How much is the
kilowatt hour). However, the Electricity Duty Act also provides for ex- duty?
emptions and reduced rates of duty in order to promote the use of
sustainable energy sources and means of transport. The Act also pro-
vides relief from the duty to trade and industry in order to prevent
German companies from being placed at a competitive disadvantage
in relation to their foreign competitors.
Exemptions from electricity duty
The following section describes certain categories of relief from elec-

tricity duty. The list is not exhaustive.
Electricity from renewable energy sources
Electricity generated exclusively from renewable energy sources and

withdrawn from power grids or transmission lines fed exclusively
by renewables is exempt from electricity duty. Renewable energy
sources include wind power, solar energy, geothermal energy, landfill
gas, sewage gas and biomass, as well as hydroelectric power from
hydropower stations with a generator output of up to ten megawatts.
56 | An ABC of Taxes Electricity duty
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Electricity generation
Electricity used for the purpose of generating electricity is also ex-

empt. This applies to electricity consumed in the auxiliary installa-
tions of electricity generation units, especially for the purpose of treat-
ing water, supplying water for steam generators, supplying fresh air
and fuel, and purifying flue gas; it also applies to the electricity needed
by pumps to power storage facilities in pumped storage plants.
Small installations
Electricity generated by installations with a rated electrical output not

exceeding two megawatts is not subject to electricity duty as long as
the electricity is (i) drawn by the installation operator in the immedi-
ately vicinity of the installation and for the operator’s own consump-
tion or (ii) supplied by the party operating (or commissioning the op-
eration of) the installation to final consumers in the immediate vici-
nity of the installation.
Trains and trolleybuses
Electricity used to operate trains and trolleybuses is dutiable at a rate

of only €11.42 per megawatt hour. The aim here is to strengthen the
competitive position of environment-friendly rail transport as well as
the local public transport system.
Shore-side electricity supply
For environmental reasons, shore-side electricity supplied to wa-

tercraft for shipping (with the exception of private, non-commercial
shipping) is taxed at only €0.50 per megawatt hour.
Tax relief for businesses in the manufacturing, agricultural and forestry

industries
Under certain criteria, companies in the manufacturing, agricultural

and forestry sectors receive retroactive tax relief amounting to €5.13
per megawatt hour. This applies only if the amount of the tax relief
exceeds €250 per calendar year. Manufacturing companies subject to
high electricity duty costs may also be entitled to an additional refund
(called the Spitzenausgleich), which is calculated on the basis of (i) a
E
company’s electricity duty liability and (ii) the rate by which the em-
ployer’s share of pension insurance contributions has been reduced.
Since 2013, this refund has been granted only if a company fulfils
stringent criteria for improving energy efficiency. These include, in
particular, the adoption and operation of energy or environmental
management systems or, in the case of small and medium-sized busi-
nesses, the adoption and operation of alternative systems to improve
energy efficiency.
Since 2006, additional tax relief measures have been introduced

that allow certain energy-intensive processes in manufacturing to be
fully exempt from electricity duty. The aim here is to safeguard the
international competitiveness of German industry.
The statutory bases for imposing electricity duty are the Electricity What is the legal
Duty Act of 24 March 1999 (Federal Law Gazette I, p. 378) and the Elec- basis?
tricity Duty Implementing Ordinance of 31 May 2000 (Federal Law
Gazette I, p. 794), in their respective applicable versions.
Electricity duty is collected by the Federal Customs Administra- Who collects the
tion, and the revenue accrues to the Federation. duty?
Electricity duty was introduced on 1 April 1999 within the frame- How did the duty
work of Germany’s ecological tax reform. Pursuant to follow-up leg- develop?
islation (the Act to Proceed with Ecological Tax Reform), the duty rate
was raised progressively from €10.23 per megawatt hour in 2000 to
€20.50 per megawatt hour from 1 January 2003 onwards. By introduc-
ing electricity duty and raising it in predictable steps, the government
sought to achieve a moderate increase in the price of energy, a scarce
and finite good. The objective of this policy is to create incentives to
reduce energy consumption and boost the demand for and devel-
opment of energy-saving products and production processes. At the
same time, the additional revenue derived from electricity duty gives
the Federal Government fiscal leeway to reduce and stabilise statutory
pension insurance contributions and thereby to reduce the cost of la-
bour as a production factor.
58 | An ABC of Taxes Energy duty
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Energy duty
What is the duty Energy duty is an excise duty regulated by federal law. In general,
payable on? energy duty is charged only on the consumption of energy products
(especially mineral oils, natural gas and coal) for energy purposes. The
consumption of energy products for non-energy purposes is exempt
from duty. In addition, the Energy Duty Act contains a number of spe-
cial rules providing tax relief for the use of energy products for energy
purposes, with the aim of promoting environment-friendly energy
sources and means of transport. The Act also provides tax benefits to
trade and industry in order to prevent German companies from being
placed at a competitive disadvantage in relation to their foreign com-
petitors.
Only certain goods can be taxed as energy products. The Energy

Duty Act refers to the Combined Nomenclature for a precise descrip-
tion and categorisation of these goods.
Who is liable for As an excise duty, energy duty is designed to be borne by the con-
duty? sumer. However, collecting the duty directly from the vast number
of energy consumers would clearly be impractical. Because of these
administrative considerations, it is collected higher up the delivery
chain, from the producer or reseller, who then passes the cost on to
the consumer via the price of the product. The persons liable are given
ample time to realise the sales revenue they need in order to pay the
duty.
How much is the Motor fuels make up the largest category of dutiable energy prod-
duty? ucts and also yield the most revenue. For example, the duty rate on
unleaded petrol with a sulphur content of 10mg/kg or less is €654.50
per 1,000 litres, and the duty rate on diesel fuel with a sulphur content
of 10mg/kg or less is €470.40 per 1,000 litres.
Liquefied petroleum gases, such as propane and butane, as well as

natural gas and other hydrocarbon gases are also subject to energy
duty if used as motor fuels. In these cases, a reduced rate of duty ap-
plies until 31 December 2018. Until that date, automotive LPG (often
referred to as autogas) will be taxed at a rate of €180.32 per 1,000kg
and natural gas fuel at a rate of €13.90 per MWh. From 2019 onwards,
these fuels will be taxed at the standard rates stipulated in the Ener-
gy Duty Act as follows: €409.00 per 1,000kg for automotive LPG and
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€13.90 per MWh for natural gas fuel. These rates from 2019 onwards
are still well below the duty rates for petrol and diesel fuel.
The following duty rates apply to heating fuels:

light heating oil €61.35 per 1,000 litres
heavy fuel oil €25.00 per 1,000kg
liquefied petroleum gas €60.60 per 1,000kg
natural gas and other hydrocarbon gases €5.50 per MWh
coal €0.33 per GJ
Red dyestuff and a chemical marker are added to light heating oil
to prevent its illegal use as fuel for diesel engines.
Relief from the duty
The following section describes some categories of relief from energy

duty. The list is not exhaustive.
Public transport
To enhance the competitiveness of public transport, a partial tax

refund is granted for fuels used in public transport vehicles (road and
rail).
Combined heat and power plants
Combined heat and power (CHP) plants that are powered by gas tur-
bines and combustion engines benefit from reduced energy duty
rates (heating fuel rates) if the mechanical energy exclusively serves
the purpose of generating electricity. The rates for all CHP plants with
a monthly or annual utilisation rate of at least 70% are reduced from
the heating fuel rate down to the minimum tax rates under the EU’s
Energy Taxation Directive. CHP plants that qualify as high-efficiency
units as defined in the EU’s Energy Taxation Directive and are not yet
depreciated are fully exempt from energy duty.
Exemption for energy producers
Energy products consumed within an energy production plant for the

production of motor fuels, heating fuels and certain other energy pro-
ducts can receive tax exemption or tax relief.
60 | An ABC of Taxes Energy duty
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Tax relief for businesses in the manufacturing, agricultural and forestry
industries
To avoid endangering the international competitiveness of compa-

nies in the manufacturing, agricultural and forestry industries, tax re-
lief on heating fuels (heating oil, natural gas and liquefied petroleum
gas) has been granted to these businesses since the tax reform of April
1999. This tax relief amounts to around 25% of the full rates of duty on
heating fuels and applies to duty paid in excess of €250 per calendar
year. Manufacturing companies subject to high energy duty costs may
also be entitled to an additional refund (called the Spitzenausgleich),
which is calculated on the basis of (i) a company’s electricity duty li-
ability and (ii) the rate by which the employer’s share of pension in-
surance contributions has been reduced. Starting in 2013, this refund
is granted only if a company fulfils stringent criteria for improving
energy efficiency. These include, in particular, the adoption and oper-
ation of energy or environmental management systems or, in the
case of small and medium-sized businesses, the adoption and oper-
ation of alternative systems to improve energy efficiency.
Since 2006, additional tax relief measures have been introduced

that allow certain energy-intensive processes in the manufacturing
sector to be fully exempt from energy duty. The aim here is to safe-
guard the international competitiveness of German industry.
Biofuels (greenhouse gas quota)
Initially, biofuels were promoted exclusively on the basis of tax in-

centives. However, the introduction of the biofuel quota with effect
from 1 January 2007 gave regulatory backing to the promotion of
biofuel production. The biofuel (greenhouse gas) quota stipulates that
companies in the petroleum sector must lower greenhouse gas emis-
sions – based on the total amount of fuel (petrol, diesel and biofuel)
that the company sells each year – by placing biofuels on the mar-
ket. The required greenhouse gas reduction is expressed in per cent
and increases each calendar year. Since the switch from tax incentives
to quota-based requirements, tax relief is no longer provided for the
share of biogenic materials contained in mixtures with fossil fuel (such
as the E5/E10 ethanol blends and B7 diesel). In contrast, tax incentives
to promote pure biofuels (especially biodiesel and vegetable oil fuel)
were not discontinued in a single, immediate step; instead, lawma-
E
kers opted for a step-by-step phase-out of tax relief for these energy
sources. Accordingly, the possibility to obtain tax relief for pure bio-
fuels largely ended on 31 December 2012. Since the beginning of 2015,
the quota arrangement is no longer based on the amount of energy,
but on the extent to which greenhouse gas emissions are reduced by
placing biofuels on the market.
Energy duty is imposed on the basis of the Energy Duty Act of What is the legal
15 July 2006 (Federal Law Gazette I, p. 1534, Federal Law Gazette I basis?
(2008), p. 660, Federal Law Gazette I (2008), p. 1007), in the applicable
version, as well as the statutory instruments issued to implement this
Act.
Energy duty is collected by the Federal Customs Administration, Who collects the
and the revenue accrues to the Federation. duty?
Petroleum gained significance in the 19th century with the tran- How did the duty
sition to modern deep-drilling systems and was first appropriated develop?
as a source of tax revenue in Germany from 1879 onwards, initially
being subjected to the petroleum tax of the Reich. Efforts to set up
a Reich petroleum monopoly subsequently failed. When during the
Great Depression the customs duty on foreign oil had to be massively
increased in 1930, mineral oil duty was introduced at the same time as
an additional offsetting measure. Rates went up substantially for the
first time in 1936, and the scope of the duty was extended to include
diesel oil in 1939, certain petrochemical products in 1951 and heating
and fuel oils in 1960. Whilst pre-war imports had consisted largely of
refined mineral oil products, the bulk of post-war supply was made up
of mineral oil products refined in Germany from domestic or import-
ed crude oil. It is on account of this change in the structure of the Ger-
man mineral oil industry and the increased financial needs resulting
from burdens caused by the war that mineral oil duty was imposed as
a pure revenue-raising duty from 1953 onwards, with rates applying
to imported and domestic products alike.
The imposition of duty on heating and fuel oil was introduced as a

means of guiding the economy to achieve energy policy objectives. It
was originally intended to help the German bituminous coal mining
industry adapt to changes in the energy market and to contribute to-
wards the development of new sources of energy.
62 | An ABC of Taxes Energy duty / Entertainment Tax / Excise duties
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The fifth and final stage of the ecological tax reform took effect
on 1 January 2003. This continued the policy course of protecting the
environment and safeguarding jobs which the Federal Government
adopted with the first stage of the reform on 1 April 1999 (> electricity
duty). The moderate addition to the cost of energy was intended to
encourage the economical use of valuable resources and thereby to
help protect the environment. At the same time, the additional reve-
nue gives the Federal Government fiscal leeway to reduce and stabilise
statutory pension insurance contributions and thereby to reduce the
cost of labour as a production factor.
The Mineral Oil Duty Act was replaced in 2006 by the Energy Duty
Act, which also governs the taxation of coal.
Entertainment tax
What is the tax Entertainment tax is a > local tax. Tax liability attaches to forms of
payable on? entertainment provided in cities and local authorities as specified in
various laws; these forms of entertainment include dance and film
events as well as the operation of gaming and amusement machines.
Tax is payable by the organiser of the entertainment or by the opera-
tor of gaming and amusement machines. The tax is either (i) based on
the price and number of tickets issued or (ii) levied at flat rates deter-
mined according to typical characteristics such as the size of the event
space or, in the case of gaming and amusement machines, the purchase
price of such machines (rules generally stipulate a minimum amount
per machine). Distinctions are also made (i) between machines that
offer prizes and those that do not and (ii) according to the location of
the machines (i.e. in amusement arcades or other premises).
What are the legal The legal bases for entertainment tax include laws on local author-
bases? ity taxes and the entertainment tax acts of the respective Länder, rel-
evant local by-laws, and in some cases specific statutes (e.g. acts stipu-
lating gaming machine duties).
How did the tax Entertainment taxes emerged in Germany specifically as a means
develop? of financing poor relief, the first instance being the introduction of
levies on games of chance in medieval towns (> betting and lottery
tax). In the 17th and 18th centuries, luxury taxes expanded to cover
other public amusements. In 1794, Prussia adopted general state laws
E
that granted local authorities the right to tax entertainment for the
purpose of supporting poor relief. Poor laws in numerous cities and
states included special provisions on the taxation of billiards, skittle
alleys, balls, masquerades, spectacles, theatre performances, concerts
and similar events; legislation to this effect was adopted in Hamburg
in 1796, in Lübeck in 1810, in Bremen in 1814, in Saxony in 1840, and
in Bavaria in 1869. Prussia’s local authority tax act of 1893 stated ex-
pressly that “local authorities shall have the right to tax amusements,
including musical and declamatory recitals, as well as performanc-
es by itinerant artists”. Financial difficulties in the wake of the First
World War compelled the Reich to require local authorities to collect
entertainment tax as a means of safeguarding their financial resourc-
es. This requirement was enacted on the basis of the Länder Tax Act of
1920. The Reichsrat, as the representative body of the Länder, adopt-
ed uniform provisions for this purpose in 1921. Starting in the 1930s,
the cinema tax (a subcategory of entertainment tax) gained increasing
significance, but its role has declined considerably since the 1950s due
to the advent of television and the large number of exemptions. More
recently, the taxation of gaming and amusement machines has gained
in importance; the aim here is to exert influence on the establishment
and operation of amusement arcades for reasons of social and regula-
tory policy. Entertainment tax – and the taxation of gaming machines
in particular – has been the subject of decisions by the Federal Con-
stitutional Court in recent years (see file nos. 1 BvR 624/00, 1 BvL 8/05
and 1 BvR 2384/08).
Excise duties
Special excise duties are levied on excisable goods that enter commer- What are the duties
cial circulation and are used or consumed in German fiscal territory payable on?
(i.e. the Federal Republic of Germany excluding the territory of Büsin-
gen and the island of Heligoland). The items subject to tax are every-
day consumables (e.g. energy products, electricity, tobacco products,
etc.) that are designated more specifically in separate excise duty acts.
64 | An ABC of Taxes Excise duties / Final withholding tax
E/F
The excise duties comprise the following:
Alcopops duty
Beer duty
Coffee duty
Electricity duty
Energy duty
Intermediate products duty
Nuclear fuel duty
Sparkling wine duty
Spirits duty
Tobacco duty
Who is liable for As a rule, the tax burden for excise duties is to be borne by the con-
duty? sumer. However, for reasons of efficiency and practicality, and in or-
der to curtail administrative costs, excise duties are collected from the
producer or retailer. A key feature of excise duties is that the person or
entity liable for duty has the option of passing the costs of the duty on
to consumers.
What are the legal The respective legal bases for excise duties are provided in the sep-
bases? arate sections on each individual duty.
Who collects the The Federation is responsible for collecting and administering
duties? non-local excise duties.
Final withholding tax

What is the tax The system for taxing income from capital assets was reformed with
payable on? effect from 1 January 2009 via the 2008 Business Tax Reform Act
(cf. Federal Law Gazette I, p. 1912), which introduced the final with-
holding tax. The final withholding tax applies only to income genera-
ted by private assets.
This tax mainly covers individuals’ investment income, e.g. divi-

dends, interest, earnings from investment funds and futures as well as
profits on the sale of securities, irrespective of how long they are held.
Losses on capital assets and losses on securities may be offset under cer-
tain circumstances. Income-related expenses over and above a saver’s
tax-free allowance cannot be taken into account for tax purposes. For-
eign tax not subject to the right of reduction may be offset against tax.
F
Investment income from certified pension contracts (called Riester
pensions) and certified basic pension agreements (called Rürup pen-
sions) is not subject to tax in the initial saving phase. There is no final
withholding tax on these contracts.
Deduction at source
As is the case for other investment income, the investment income Who is liable for tax?
generated by personal assets is subject to taxation at source by means
of a withholding tax on income from capital. The withholding of tax
is generally deemed to satisfy personal income tax liability on this in-
vestment. Taxpayers do not need to state this investment income in
their tax returns. For further information, see > withholding tax on
income from capital.
Mandatory assessment
A tax assessment is required for private investment income that has

not been subjected to withholding tax. A separate tax schedule applies
to investment income generated by personal assets. A tax assessment
is also required if no church tax was withheld during deduction at
source.
Optional assessment
In certain cases, taxpayers may elect to have their personal investment

income assessed for tax purposes. This may be the case, for example, if
the taxpayer’s marginal tax rate is below the rate for taxation at source.
This optional assessment does not affect the tax exemption on in-
vestment income from private pension plans known as Riester and
Rürup pensions during the saving phase.
As a rule, the tax rate for all personal investment income is

25% plus solidarity surcharge and (if applicable) church tax. If the
paying agent withheld tax when disbursing the investment income,
that tax is generally deemed to satisfy the private investor’s tax lia-
bility.
One has to distinguish between the collection of the tax (by with- How much is the tax?
holding tax on income from capital) and the tax schedule:
66 | An ABC of Taxes Final withholding tax / Fire protection tax
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What is the legal The final withholding tax is not a tax in its own right but, similar
basis? to wages tax, is a special form of levying income tax. The basis for col-
lection and the full discharge of tax liability for investment income
generated by personal assets are governed by sections 43 ff. of the In-
come Tax Act.
The separate tax schedule for income from capital assets, the as-
sessment of tax and the crediting of the remaining foreign tax are set
out in section 32d of the Income Tax Act.
Who collects the tax? The final withholding tax is retained in particular by the credit in-
stitutions or companies distributing the profits (i.e. the parties liable
to pay investment income). They are required to remit the final with-
holding tax to the tax office responsible for assessing the income of
the paying agent/party liable to pay investment income.
If income tax is to be assessed, the investor’s local tax office is re-

sponsible.
How did the tax Up until 31 December 2008, the domestic paying agents and par-
develop? ties liable to pay investment income retained the withholding tax on
income from capital as an advance payment on the income tax that
was assessable by the tax office and owed by the beneficiary of the in-
vestment income. It was a requirement for the investment income to
be entered in the taxpayer’s income tax return, and the investment
income was taxed at the taxpayer’s personal rate.
The introduction of the final withholding tax with effect from

1 January 2009 (through the 2008 Business Tax Reform Act, cf. Federal
Law Gazette I, p. 1912) revised and simplified the taxation of person-
al investment income for residents of Germany. Personal investment
income such as dividends, interest and capital gains on securities are
treated in the same manner for tax purposes. To this end, capital gains
from securities were included in the legal provision on income de-
rived from capital assets (section 20 subsection (2) of the Income Tax
Act). This means there is no longer a time limit during which the re-
turn on the sale or purchase of securities has to be taxed. Church tax is
taken into account by the paying agent (if the taxpayer has requested
that this be done).
F
Thus there is generally no obligation to state personal investment
income in the tax return. This is accompanied by the introduction of
a separate tax rate for income from capital assets. The outcome is that
all personal investment income is taxed uniformly at 25% on the re-
turn plus solidarity surcharge and (if applicable) church tax.
Fire protection tax
Fire protection tax is payable on the collection of premiums for fire What is the tax
insurance, including insurance against business interruptions due to payable on?
fire, residential building insurance and home contents insurance. It
applies to insurance for property located in Germany.
Liability attaches to the insurer, who must compute the fire protec- Who is liable for tax?
tion tax (on a self-assessed tax return) and pay it to the Federal Central
Tax Office.
Fire protection tax is charged on a proportion of the insurance pre- How much is the tax?
mium (> insurance tax). As of 1 July 2010, the applicable tax rates and
proportions serving as the tax base are as follows:
a 22% rate in the case of fire insurance including insurance against

business interruptions due to fire, applied to 40% of the insurance
premium
a 19% rate in the case of insurance on residential buildings, applied
to 14% of the total insurance premium
a 19% rate in the case of home contents insurance, applied to 15%
of the total insurance premium
The legal basis for fire protection tax is the Fire Protection Tax Act. What is the legal
basis?
The revenue from fire insurance tax accrues to the Länder. The Fed- Who collects the tax?
eral Central Tax Office has collected the tax since 1 July 2010.
The modern form of fire protection tax originates from the 1931 How did the tax
Reich Act on the Supervision of Private Insurers and Building Soci- develop?
eties, which empowered the Länder “to collect levies from the fire in-
surance undertakings for public-benefit purposes, especially to pro-
mote fire-fighting”. The levies subsequently introduced in 18 Länder
laws, which in 1931 generated revenue of RM 21m, were standardised
68 | An ABC of Taxes Fire protection tax / Gaming casinos levy / Hunting and fishing tax
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throughout the Reich by the Fire Protection Tax Act of 1939 in the
course of a comprehensive reorganisation of fire-fighting facilities.
The Basic Law enacted in Bonn in 1949 originally gave the Länder
legislative authority over fire protection tax. However, the financial
reform of 1969 made the tax subject to concurrent legislation by the
Federation from 1970 onwards. Fire protection tax has been adminis-
tered by the Federation since 1 July 2010, on the basis of the Concomi-
tant Act on the Second Federalism Reform passed in 2009.
Gaming casinos levy

What is the levy This is a special type of tax that gaming casino operators must pay in
payable on? lieu of separate taxes that would otherwise be payable. The gaming ca-
sinos levy has its roots in Reich legislation from 1933 and 1938, especi-
ally the Public Gaming Casinos Ordinance of 27 July 1938 (Reich Law
Gazette I, p. 955). Today the gaming casinos levy is governed by legis-
lation on gaming casinos of the individual Länder. The levy is payab-
le by the operators of public gaming casinos and is remitted to the
cash offices designated by the Länder authorities responsible. The re-
venue accrues to the Länder. Additional gaming-related levies are also
charged, including a supplemental levy (when gaming revenues
exceed a designated level) and a tronc levy. The fact that gambling
operations are under constant tax surveillance makes for an uncom-
plicated collection procedure. The levy is computed on the basis of
daily gross receipts, i.e. the difference between wagers and winnings.
Among the individual Länder, the levy rate ranges between 20%−80%
of gross receipts and is usually linked to the amount of gross receipts.
How did the levy In Germany, the practice of deriving state revenue from gambling
develop? dates back to the flourishing of medieval cities. For example, a casino
for dice games existed in Frankfurt am Main from 1390−1463 whose
revenue flowed directly into municipal coffers. In Nuremberg, a pur-
ported 3,600 “gaming boards” were subject to taxation. Schwäbisch
Hall’s municipal accounts show that “gaming levies” accounted for
about 10% of the town’s revenue in 1422−23. In 1873, the German
Reich banned gaming casinos on its territory. Then in 1933, a Reich
statute was enacted that permitted the operation of casinos under
certain conditions. Taxation was conducted in a very simple manner
G/H
through the introduction of a flat-rate charge that was imposed on
gaming casinos in lieu of income, property and lottery taxes.
Hunting and fishing tax
Hunting and fishing tax is a local tax. It is assessed once a year on the What is the tax
annual value of hunting privileges or, if such privileges are leased, on payable on?
the price to be paid by the lessee. Fishing tax is assessed on the number
of fishing districts. The legal basis is to be found in Länder laws on local
authority taxation, as well as by-laws passed by the local authorities.
However, it is generally districts (and towns administered as indepen-
dent districts) that collect the tax. These also receive the revenue. The
standard by-laws specify that the taxpayer is the person who holds
the hunting rights. The question of whether and how particular towns
and local authorities impose a hunting and fishing tax is best referred
to their administrations or possibly to the revenue authorities at Län-
der level.
A primitive forerunner of hunting and fishing tax arguably exist- How did the tax
ed in medieval times, in the form of levies in kind, which all those develop?
who hunted and fished had to pay, partly in the form of livestock and
animal-product tithes, to the church and the feudal lord. This subse-
quently developed into a royal prerogative and source of revenue for
territorial rulers, who occasionally permitted the local authorities to
take a share. In the 19th century the states frequently gave the local
authorities the right to impose a game tax determined by the value of
each piece of game killed (this was authorised for towns in Prussia by
Most Sovereign Decree of 24 April 1848, renewed by section 14 of the
1893 Act on Local Authority Levies, and remained valid until 1910). In
the course of the reorganisation of local authority levies and finan-
cial equalisation law after the First World War, hunting tax was estab-
lished in its present form. It was generally reserved for the benefit of
rural districts. At the same time, taxes on specific forms of hunting,
such as the tax on ferrets, were abolished. Standard tax by-laws were
adopted for Prussia in 1922 and for the entire territory of the Reich
in 1937. The tax liability was extended to include recreational fishing
in some Länder. The tax was incorporated in the new laws on local
authority taxation after 1945.
70 | An ABC of Taxes Import VAT
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Import VAT
What is the duty Import VAT is an > excise duty within the meaning of the Fiscal Code
payable on? and an import duty under customs law. It is imposed on the impor-
tation of goods into Germany’s domestic territory and the Austrian
territories of Jungholz and Mittelberg. Under the VAT Act, “domestic
territory” means the territory of the Federal Republic of Germany
except the territory of Büsingen, the island of Heligoland and the free
ports (cf. section 1 subsection (2) of the VAT Act). Liability for import
VAT attaches to the actual frontier crossing of each article, regardless
of whether it is being imported against payment or free of charge. Un-
der the VAT Act, “import” means the movement of articles into the
territory in which the tax is imposed – on the assumption that the
articles are subject to taxation there, i.e. they are not covered by a duty
suspension arrangement (including customs warehousing and transit
procedures). The term “article” primarily means goods as defined un-
der customs law, i.e. all movable objects.
Who is liable for Application of the duty on imports is intended to ensure that
duty? goods imported from third countries (generally exempt from VAT in
the exporting state) are subject to the same VAT as similar domestic
goods. The purpose is to create a level playing field for goods produced
in Germany and products imported from third countries. Unlike cus-
toms duties, which are intended to contribute towards the achieve-
ment of economic objectives, import VAT serves only to effect the
equalisation of VAT burdens at the frontier. Under the value-added
tax system, which levies VAT on domestic goods and imports, it would
in theory be sufficient to limit the equalisation of VAT tax burdens at
the frontier to non-business imports. After all, it is the end user who is
supposed to bear the full burden of VAT.
However, since VAT is payable at every successive stage in the

course of trade, all imports are subject to import VAT as well, regard-
less of whether the goods are imported by a business or a private indi-
vidual. If goods are imported by or on behalf of a business, it can gen-
erally deduct the import VAT as an input tax against its VAT liability;
this means the import VAT is merely a transitory item in the accounts.
How much is the The customs value of the imported article is used to determine the
duty? basis for levying import VAT (cf. section 1 subsection (1) of the VAT
Act). Any other import duties that are levied on imported goods in
I
conjunction with import VAT (customs duty, other excise duties) and
the cost of transport to the first inland destination (i.e. the place at
which the transport of such goods across the frontier is completed)
are the principal elements that must be added to the customs value.
The tax rate for the importation of goods is the same as that for
turnover within the domestic territory (cf. section 12 subsections (1)
and (2) number 1 of the VAT Act). The rate is 19% of the basis for as-
sessment, but is reduced to 7% for goods listed in Annex 2 to the VAT
Act. With a few exceptions, the regulations on customs duties apply to
import VAT with the necessary changes (cf. section 21 subsection (2)
of the VAT Act). This applies in particular to the registration of im-
ported goods, their treatment under import VAT legislation and the
imposition of tax on them; it also applies to imports under a simpli-
fied customs procedure. In connection with the importation of goods,
numerous relief facilities have been allowed for businesses that are
entitled to deduct input tax.
The legal basis for imposition of import VAT is provided in the VAT What is the legal
Act as published on 21 February 2005 (Federal Law Gazette I, p. 386), basis?
last amended by Articles 11 and 12 of the Act of 2 November 2015
(Federal Law Gazette I, p. 1834).
Import VAT is collected by the Federal Customs Administration. Who collects the
The revenue accrues jointly to the Federation and the Länder. duty?
The forerunner to import VAT was the VAT equalisation tax, which How did the duty
applied until 1967. It was introduced in 1932 when the standard VAT develop?
rate was raised from 0.85% to 2% in order to offset the charge already
borne by German manufacturers in relation to the importation of
foreign products. At that time, the standard rate of 2% for domestic
turnover was originally applied without taking account of the mul-
tiple charges imposed on domestic products by the multi-stage tax
then in force. When the standard rate was raised to 4% in 1951, special
equalising tax rates were introduced for various goods which ranged
from 1% to 10%. Tax on the importation of articles in accordance with
the VAT system has been in effect since 1 January 1968. In goods traffic
between EU member states, import VAT was replaced by VAT on in-
tra-Community acquisitions as from 1 January 1993.
72 | An ABC of Taxes Income tax
I
Income tax
What is the tax Income tax is imposed on the income of individuals and partners in
payable on? a partnership. While worldwide income is subject to taxation in the
case of unlimited tax liability, limited tax liability means that taxati-
on is based solely on domestic-source income within the meaning of
section 49 of the Income Tax Act (see the section entitled “Who pays
the tax?” below). There are various personal and family-related tax be-
nefits (such as income splitting for spouses, the basic personal allow-
ance, and relief for certain special expenses or extraordinary financial
burdens) that cannot be taken into account, or may only be taken into
account to a limited extent, when assessing someone who is subject to
limited income tax liability.
On certain types of income the tax is generally collected by being

withheld from earnings (e.g. > wages tax, > withholding tax on income
from capital, > final withholding tax, > withholding taxes on the in-
come of non-residents).
Income from the following sources is subject to income tax:

agriculture and forestry
commercial business activity
self-employment
employment
capital assets
renting and leasing
other income designated in section 22 of the Income Tax Act (e.g.
income from statutory pensions or income from private sales
transactions)
If a capital increase cannot be attributed to any of these seven types

of income (for example, because the increase was incurred through a
gift, the sale of objects of everyday use, or a lottery win), it is not liable
for income tax. Expenses related to such income cannot, however, be
taken into account for tax purposes.
In the case of agriculture and forestry, commercial business activi-

ty and self-employment, the profit is classed as the income. Profits are
computed on an accrual basis, as the excess of business receipts over
business expenditure or, in the case of smaller agricultural undertak-
ings, on the basis of average rates (cf. section 13a of the Income Tax
I
Act). In accordance with section 4 subsection (4) of the Income Tax
Act, business expenditure is such expenditure as is occasioned by the
operation of a business or the performance of an activity on a self-
employed basis. To determine earnings in the case of other sources of
income, the expenses incurred to realise, protect or preserve gross in-
come (income-related expenses) are deducted from the total receipts
for a particular source of income.
Normal living expenses (which generally include, for example, ex-

penditure on food, clothing and housing) are not deductible as busi-
ness or income-related expenses. Expenses occasioned by the business
or social position of the taxpayer that are incurred in the promotion
of his or her business or professional career can be deducted as busi-
ness or income-related expenses. Expenses that are both business-
related/professional and private in nature must be split.
Total income is calculated as the balance of profits/surpluses and

losses from the different sources of earnings. Losses from one source
of earnings may be offset against earnings from the same category or
from a different source. Special rules restricting offsetting and loss de-
duction apply.
If losses cannot be offset during a tax assessment period (generally

the calendar year), the loss is carried forward or back.
From the resulting total income, taxpayers over the age of 64 may,
under certain conditions, deduct an amount of up to €1,900 annually
as old-age relief. Taxpayers who are single and have children are also
entitled to deduct a certain amount. From 2015 onwards, this relief for
single parents amounts to €1,903 for the first child plus €240 per year
for each subsequent child that meets the criteria.
The relief for single parents was introduced with effect from the
start of the 2004 calendar year. To be eligible for the relief, the taxpay-
er’s household must include at least one child who is registered as liv-
ing there, and the taxpayer must be entitled to claim the tax allowance
for children or child benefit for that child. The relief is reduced by one
twelfth for each month in which these conditions are not met.
The figure left over is referred to as adjusted gross income.

I
After applying the deduction of losses (either a loss carry for-
ward spread over time or a loss carry back that is limited in terms of
amount), which is subject to the same restrictions as those for offset-
ting losses, taxable income is computed by deducting special expenses
and extraordinary financial burdens from the adjusted gross income.
Certain expenditures detailed in the law may be deducted from

adjusted gross income as special expenses, provided they are neither
business expenses nor income-related expenses. They may be deduct-
ed in full (e.g. > church tax paid) or deducted up to maximum amounts,
with such expenditures including:
provident expenses (premiums on insurance policies of this type)
expenditure on vocational training
school fees
expenditure on supplementary pension plans
A lump-sum allowance of €36 for individual filers and €72 for joint
filers is deducted as special expenses unless taxpayers can show that
their fully deductible special expenses are higher.
With regard to expenses of a provident nature, a distinction is

made between contributions towards basic old-age provision, contri-
butions towards basic health and long-term care insurance, and other
provident expenses.
Contributions towards basic old-age provision are:

contributions to the statutory pension system
contributions to agricultural pension funds
contributions to the pension schemes for the free professions
which provide benefits comparable to the statutory pension sys-
tem
contributions to certified basic pensions (called Rürup pensions)
All contributions towards basic old-age provision (including any

contributions paid by the employer in the case of taxpayers who are
compulsorily insured under the statutory pension insurance system)
are, in principle, deductible as special expenses up to a maximum of
€22,767 for 2016. This amount corresponds to the 2016 maximum
contribution to the Federal Insurance Fund for Miners. For 2016, 82%
of contributions up to the maximum amount are deductible as special
expenses. This deductible rises by two percentage points each year un-
I
til 2025, when it reaches 100%. The threshold is doubled for joint filers
(€45,534 in 2016).
A separate maximum amount applies for the other social security

contributions (health, long-term care and unemployment insurance)
and other provident expenses (e.g. private liability insurance and
private term insurance) other than old-age provision. A maximum
amount of €1,900 applies for taxpayers who are entitled to a complete
or partial refund of healthcare costs (examples of people belonging to
this group include salaried employees, persons entitled to allowances
to cover medical costs and pensioners). All other taxpayers – such as
self-employed persons who pay for their health insurance from their
taxed income – may deduct a maximum of €2,800. Spouses who are
assessed jointly may each claim the allowance individually. Regard-
less of these maximum amounts, taxpayers’ actual contributions to-
wards basic health cover and statutory long-term care insurance are
fully deductible. In that sense, there is no maximum amount. If the
contributions to basic health insurance and statutory long-term care
insurance themselves exceed the maximum amount for other provi-
dent expenses mentioned above (€1,900/€2,800), the contributions to
the basic insurance are still deductible in full. This means that other
provident expenses may not, however, be deducted.
If the taxpayer received a wage, a flat-rate allowance for provident

expenses will be applied via the system for deducting wages tax (see >
wages tax). Assessment for income tax takes only the amounts actually
paid by the taxpayer into account.
For children under 14 years of age and children who are unable
to support themselves because of a physical, mental or psychologi-
cal disability that arose before their 25th birthday, two thirds (and no
more than €4,000) of documented childcare expenses may be deduct-
ed per child as special expenses.
Maintenance payments of up to €13,805 to divorced or permanent-

ly separated spouses or registered partners may be deducted annually
as special expenses. The amount the payer of maintenance pays to-
wards the basic health and statutory long-term care insurance of the
divorced or permanently separated spouse or registered partner in-
creases that limit. For the recipient, the maintenance payments count
as other income and, as such, are subject to income tax of the same
I
amount. This is referred to as limited real splitting. The payer must
apply to obtain the deduction; the application requires the recipient’s
consent. In addition, the identification number (under section 139b
of the Fiscal Code) of the maintenance recipient must be specified in
the tax return of the maintenance payer if the maintenance recipient
is subject to unlimited or limited tax liability. The maintenance recip-
ient is obliged to inform the maintenance payer of his/her identifica-
tion number (under section 139b of the Fiscal Code) for this purpose.
If the maintenance recipient fails to comply with this obligation, the
maintenance payer has the right to ask the responsible tax authority
for the maintenance recipient’s identification number.
If the recipient refuses to consent, the maintenance payments may

be claimed as an extraordinary financial burden under certain con-
ditions. In this instance, the deductible amount is limited to €8,652
(€8,472 in 2015), plus the contributions to basic health and statutory
long-term care insurance that are made for the recipient.
Donations (gifts and membership contributions) serving pub-

lic-benefit, charitable or religious purposes (tax-privileged purposes)
and donations to political parties may also be taken into account as
special expenses. There is a wide range of public-benefit purposes in-
cluding the promotion of sports, education, nature conservation and
development cooperation.
Donations to promote public-benefit purposes are generally de-

ductible up to the amount of 20% of adjusted gross income or up to
four tenths of a percent of the total turnover and the wages and sal-
aries paid in a calendar year. Donations to political parties and inde-
pendent electoral associations attract tax relief under section 34g of
the Income Tax Act of 50% of these expenses, but not exceeding €825
for individual filers and €1,650 for joint filers. Donations to political
parties that do not attract tax relief under section 34g of the Income
Tax Act may additionally be deducted as special expenses up to a max-
imum €1,650 for individual filers and €3,300 for joint filers.
Expenditure for the support and occupational training of children

is taken into account in the family benefits system by the provision of
the tax allowance for children and the allowances covering childcare,
education and training for a child. This satisfies the constitutional
principle under which families must be given tax exemption equiva-
I
lent to the pertinent subsistence income and the childcare/education/
training needs of a child. To the extent not required for this purpose,
child benefit serves to promote the family. In the case of a married
couple subject to unlimited tax liability who live together, the stated
tax allowances for children are doubled.
In the case of a married couple subject to unlimited tax liability

who do not live together, child benefit is granted primarily to the par-
ent that has care of the child. Each parent is granted the tax allow-
ance for children and the allowance for childcare/education/training
needs. This is then set off in each case against half of the child benefit.
However, one parent may receive the tax allowance for children for
the other parent if the former essentially fulfils the obligation to sup-
port the child for the calendar year (and the latter fails to do so). This
also leads to the transfer of the childcare/education/training needs
allowance. Other than the requirements for the transfer of the child
allowance, one parent may apply for the transfer of the other parent’s
allowance for childcare/education/training if the minor child is not
registered as living with that parent and that parent does not pay
maintenance.
Extraordinary financial burdens of a general nature are deductible

where taxpayers are forced, for legal, moral or factual reasons, to incur
expenditure (e.g. as a result of ill health), insofar as such expenditure
exceeds the burden they may reasonably be expected to bear them-
selves (scaled according to income and family status).
Subject to certain conditions, expenditure for the support and vo-

cational training of another person may be deducted to a limited ex-
tent as an extraordinary financial burden. In addition, certain persons
may claim lump-sum amounts. These cases are as follows:
1) Expenditure for the support and, as the case may be, the vocation-
al training of a person legally entitled to receive support from the
taxpayer or his/her spouse and for whom neither the taxpayer nor
any other person may claim the tax allowance for children or child
benefit if the dependent person has no or only a small amount of
assets (maximum €15,500). Expenditure of up to €8,652 a year is
deductible. Contributions to basic health and statutory long-term
care that are made for the dependent person increase the deduct-
ible amount insofar as the contributions have not already been tak-
I
en into account as special expenses. A status equal to that of the le-
gally dependent person is accorded to a person in respect of whose
support certain domestic public funds are reduced in accordance
with the support payments made by the taxpayer. Any net income
and, in principle, any earnings accruing to the supported person
exceeding a total of €624 are to be set off against the amount of
€8,652. The same applies for grants which the dependent person
receives to finance training where the grants come from public
funds or from institutions receiving public funds for this purpose.
2) Expenditure of up to €924 a year for the special needs of a child

having attained the age of majority who is undergoing vocational
training and lives away from home, and for whom the taxpayer is
entitled to claim the tax allowance for children or child benefit.
3) People with disabilities are entitled to deduct a lump-sum amount

ranging from €310 to €3,700 a year, depending on the extent and
type of their disability. If it can be shown that they have incurred
certain higher expenditure resulting directly from their disabili-
ty, such expenditure may be deducted as an extraordinary finan-
cial burden instead of the lump-sum disability allowance, taking
account of the burden they may reasonably be expected to bear
themselves.
4) Surviving dependants are entitled to claim a lump-sum allowance

of €370 a year.
5) Taxpayers who themselves look after an incapacitated relative in

their own home or that of the relative may claim a lump-sum care
allowance of €924 a year, provided they do not derive any income
from long-term care insurance.
The taxable income determined in this manner forms the basis for
the assessment of income tax according to the tax scale. This amount
of tax constitutes the assessable income tax – with the amount re-
duced by credits for foreign taxes paid and any applicable tax relief
(e.g. for expenditure on employment or services in or around the
household) and increased by certain amounts (e.g. the amount of the
entitlement to child benefit if tax allowances for children have been
deducted from taxable income because child benefits paid were not
sufficient to effect the tax exemption stipulated in the constitution).
I
Employees are required by law to submit an income tax return in
particular cases (see > wages tax). In other instances, income tax will
only be assessed under certain circumstances, e.g.:
the taxpayer applies for assessment, especially to credit wages tax

and withholding tax on income from capital (final withholding
tax)
either spouse applies for individual assessment
a loss from income other than that derived from employment has
to be taken into consideration (upon application by the taxpayer),
e.g. because depreciation allowances on real property are claimed
in accordance with section 7 of the Income Tax Act
employees claim the reduced rate for extraordinary income
The following are credited against the assessed tax:
any income tax prepayments for the current year according to the
tax office’s prepayment notice
any income tax withheld at source (in the form of wages tax and,
if applicable, withholding tax on income from capital/final with-
holding tax)
If final accounting shows that additional tax is due, the taxpayer

must make a final payment of this amount. If current prepayments
exceed the tax liability, the excess will be refunded.
Income tax law distinguishes between limited and unlimited tax Who is liable for tax?
liability. Individuals whose residence or habitual abode is in Germany
are subject to unlimited tax liability. Individuals not fulfilling the stat-
ed preconditions for unlimited tax liability have limited tax liability if
they derive domestic (i.e. German) income within the meaning of sec-
tion 49 of the Income Tax Act. In special cases, people who are resident
abroad may also be treated as having unlimited tax liability.
As a rule, income tax is assessed on a taxpayer’s taxable income in

a given year, with assessment taking place after the expiry of that year.
Assessment generally commences with the taxpayer filing an income
tax return stating the income he or she has received during the year
in question. The tax payable is determined by way of a tax assessment
notice. Married couples may elect to be assessed either jointly or in-
dividually, provided husband and wife are both subject to unlimited
I
tax liability and are not permanently separated; these conditions must
be satisfied either at the start of or at some point during the calendar
year. Married couples or registered partners are assessed individually
if one of the spouses/registered partners applies for this type of as-
sessment. Individual assessment means that each spouse/registered
partner is assessed on his or her income. Special rules apply for the
deduction of extraordinary financial burdens, special expenses, and
tax relief under section 35a of the Income Tax Act. The assessment is
made according to the income tax scale.
In the case of joint assessment, the net incomes accruing to each

spouse are aggregated and the couple treated to all intents and pur-
poses as a single taxpayer. Income tax is then determined using the
income splitting method, with tax being computed according to the
income tax scale on half of the joint income, and the result being dou-
bled. Tax computed in this way is generally lower than the amount
that would have arisen if the couple had filed individual returns.
In the case of the option available since 2013 for married couples to
be assessed individually, special expenses, extraordinary burdens and
tax relief for expenditure on employment/services in or around the
home are credited to the spouse paying the costs. If the couple makes
a consensual request, half will be deducted per person.
How much is the tax? The income tax scale (also used to compute wages tax) is the cen-
trepiece of the Income Tax Act. It is the basic determinant of income
tax (wages tax) payable by a taxpayer on his or her income. The way
in which the basic scale of income tax is built up is essentially deter-
mined by the fact that the tax burden must be adapted both to the
fiscal needs of the state and, to ensure equitable taxation and for social
reasons, to the financial resources of the taxpayer.
It is arranged as follows:
A basic personal allowance of €8,652 is granted on taxable income.
Tax rates on income in excess of the basic personal allowance in-

crease progressively in two linear ranges, starting at 14% (the basic
rate) and rising to 42% (the top rate).
Over the amount of €53,666, any increase in income is taxed at a

constant rate of 42%.
I
A three-percent higher tax rate of 45% is applied to particularly
high taxable income of €254,447 and up.
In both ranges with linear progression, the proportion of any ad-

ditional income taken in tax (the marginal rate) increases in a straight
line, although at differing gradients. In the upper proportional zone it
remains constant. The extent of the tax burden in relation to total tax-
able income (the average burden) increases as income rises, approach-
ing the top tax rate for very large incomes.
If taxable income includes extraordinary income, rate concessions

may be claimed to avoid hardship that might otherwise be caused by
progression. This applies in particular to income that accrues once
only, such as compensation payments, proceeds from the sale of a
business and certain income from an activity lasting several years. The
rate concession is calculated by dividing the extraordinary income (to
be given relief) by five and multiplying the tax payable on that portion
by five.
If income tax (with the exception of wages tax) is withheld at

source, flat rates apply (cf. > withholding tax on income from capi-
tal, > final withholding tax and > withholding tax on the income of
non-residents).
The legal basis for taxing individual income is provided by the ap- What is the legal
plicable versions of the Income Tax Act and the Income Tax Imple- basis?
menting Ordinance. In addition, the Federation has issued income tax
and wages tax guidelines (in the form of general administrative regu-
lations with the consent of the Bundesrat) that are designed to clarify
uncertainties and questions of interpretation.
The Länder generally administer the income tax. Who collects the tax?
The importance of income tax in Germany’s taxation system is

demonstrated when its receipts are compared with total tax revenue
and GNP. In 2014, revenue from income tax (including revenue col-
lected in the form of > wages tax and > final withholding tax, which
are special forms of income tax collection) amounted to €221.4bn,
accounting for 34.4% of total tax receipts (which stood at €643.6bn).
Income tax is thus the public authorities’ most substantial source of
revenue.
82 | An ABC of Taxes Income tax / Inheritance and gift tax
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The taxpaying capacity of each individual is taken into account by
making allowance for specific material and personal circumstances.
Increasingly, income tax is also used to achieve economic, social and
related policy objectives. Besides the arrangements in the Income Tax
Act, these tax measures are regulated in separate laws.
How did the tax Elements of personal taxation can be seen in the personal tithes
develop? (decimae personales) paid to the church in medieval times and in the
territorial poll taxes that evolved from fixed personal taxes into taxes
scaled according to estate (such as the Prussian Kopfschoss in the 17th
century). The first German income tax along modern lines was levied
from 1811 to 1813 in Eastern Prussia. It had already been advocated
in 1808 by Minister Freiherr vom Stein as a war levy modelled on the
English income tax of 1799. Under Hardenberg, Prussia introduced a
class tax in 1820 which, in the grading of the tax according to external
signs of prosperity, followed on from the groupings established by the
estates and was intended to be something in between an income tax
and a poll tax. For higher incomes, this was replaced in 1851 by a clas-
sified income tax, giving way in 1891 under Finance Minister Miquel
to an exemplary system of standardised income tax incorporating
progressive rates and the obligation to declare income. Up to the First
World War, this was taken as a model by all German states, Hesse hav-
ing changed over to general income taxation as early as 1869, followed
by Saxony in 1874. In the course of Erzberger’s financial reform in the
early years of the Weimar Republic, the 27 income tax systems of the
Länder were replaced in 1920 by a uniform Reich income tax, which
was further refined in the tax reforms of 1925 and 1934. After 1945,
income taxation was reassigned to the Länder by the allied powers
until the Basic Law enacted in Bonn in 1949 stipulated that the rev-
enue from income tax was to accrue in principle to the Länder, but
that the Federation was entitled to a share. The constitutional amend-
ment of 1955 made income tax into a joint tax of the Federation and
the Länder; the respective shares in the revenue were to be adjusted
according to the ratio of revenue and expenditure between the Feder-
ation and the Länder. From 1958 to 1969, the share taken by the Fed-
eration ranged from 33.3% to 39%. Since the 1969 financial reform,
income tax has been one of the joint taxes under a comprehensive
revenue-sharing arrangement, in which a share fixed by law (14% as
from 1969 and 15% since 1 January 1980) flows to the local authorities,
with the bulk of the receipts shared equally between the Federation
and the Länder.
I
Inheritance and gift tax
In principle, inheritance tax covers all transfers of property that occur What is the tax
by reason of death. The tax is imposed on inheritances received. Un- payable on?
like estate taxes, which are calculated according to the wealth left by
the deceased, taxes on inheritances received are based on the amounts
inherited by individual heirs, legatees or other recipients.
Gift tax complements inheritance tax. It covers lifetime transfers of

property. Most of the legal provisions on assets received by reason of
death also apply to gifts.
Tax is also charged on donations made for specific purposes, and,

at certain intervals, the assets of family foundations and similar asso-
ciations.
Full tax liability attaches to the entire amount of assets received if

the deceased is a German resident at the time of his/her death, if the
donor is a German resident at the time of the donation, or if the recip-
ient is a German resident when the tax becomes chargeable. If none
of the parties involved is a German resident, the transfer becomes tax-
able to the extent that it involves certain German domestic assets as
described in section 121 of the Valuation Act.
The following constitute receipt of a transfer by reason of death:

receipt by way of inheritance
receipt by bequest or by similar means
receipt by assertion of a claim to a compulsory portion of an in-
heritance
receipt of a gift made in contemplation of death
receipt under a contract entered into by the deceased, particularly
payment falling due under a life assurance policy
Tax is also imposed on certain other receipts of assets as specified

in section 3 subsection (2), section 4 and section 6 of the Inheritance
and Gift Tax Act.
A gift is defined as any gratuitous donation made by a living person

through which the recipient’s wealth increases and the donor’s wealth
decreases. Further actions subject to gift tax are detailed in section 7 of
the Inheritance and Gift Tax Act.
84 | An ABC of Taxes Inheritance and gift tax
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Inheritance tax and gift tax are also chargeable on what are termed
“donations for specific purposes” (cf. section 8 of the Inheritance
and Gift Tax Act). However, these are generally tax-exempt under
section 13 subsection (1) numbers 15 and 17 of the Inheritance and
Gift Tax Act.
The basis of assessment for both inheritance tax and gift tax is
the taxable receipt of a transfer. This is equivalent to the increase in
the recipient’s wealth, to the extent that this increase is not tax-
exempt. In computing the taxable receipt of an inheritance, not only
the deceased’s debts are deductible, but also liabilities incurred in
connection with bequests, testamentary obligations and compulsory
portions claimed. Further deductible liabilities of the estate include
the cost of the deceased’s funeral (including the gravestone and main-
tenance of the grave) and the cost of winding up, settling, distribut-
ing and attaining the inheritance. To cover all of these costs, a fixed
allowance of €10,300 may be deducted without having to provide
documentary evidence of the expenses. Any tax exemptions to which
the recipient is entitled are then deducted from the net value of the
transfer received.
Where transfers are made for consideration less than their value
and thus contain a gift element, or where there are conditions at-
tached to a gift, the tax value of the consideration or conditions to be
fulfilled is deducted from the tax value of the gift.
How are the assets The values of the individual assets are measured in accordance
valued? with the Valuation Act. This measurement is based on the fair (mar-
ket) value.
The valuation of real property for tax purposes relies heavily on

the rules for determining the fair market value of land, based on the
Federal Building Code.
The value of real property is measured whenever it is relevant to

taxation in a given case.
The value of undeveloped real property is measured on the basis

of its area and the applicable standard ground values. These are de-
termined and published by the committee of land valuation experts
responsible for the local area.
I
In the case of developed property, the real property value is calcu-
lated using the comparative value method, the rental value method or
the material value method.
The comparative value method is generally used to value de-

tached and semi-detached houses as well as residential apartments
and non-residential rooms forming part of larger properties. The
value of the property is determined by comparison with the prices
of similar properties.
The rental value method is used to value property rented for res-
idential purposes as well as mixed-use and business property for
which it is possible to determine the customary amount of rent
paid on the local market. The value of the property is calculated
by determining the value of the land in the same way as for unde-
veloped property and adding a value representing the yield from
the building. This yield value is found by applying a set multiplier
to the net earnings from the building. The net earnings from the
building are determined in accordance with the annual (actual or
customary) rent minus maintenance costs and minus a rate of in-
terest applied to the value of the land. The minimum value that
may be recognised in this procedure is the value of the land.
The material value method is used for real property for which nei-
ther the comparative value nor the rental value method is practi-
cable. Such property comprises:
• detached and semi-detached houses as well as residential apart-
ments and non-residential rooms forming part of larger prop-
erties, if no values of comparable properties are known that
would enable the comparative value method to be used
• mixed-use and business properties, if the customary rent for
the local area cannot be determined
• other developed real property
Under this method, the value of the property is determined on the
basis of the standard construction costs for the building and for
other facilities together with the value of the land.
If the taxpayer provides evidence substantiating a lower market
value, this is to be recognised instead. When measuring the value
of agricultural and forestry property, a distinction is made between
the following:
• the residential units belonging to the business and the residen-
tial areas, which are valued as residential real property and
• the commercial part of the property, for which a standardised
version of the rental value method is used in principle (a mini-
mum value applies)
I
It may be necessary to measure the value of non-listed shares in
an incorporated business, or stakes in a sole trader’s or partnership’s
business assets. In these cases, either a simplified procedure based on
the prospective profits of the business, or another procedure custom-
ary in the sector concerned, must be followed. The net asset value con-
stitutes the lower limit.
Liability to pay inheritance tax attaches to the recipient of the

transfer. When tax is payable on a gift, both the donor and the recip-
ient are liable.
A number of notification requirements are laid down in the In-

heritance and Gift Tax Act to ensure that no transfer escapes taxation.
These requirements apply to the recipient and to courts, authorities,
banks and insurance companies.
How much is the tax? The tax-free allowance depends on the recipient’s tax class. There
are three different tax classes under the Inheritance and Gift Tax Act,
and the recipient’s relationship with the deceased or donor deter-
mines which is applicable, as follows:
Class I:
This class applies to the deceased’s spouse or registered partner,
to children and step-children of the deceased, to grandchildren
and to parents and forebears in the case of transfer by reason of
death.
Class II:
This class applies to parents and forebears in the case of trans-
fer by gift (for transfer by reason of death see class I), to brothers
and sisters (also half-brothers and half-sisters), nephews, nieces,
step-parents, sons-in-law, daughters-in-law, parents-in-law and
to divorced spouses or partners from registered partnerships that
have been annulled.
Class III:
This class applies to all other recipients and to donations for spe-
cific purposes.
To begin with, every beneficiary is entitled to a personal tax-free

allowance. This applies to receipts by reason of death as well as to life-
I
time gifts. Since 1 January 2009, the amount of the allowance has been
as follows:
€500,000 for the spouse or registered partner
€400,000 for children or the children of deceased children
€200,000 for grandchildren
€100,000 for any other persons in class I
€20,000 for persons in class II or class III
In addition, the surviving spouse or registered partner, as well as

any children under 27 years of age, benefit from a special tax-free al-
lowance for maintenance purposes. This tax-free allowance applies
only to transfers received by reason of death and is reduced by the
amount of any tax-exempt pension payments accruing to the recip-
ients because of the death. The tax-free allowance for maintenance
purposes is €256,000 for the surviving spouse or registered partner,
and ranges from €52,000 for children aged five or under to €10,300 for
children between 20 and 27 years old.
To make sure that these tax-free allowances are claimed only once
in a ten-year period, all donations received by one person from a sin-
gle other person are counted together for tax purposes.
Alongside the personal tax-free allowances, a number of other tax

exemptions exist:
Persons in class I do not have to pay tax on household effects in-
cluding linen and items of clothing that they receive up to a value
of €41,000. These persons also benefit from a tax-free allowance of
€12,000 in respect of other movable objects received, including art
objects and collections. However, this does not apply to currency,
securities, coins, precious metals, gems and pearls.
Beneficiaries of class II and III are entitled to a combined tax-free
allowance of €12,000 for household effects and other movable ob-
jects, subject to the exclusions named above.
No gift tax is payable on residential property that an individual do-
nates to his or her spouse or registered partner if that person uses it
for his or her own housing (this is sometimes referred to as a “fam-
ily home”). This exemption covers a detached or semi-detached
house, a rented residential, commercial or mixed-use property, or
an owner-occupied residence.
Similarly, the inheritance of a family home by the surviving spouse
or registered partner is tax-free if the deceased personally used the
I
home for residential purposes and the recipient then immediately
uses it for his or her own residential purposes. If the family home
is sold or rented out within ten years of the transfer, the tax ex-
emption is revoked with retroactive effect. There are exceptions
that apply when the personal use is abandoned for compelling ob-
jective reasons such as death or moving to a care home due to a
significant need for long-term care. Under the conditions stated
above, a family home with living space of up to 200 square metres
can be passed on to children free of tax. If the living space is larger
than this, the corresponding share of the property is liable to tax.
10% of the value of real property rented for residential purposes
is exempt from tax; the same applies to portions of such property.
Special exemptions can be claimed when receiving business assets,
shares in corporations in which the deceased/donor held a direct
stake of more than 25%, as well as agricultural and forestry assets
(business property).2
The usual rate of tax relief is such that an 85% tax exemption ap-
plies to the business property received, provided certain conditions
are met. The recipient must maintain the business for five years and
keep its total payroll above a certain level. Small and medium-sized
enterprises can also claim a tapered deduction of €150,000. Taken
together, these provisions ensure that no tax is paid on business
property worth up to €1m.
An alternative tax relief option allows a 100% tax exemption, pro-
vided more rigorous conditions are satisfied.
If the business property is sold or otherwise disposed of within the
applicable period, the tax exemption granted is revoked in whole
or in part, and with retroactive effect.
The Inheritance and Gift Tax Act specifically entitles recipients of

certain assets to apply for payment of the tax to be suspended for up
to ten years. This entitlement exists in the following cases:
receipt of business, agricultural or forestry assets, if these are nec-
essary for the continuation of the business
receipt of real property rented for residential purposes, if the re-
cipient would only be able to pay the tax due on such property by
selling it
2 The Federal Constitutional Court declared previous rules exempting business assets
to be incompatible with Article 3 paragraph (1) of the Basic Law (ruling of 17 December
2014 - 1 BvL 21/12 -, Federal Law Gazette 2015 I, p. 4). However, the rules continue to apply
until new rules are in place. The Federal Constitutional Court gave legislators until 31 June
2016 to introduce new rules.
I
receipt of a detached or semi-detached house or other residential
property used for the recipient’s own residential purposes, but only
for as long as the recipient’s personal use of the property continues
If the receipt occurs by reason of death, no interest will be charged

on such suspension of tax due.
Inheritance and gift tax are charged at the following rates (as of
1 January 2010):
Taxable value received (in €)
Percentage rate for tax class
I II III
≤ €75,000 7 15 30
≤ €300,000 11 20 30
≤ €600,000 15 25 30
≤ €6,000,000 19 30 30
≤ €13,000,000 23 35 50
≤ €26,000,000 27 40 50
> €26,000,000 30 43 50
The legal basis for the imposition of inheritance and gift tax is the What is the legal
Inheritance and Gift Tax Act in the version published in Article 1 of basis?
the Inheritance Tax Reform Act of 24 December 2008 (Federal Law
Gazette I, p. 3018), last amended by Article 10 of the 2015 Tax Amend-
ment Act of 2 November 2015 (Federal Law Gazette I, p. 1834).
A further legal basis is the Valuation Act in the version published in

Article 2 of the Inheritance Tax Reform Act of 24 December 2008 (Fed-
eral Law Gazette I, p. 3018), last amended by Article 9 of the 2015 Tax
Amendment Act of 2 November 2015 (Federal Law Gazette I, p. 1834).
The revenue from inheritance and gift tax accrues to the Länder. Who collects the tax?
The tax is assessed and collected by the tax offices.
Historical forerunners of the taxation of inheritances in Germany How did the tax
may be seen in the inheritance tithe payable to the Frankish sovereign develop?
for decisions in disputes over inheritances; the levy imposed in me-
dieval times under Old Friesian law on distant relatives with entitle-
90 | An ABC of Taxes Inheritance and gift tax / Insurance tax
I
ment to inherit; the levies on change of title (designated as Sterbfall,
Totenpfund, Totenzins, Totenzoll and the like) which were payable
from the late 9th century onwards to the feudal lord and in some in-
stances to the supreme lawgiver and territorial prince. In the 17th and
18th centuries, numerous German territorial rulers and towns intro-
duced a levy on inheritance by collateral relatives. A further form of
taxation on inheritances in the individual German states existed in
the form of stamp duties (for the documentation of wills and inher-
itance contracts). Prussia departed from this trend by introducing in
1873 a technically up-to-date inheritance tax law which served as a
model for the other states. Hamburg brought in delayed taxation of
heirs in 1894, whilst progression according to the size of the estate was
introduced by Baden in 1899.
The Reich law of 1906 standardised the inheritance tax laws of the
Länder on the basis of a tax imposed on the transfer of property by
reason of death, though the individual states were assigned shares of
the revenue and the right to impose surcharges and additions. In the
course of Erzberger’s financial reform, the inheritance tax was assigned
in its entirety to the Reich in 1919; in addition to the inheritance and
gift tax imposed on the heirs and recipients of gifts, an estate duty “on
the deceased” was still levied up to 1922. A new and improved version
of the Inheritance Tax Act was adopted in 1925, with the inclusion of
the value concepts taken from the newly adopted Reich Valuation Act.
The basic elements of this version helped to shape the law as it stands
today. Since 1945 (as confirmed in 1949 in the Basic Law) the revenue
from inheritance tax has again accrued to the Länder.
Insurance tax
What is the tax Insurance tax, which belongs to the category of transactions taxes,
payable on? is imposed on the payment of insurance premiums. The tax is payable
regardless of whether the purchase of insurance is voluntary (e.g. by
contract) or mandatory (e.g. prescribed by law). However, the tax does
not apply to certain types of insurance, including all statutory and
private life insurance, all statutory and private health insurance, and
statutory unemployment insurance.
Who is liable for tax? Liability for insurance tax attaches to the insured party. However,
the tax is generally reported and paid by insurance companies. How-
I
ever, if insurance is purchased from an insurer domiciled in a country
outside the European Union or the European Economic Area, the in-
sured party must file a tax return with the Federal Central Tax Office
and pay the self-assessed insurance tax.
In general, the insurance premium serves as the basis for determin-

ing the amount of insurance tax. In some cases, a proportion of the
insurance premium serves as the tax base (see > fire protection tax).
The insured value serves as the tax base only in the case of insurance
covering damage caused by hail, storm, heavy frost, heavy rainfall or
flooding to (i) agricultural products or (ii) glass covering used in agri-
cultural or horticultural enterprises.
Generally, the tax rate is 19% of the insurance premium. Excep-

tions include the tax rates (as of 1 July 2010) on home contents in-
surance (19% of 85% of the insurance premium), residential building
insurance (19% of 86% of the insurance premium), and fire insurance
and insurance against business interruptions due to fire (22% of 60%
of the insurance premium). > Fire protection tax is due on the remain-
ing portion of the premiums for these types of insurance. Other rates
include 3% for marine hull insurance and 3.8% for accident insurance
with no-claims bonus. For insurance covering damage caused by hail,
storm, heavy frost, heavy rainfall or flooding to (i) agricultural prod-
ucts or (ii) glass covering used in agricultural or horticultural enter-
prises, the rate is .03% of the insured value.
The legal bases for imposing insurance tax are the Insurance Tax What is the legal
Act and the Insurance Tax Implementing Ordinance. basis?
Revenue from insurance tax accrues to the Federation. Since 1 July Who collects the tax?
2010, the tax has been collected by the Federal Central Tax Office.
Taxes on insurance were originally introduced with the spread of How did the tax
assurances in the 18th and 19th centuries. These taxes generally took develop?
the form of a stamp tax that was imposed whenever an assurance pol-
icy was registered officially, as was required by authorities. The rules
for imposing this tax on documents varied very widely in the German
states of the 19th century even after a general transition was made
toward taxing the insured value, a practice that was introduced by
the Prussian Stamp Tax Act of 1895. Under the Reich, insurance tax
took the form of a transactions tax as standardised by the Reich Stamp
92 | An ABC of Taxes Insurance tax / Intermediate products duty / Licensing tax
I
Duty Law of 1913. The tax then obtained its modern legal basis un-
der the Insurance Tax Act of 1922; the 1937 revision of this Act was
largely retained after 1945. Revenue from insurance tax was assigned
to the Länder under the Basic Law in 1949 and then reassigned to the
Federation from 1970 onwards by the Financial Reform Act of 1969.
Insurance tax has been administered by the Federation since 1 July
2010, on the basis of the Concomitant Act on the Second Federalism
Reform passed in 2009.
Intermediate products duty

What is the duty Intermediate products duty is an > excise duty regulated by federal
payable on? statute.
Simply put, intermediate products are alcoholic beverages that fall

in between the categories of wine and spirits. The law also makes ref-
erence to specific headings in the Combined Nomenclature (CN) in
order to define dutiable intermediate products. As a general descrip-
tion, intermediate products are beverages falling under CN headings
2204, 2205 and 2206 that have an actual alcoholic strength by volume
above 1.2% but not exceeding 22% and that are not dutiable as spar-
kling wine or beer. Typical examples of intermediate products include
sherry, port wine and Madeira.
How much is the In general, the duty on intermediate products is €153 per hec-
duty? tolitre. However, the duty on intermediate products with an actual
alcoholic strength by volume of less than 15% is €102 per hecto-
litre.
Furthermore, a duty of €136 per hectolitre is levied on intermedi-

ate products that (i) are contained in bottles with sparkling wine stop-
pers held in place by special ties or fastenings or (ii) at +20°C have an
excess pressure, due to carbon dioxide in solution, of 3 bar or more.
The legislative provisions > sparkling wine duty also apply to inter-
mediate products.
What is the legal The legal basis for imposing intermediate products duty is the
basis? Sparkling Wine and Intermediate Products Duty Act of 15 July 2009
(Federal Law Gazette I, p. 1870).
I/L
Licensing tax
Licensing tax is a local tax that is generally collected by local autho- What is the tax
rities and in some instances by rural districts or towns administered payable on?
as districts. The tax is payable by all those who are granted a licence
to operate catering premises on which spirits are sold, or to engage
in the retailing of spirits. There are special regulations on keeping
licensed premises, and compliance with these rules must be moni-
tored. Furthermore, restricting the consumption of alcohol serves
key interests of the community, particularly in terms of health policy.
These circumstances serve as the basis for justifying the existence of
licensing tax as an incentive charge. Besides being intended as a means
of regulating trade and realising social policy aims, it also serves to off-
set the specific advantages enjoyed by licensees. The tax is payable by
the person operating licensed premises or retailing spirits. The tax is
usually computed on the basis of turnover, annual profit, working ca-
pital or the area of the premises or a combination of these, though tur-
nover has gradually become the most frequently used reference fig-
ure. The decisive factor is the turnover of the first year of operation,
or that of the following calendar year, and tax is payable as a fixed
percentage of this (generally between 2% and 30%). The legal basis of
this tax consists of municipal by-laws based on the Länder laws on
municipal taxation.
As early as the Middle Ages, German towns were imposing levies on How did the tax
persons entitled to sell intoxicants, either in the form of a fee (Schank- develop?
geld or Zapfgeld) or a tax (Ungeld or Akzise). These were subsequent-
ly imposed by the territorial rulers as well, and in the 19th century
were integrated in part in the stamp duty laws of the German states.
The Prussian District and Provincial Taxes Act of 1906 recognised the
stamp duty as a municipal licensing tax.
After the First World War there were some temporary communal
“night taxes” or “sitter taxes” that were levied on the sale of intoxi-
cants to night-time “sitters” in licensed premises. The Prussian Finan-
cial Equalisation Act of 1938 restricted the right to impose these taxes
to urban and rural districts. After 1945 the licensing tax was retained
in the new tax regulations of the Länder as a local consumption tax on
certain expenditure.
94 | An ABC of Taxes Local taxes / Motor vehicle tax
L/M
Local taxes
Local taxes are a category of taxes that are connected with a local
situation or transaction and whose immediate effect is of local signi-
ficance only. The most important of these taxes are > beverage duty, >
entertainment tax, > dog tax, > licensing tax, > hunting and fishing tax
and > secondary residence tax.
With the exception of licensing tax, the nature of local taxes assigns
them to the category of excise duties and taxes on expenditure. Some
of these taxes are not levied in all of the Länder, whilst others (such as
the secondary residence tax) are imposed in only a few local author-
ities. The Länder laws on local taxation in general or on specific taxes
constitute the legal basis for taxation. These laws give the local author-
ities the right to pass by-laws and thus to stipulate in detail whether or
not a local tax is levied and how it is structured. In addition, the Länder
laws may oblige the local authorities to impose certain taxes.
Standard by-laws have been developed for most local taxes, with
the result that methods of assessment have largely been harmonised.
The amount of revenue raised is essentially at the discretion of the lo-
cal authorities or associations of local authorities. Local taxes account
for only about 1% of the total tax revenue accruing to the local au-
thorities. Since local taxes are only of minor overall significance to the
local authorities and associations of local authorities in terms of the
revenue they generate, they are sometimes referred to as minor local
authority taxes. However, local taxes are of greater significance in a
small number of local authorities where local tax revenue provides a
valuable addition to revenue from other taxes.
Motor vehicle tax

What is the tax Motor vehicle tax is essentially payable on the keeping of vehicles for
payable on? use on public roads, irrespective of the actual extent of such use. The
term “vehicles” includes motor vehicles and trailers as described in
the Vehicle Licensing Regulations.
Who is liable for tax? As a rule, motor vehicle tax for vehicles registered in Germany is
payable by the person in whose name the vehicle is registered for road
use. Liability for tax generally begins when the vehicle is registered
M
and ceases when it is taken out of service under road traffic law, which
involves contacting the registration authority.
New passenger cars registered on or after 1 July 2009 are taxed How much is the tax?
primarily on the basis of CO2 emissions, using the following compo-
nents:
a base rate related to engine capacity, with a distinction made be-
tween positive-ignition (e.g. petrol) engines and compression-igni-
tion (e.g. diesel) engines,
plus
an amount based on CO2 emissions, calculated by applying a flat
rate of tax per gram to the car’s certified CO2 rating per kilometre,
with part remaining tax-free
The first component of the tax (base rate) is higher for diesel cars
than for petrol cars to compensate for the fact that the former benefit
from more favourable treatment as regards energy duty. The CO2 rat-
ing for each car is set by the vehicle registration authorities. It is stated
in the register of vehicles and on the vehicle’s own registration certif-
icate. The part of this rating that remains untaxed was reduced grad-
ually; the most recent reduction came into effect on 1 January 2014.
Purely electric vehicles, which are propelled exclusively using elec-

tric motors powered entirely or primarily by mechanical or electro-
chemical energy storage devices or by zero-emission power convert-
ers, are exempt from tax for a certain period of time.
Information about cars first registered before 1 July 2009 and an

interactive calculator for motor vehicle tax are available (in German)
on the Federal Ministry of Finance’s website (www.bundesfinanzmin-
isterium.de).
The annual tax payable for motorbikes requiring registration is

€1.84 per 25cm³ of engine capacity, or fraction thereof. The tax to be
paid for mobile homes is based on the maximum permissible weight
and pollutant emissions (using the EU’s emissions standards). For ve-
hicles in the separate legal category of three-wheeled and light four-
wheeled motor vehicles (including trikes and quads), the tax is calcu-
lated on the basis of engine capacity and the applicable EU emissions
standard.
96 | An ABC of Taxes Motor vehicle tax
M
Overview of motor vehicle tax on cars
For new vehicle registrations from 1 July 20091
Internal combustion engines

Electric motors 2 (regardless of fuel type, including all hybrids)
(purely electric vehicles)
Piston-driven petrol/Wankel Diesel
Time-limited tax exemption Base tax rate

per 100cm³ of engine capacity
for new vehicles registered from or fraction thereof
Piston-driven petrol/Wankel Diesel
18 May 2011 1 January 2016 2,00 € 9,50 € 3
to to
31 December 2015 31 December 2020
10 years 5 years
Tax based on CO2 emissions
for new vehicles registered from
1 July 2009 1 January 2012 1 January 2014

Tax (based on weight) to to
31 December 2011 31 December 2013 onwards
per 200kg of maximum permissible €2.00 per g/km of CO2 in excess of
weight or fraction thereof
€11.25 for weight ≤ 2000kg 120 110 95
€12.02 for portion of weight > 2000kg but ≤ 3000kg
€12.78 for portion of weight > 3000kg but ≤ 3500kg
50% reduction
Annual tax
(rounded down to nearest euro and due on the calendar date when the vehicle was registered)
1 As well as new cars registered between 5 November 2008 and 30 June 2009 and subject to the
CO2-based motor vehicle tax if this tax rate proves more favourable (section 18 subsection (4a) of
the Motor Vehicle Tax Act).
2 Powered entirely or primarily by batteries or flywheel systems (electrochemical or mechanical
energy storage devices) or, for example, by hydrogen-powered fuel cells (zero-emission power con-
verters) (section 9 subsection (2) of the Motor Vehicle Tax Act). The amendments approved by the
Federal Cabinet on 18 May 2016 are not taken into account here, as the bill had not yet passed at
the time of printing.
3 The higher tax rate for diesel cars compensates for the lower energy duty rate on diesel fuel com-
pared with petrol.
M
Other motor vehicles with a maximum permissible weight of up to
3.5 tonnes are taxed purely according to their weight. There are four
emissions-based categories for heavy goods vehicles, which are or-
dered by maximum permissible weight in 200kg steps. Motor vehicle
tax law gives priority to the pollutant emissions category as defined in
the Road Traffic Registration Regulations. The maximum annual tax
payable for the different categories is as follows:
pollutant emissions category S2 or better €556
pollutant emissions category S1 €914
noise category G1 €1,425
other €1,681
If any of the vehicles described above is a purely electric vehicle, it

is taxed on the basis of its maximum permissible weight, with a 50%
discount.
Vehicle trailers are subject to a linear tax schedule, with €7.46 being
charged for each 1,000kg of the maximum permissible weight, or frac-
tion thereof; the tax is capped at €373.24.
Exemptions from motor vehicle tax apply, for example, to all ve-
hicles excepted from the regulations on the registration procedure;
vehicles in the service of Germany’s armed forces, police and customs;
and vehicles used exclusively for purposes dictated by law (e.g. fire-
fighting, patient transport and disaster response). The law also con-
tains concessions for motor vehicles kept by severely disabled persons.
The keeper of the vehicle receives written notification of the

amount of motor vehicle tax assessed as being payable; this assess-
ment is valid until further notice. The tax is generally payable in ad-
vance for a given year. If more than €500 in tax is due in a year, it may
be paid in equal half-yearly instalments plus a 3% surcharge. If more
than €1,000 is due for the year, the amount may be split into equal
quarterly payments plus a 6% surcharge. A new notice is issued to the
vehicle’s keeper only if the assessment is changed. If a person’s tax li-
ability ceases, the tax for the final period is calculated precisely to the
last day. Any excess tax paid is refunded. The minimum length of time
for which vehicles registered in Germany can incur tax is one month.
The main legal bases are the Motor Vehicle Tax Act and the associ- What is the legal
ated Motor Vehicle Tax Implementing Ordinance. basis?
98 | An ABC of Taxes Motor vehicle tax / Nuclear fuel duty
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Who collects the tax? The main customs offices are responsible for the assessment and
collection of motor vehicle tax.
How did the tax Precursors to the tax were the road and bridge tolls exacted in the
develop? Middle Ages, which were the earliest levies on vehicles in Germany.
These charges on road use were set according to the number of wheels
on the vehicle. These were later joined by levies on horses and car-
riages designed to tax luxury items including the coach tax (adopt-
ed in Brandenburg-Prussia in 1698, for example). In the 19th century
the traffic charges in the individual German states included highway
charges (adopted in Württemberg in 1817 and in Prussia in 1828, for
example), whilst bridge, road and pavement tolls continued to be lev-
ied and in some instances were still imposed as local charges well into
the 20th century (as adopted in Bavaria in 1933, for example).
A tax attaching specifically to motor vehicles, originally in the form

of a luxury tax, emerged shortly after the first motor car was patent-
ed (1886) in Hesse-Darmstadt in 1899 and in Lübeck in 1902. In 1906
this source of tax revenue was included as a stamp duty in the Reich
Stamp Duty Act, which stipulated that licences subject to stamp duty
had to be purchased for passenger cars. This arrangement was super-
seded in 1922 by the Motor Vehicle Tax Act, which was a modern law
for its time and also covered heavy goods vehicles. Half of the revenue
from this Reich tax accrued to the Länder. Tax officials introduced the
concept of engine capacity to the calculation of motor vehicle tax in
1927. Various forms of tax relief were added to the law from 1933 on-
wards. For example, trailers and new cars were exempted from tax. By
1947, these had largely been repealed by the Allied Control Council. In
1949, the Basic Law assigned revenue from motor vehicle tax to the
Länder. The laws affecting motor vehicle tax that were passed by the
Allied Control Council ceased to have effect in 1958, coinciding with
an amendment to the law.
In all of the Länder of the Federal Republic of Germany, tax cards

were replaced in 1960 by one-off notices applicable for as long as Ger-
man-registered vehicles were liable for tax. Relief for electric vehicles
appeared as early as 1972, while tax assessment for vehicles powered
by internal combustion engines started to take environmental criteria
into account from 1985 onwards. Over time, environmental priorities
increasingly came to the fore. In 1989, a component of motor vehi-
cle tax was introduced for diesel-powered cars, with a standardised
M/N
charge to compensate for their preferential treatment as compared to
petrol cars with regard to mineral oil duty (now energy duty). Follow-
ing German reunification, a system of tax stamps continued to op-
erate in the former territory of the German Democratic Republic for
a transitional period until 1992. These stamps were purchased from
the post office and affixed to a tax card. Special provisions have ap-
plied to the registration of classic cars and seasonal registrations since
1997. Motor vehicle tax for heavy goods vehicles was last cut in 2007,
to harmonise the conditions for competition in the European freight
transport market. This brought motor vehicle tax in line with the
minimum level permissible under EU law for vehicles required to pay
tolls or purchase vignettes. Since mid-2009, tax on passenger cars reg-
istered for the first time has been primarily based on the vehicle’s CO2
rating instead of its pollution class under the emissions standards.
Amendments were made to the Basic Law to give the Federation

both responsibility for the administration of motor vehicle tax and
the right to the revenue as of 1 July 2009. Since then, receipts from
motor vehicle tax have accrued to the federal budget as general rev-
enue not earmarked for any specific purpose. As compensation, the
Länder receive a certain amount each year from the Federation’s
revenue. This amount is set by law. Until 30 June 2014, the revenue
authorities of the Länder administered the tax on behalf of the Feder-
ation. This responsibility was subsequently taken over by the Federal
Customs Administration.
Nuclear fuel duty
Nuclear fuel duty is an > excise duty regulated by federal statute. It What is the duty
applies to the use of nuclear fuels for commercial electricity genera- payable on?
tion within Germany’s fiscal territory (the Federal Republic of Germa-
ny excluding both the territory of Büsingen and the island of Heligo-
land). The relevant legislation defines nuclear fuel as plutonium-239,
plutonium-241, uranium-233 and uranium-235, in their original state
and in compounds, alloys, ceramic products and mixtures.
Nuclear fuel duty originates when a fuel element or individual fuel Who is liable for
rods are installed in a reactor for the first time and a self-sustaining duty?
chain reaction is triggered. The duty applies to the nuclear fuels con-
tained in the fuel elements or rods.
100 | An ABC of Taxes Nuclear fuel duty / Real property tax
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The person liable for the duty is the operator of the nuclear power
plant as the holder of a licence, under nuclear law, to operate a nuclear
fission plant for the commercial generation of electricity.
When the duty originates with respect to nuclear fuel, the person
liable for the duty has until the 15th day of the following month to
submit a self-assessed tax return in respect of that fuel, and must pay
the duty on or before the 25th day of that month. However, if the duty
originates between 1 and 18 December, the self-assessed tax return
must be submitted and the duty paid by 22 December at the latest.
How much is the Nuclear fuel duty is charged at a rate of €145 per gram of plutioni-
duty? um-239, plutonium-241, uranium-233 or uranium-235.
What is the legal The Nuclear Fuel Duty Act provides the legal basis for imposing
basis? the duty.
Who collects the Nuclear fuel duty is collected by the Federal Customs Administra-
duty? tion, and the revenue accrues to the Federation.
How did the duty Nuclear fuel duty was introduced on 1 January 2011 and will be
develop? imposed for a limited period, until 31 December 2016. Revenue from
the duty is to be used both for budgetary consolidation in general and
to reduce the burden on the Federation’s finances caused by the need
to renovate the Asse II nuclear waste repository.
Real property tax

What is the tax Real property tax is a non-personal tax imposed on economic units
payable on? of real property, which are defined in line with section 2 of the Real
Property Tax Act (category A real property tax for agriculture and for-
estry businesses and class B real property tax for real property). Taxa-
tion does not take account of the taxpayer’s personal circumstances
or ability to pay.
The process of determining what real property tax is payable fol-

lows a sequence of three independent steps. These are the procedure
to determine the assessed value, the procedure to determine what is
known as the base tax amount, which is derived from the assessed val-
ue, and the procedure to determine the tax due, which uses the base
tax amount as an input.
R
The process starts with one of the following, depending on the real
property in question:
in the case of real property (agricultural and forestry businesses,
private and business property) in the old Länder, the assessed value
established under the Valuation Act in accordance with 1964 values
in the case of agricultural and forestry businesses (excluding resi-
dential property) in the new Länder, the substitute economic value
established under the Valuation Act in accordance with 1964 values
in the case of real property in the new Länder for which the value
has been or is to be assessed in accordance with 1935 values under
the Valuation Act, the 1935 assessed value
in the case of rental property and detached houses built before
1991 in the new Länder for which no 1935 assessed value has been
or is to be established, the substitute tax base, calculated on the
basis of residential or usable area (with real property tax imposed
at a flat rate per square metre), as provided in section 42 of the Real
Property Tax Act
Notable exemptions from real property tax apply to public author-

ities, the churches and benevolent or welfare institutions.
On the basis of one of the assessed values or substitute economic

values, the tax office determines the base tax amount. This informa-
tion is then passed on to the local authority in question. The rates that
are applied to the assessed value or substitute economic value to ob-
tain the base tax amount are as follows:
between 0.26% and 0.35% for real property in the old Länder, ac-
cording to type
between 0.5% and 1.0% for real property in the new Länder (mak-
ing allowance for the appreciably lower 1935 assessed values), ac-
cording to type and category of local authority
a uniform rate of 0.6% for agricultural and forestry businesses
Article 106 paragraph (6), second sentence, of the Basic Law stip- How much is the tax?
ulates that the local authorities must be authorised to set multipliers
for real property tax within the framework dictated by the laws. Local
authorities apply a multiplier fixed by the local authority council to
the base tax amount, and determine the tax due by issuing a tax no-
tice. In the new Länder, real property tax is sometimes still calculat-
ed in a simplified procedure which uses the residential or usable area
102 | An ABC of Taxes Real property tax / Real property transfer tax
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as a substitute tax base, and applies a flat rate to this. The tax is then
collected by means of provisional tax returns (section 44 of the Real
Property Tax Act). As the local authorities are free to fix the multiplier
as they see fit, the tax imposed may differ to some extent from one
local authority to the next. The weighted average of the multipliers
applied by the local authorities in the old Länder in 2014 was 326% for
category A real property tax (agricultural and forestry businesses) and
412% for category B real property tax (real property). The correspond-
ing figures in the new Länder were 297% for category A and 430% for
category B.
What is the legal The legal basis for the imposition of real property tax is the Real
basis? Property Tax Act, in the version published in the Act to Reform Real
Property Tax Law of 7 August 1973 (Federal Law Gazette I, p. 965), with
subsequent amendments.
Who collects the tax? Real property tax is collected by the local authorities, who receive
the revenue in its entirety.
How did the tax The imposition of tax on real property is one of the oldest forms
develop? of direct taxation. Already in existence in the ancient world, this
type of taxation spread northwards over the Alps under Roman in-
fluence and was initially replaced on German soil by land tithes and
land charges payable to churches and feudal lords, being refined from
the High Middle Ages onwards under the name of Bede from a “vol-
untary contribution” to an obligatory tax. By virtue of its link to real
property as the most evident and most readily accessible part of any
property, the tax came to predominance in the territorial tax systems
during the agrarian period (under names such as Hufenschoss, Bau-
ernschoss, Grundschoss or Kontribution). Whereas the older types
of real property tax were based only on rough, area-based estimates
of land values, the development of land registry techniques from the
18th century onwards brought an additional assessment in terms of
the type of cultivation and the quality of the land. This was the basis
of real property tax laws in the 19th century tax systems of the in-
dividual states (for instance the laws passed in 1811 in Bavaria, 1821
in Württemberg, 1854 in Baden and 1861 in Prussia). In Miquel’s tax
reform of 1891/93, real property taxation in Prussia was essentially
left to the local authorities. In the dire financial straits after the First
World War the Reich financial reform of 1920 placed the Länder under
a direct obligation to realise the revenue from this tax. This gave rise
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to differing systems in the Länder, and it was only the 1936 reform
of non-personal taxes which put in place a standardised Real Prop-
erty Tax Act throughout the Reich, generally assigning the revenue
to the local authorities. After 1945 new real property tax regulations
were passed in various Länder, but these were replaced in 1951 by a
single Real Property Tax Act valid throughout the Federal Republic
of Germany. In 1961 and 1962, category C real property tax (on build-
ing land) existed alongside categories A and B. The category C tax
imposed a higher charge on land that was available for building but
was still undeveloped, the aim being to increase the supply of building
land.
Real property transfer tax
Real property transfer tax is a transactions tax. It attaches to transac- What is the tax
tions in respect of real property located in Germany, to the extent payable on?
that these transactions serve to confer ownership or near-ownership
status. The tax particularly applies to contracts of sale and other legal
transactions under which a party acquires a right to the transfer of
title to real property located in Germany.
Tax is also levied on numerous other transactions, such as: the

transfer of title in connection with the expropriation of real property;
the highest bid in a sale by public auction ordered by a court; the di-
rect or indirect change in the composition of a partnership that holds
real property, where such change is effected by a transfer of not less
than 95% of the shares in the assets of a partnership to new partners;
the transfer of beneficial ownership; certain company reorganisation
measures; the direct or indirect concentration in one hand, or the
transfer, of not less than 95% of the shares in a company holding real
property; and transactions directly or indirectly resulting in an entity
having an economic interest of at least 95% in a company holding real
property. The same status as real property is accorded to the heredi-
tary right to erect or maintain a building on someone else’s property
and to buildings situated on another person’s land.
Tax liability attaches in general to the persons taking part in the Who is liable for tax?
transaction, in other words, the buyer and seller of the property. These
persons may agree by contract that only one of them is responsible for
paying the tax.
104 | An ABC of Taxes Real property transfer tax
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Certain transactions are exempt from tax, including:
the receipt of real property making up part of a deceased person’s
estate by joint heirs in the process of dividing the estate
the receipt of real property by the spouse or registered partner of
the person alienating the property
the receipt of real property by persons related in a direct line of de-
scent to the person alienating the property (including stepchildren
and their spouses)
the receipt of real estate of low value (not exceeding €2,500)
the receipt of real property by reason of death and gifts of real
property within the meaning of the Inheritance and Gift Tax Act
(excluding gifts to which a condition is attached)
How much is the tax? In principle, the rate of tax is 3.5%. However, since 1 September
2006, the Länder have been entitled to set a different rate.
As a rule, real property transfer tax is calculated on the basis of the

consideration paid for the property. This particularly includes any
consideration given by the recipient to the person alienating the prop-
erty or to another person in respect of the transfer of the property. It
also covers, for instance, any consideration that third parties give to
the person alienating the property for transferring it to the recipient.
In a few special cases, for instance where no consideration is giv-

en, or in the case of reorganisation measures, transfers of assets in
exchange for stock, or receipts of assets under a partnership’s or com-
pany’s constituting agreement, tax is computed on the real property
value (determined in accordance with sections 157 ff. of the Valuation
Act).
The competent tax office must be notified of any actions taken that
are subject to real property transfer tax. It then determines the amount
of tax payable and issues a written notice of assessment. When the tax
has been paid, the tax office issues a clearance certificate. This is usu-
ally required in order for the new owner’s name to be recorded in the
land register.
What is the legal The legal basis is the current version of the Real Property Transfer
basis? Tax Act.
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Real property transfer tax is collected by the Länder, which also re- Who collects the tax?
ceive the revenue. The Länder may pass on all or part of the revenue
to the local authorities.
The medieval laudemium (recognition fee) which the feudal lord How did the tax
demanded as a one-off levy (irrespective of the current ground-rent) develop?
from the old and/or the new landowner when a property changed
hands may be seen as a historical precedent for the tax on real prop-
erty transactions in Germany. Another forerunner may have been the
Leitgeld or Aufgeld which from ancient times had served to affirm real
property contracts, as for instance the Litkaufgeld that emerged as a
local authority real property transactions tax in 1374 in Hildesheim
and was recorded in similar form as Kaufschloss in Emden starting
in 1670 and in Danzig from 1777 onwards. Corresponding charges
on property changing hands or real property excises emerged in the
German territories. From the late 17th century onwards, these were
levied increasingly in the form of stamp duties (payable on land sale
contracts to which an official seal was affixed).
The tax was generally imposed in the 19th century partly as a

government and partly as a local authority charge. Taxation of real
property transactions at Reich level came with the 1909 revision of
the Reich Stamp Duty Act. Erzberger’s financial reform introduced a
standardised Real Property Transfer Tax Act throughout the Reich in
1919. The revenue accrued to the Reich, the Länder and the local au-
thorities, with frequent variations in the rates of tax and surcharges
payable. A revised version of the Act was passed in 1940. This aligned
taxation to the contract of sale rather than the transfer of title, a ba-
sic concept which was adopted in the corresponding regulations of
the Länder after 1945. The 1949 Basic Law gave the Länder exclusive
legislative authority over this tax. However, the 1969 financial reform
included a change in the law which gave the Federation a concurrent
right to legislate.
It later became clear, not least from the numerous exemption pro-
visions, that real property transfer tax law had developed in a highly
divergent manner in the various Länder. This called for standardisa-
tion of the law, which was achieved with effect from 1 January 1983
by federal statute. The exemption provisions were repealed with only
a few exceptions, and the tax rate was reduced from 7% to 2% at the
time to compensate for the elimination of exemptions.
106 | An ABC of Taxes Secondary residence tax / Solidarity surcharge
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Secondary residence tax
What is the tax Secondary residence tax is a local tax imposed on secondary residen-
payable on? ces maintained in the local authority that levies the tax.
How much is the tax? The basis for assessing the tax is the annual rent amount or, in the
case of owners, the rent that would otherwise normally be payable.
Who is liable for tax? Liability for duty attaches to the person who occupies a secondary
residence, regardless of whether this person owns or rents the second-
ary residence.
What is the legal The legal bases for imposing secondary residence tax are Article 105
basis? paragraph (2a) of the Basic Law, the Länder laws on local authority
taxes, and the by-laws of the relevant local authorities.
Who collects the tax? Secondary residence tax is a local expenditure tax levied by certain
local authorities, especially those that serve as tourist centres.
How did the tax Secondary residence tax is a relatively new tax. The first attempts
develop? to impose this type of tax date back to 1972-73, when the local au-
thority of Überlingen (on Lake Constance) adopted the first by-laws
introducing a secondary residence tax in summer 1972. This exam-
ple was followed by other local authorities where, as a result of new
leisure habits and increasing affluence, large numbers of secondary
residences had been built (e.g. in apartment blocks or holiday home
resorts). The aim of such secondary residence taxes was to offset the
additional financial burdens incurred by local authorities as a result of
these developments. The tax has been the subject of repeated judicial
review over the subsequent years. The Federal Constitutional Court’s
December 1983 decision on the so-called “Überlingen model” (file
no. 2 BvR 1275/79) found that, when appropriately imposed, second-
ary residence tax is a legally admissible local expenditure tax.
Solidarity surcharge
What is the surcharge Since 1 January 1995, on the basis of the Act Implementing the Federal
levied on? Consolidation Programme of 23 June 1993 (Federal Law Gazette I,
p. 944), a general surcharge has been levied on > income tax, > wages
tax, > capital yields tax, > final withholding tax (as of 1 January 2009)
S
and > corporation tax for the purpose of financing German unifica-
tion. This surcharge also applies to > withholding tax on income of
non-residents.
In principle, the surcharge is imposed uniformly on all taxpayers Who is liable for the
in accordance with their capacity to pay. It is imposed only when the surcharge?
basis for tax assessment (less child tax allowances) exceeds the follow-
ing thresholds:
income tax under the basic income tax table: €972
income tax under the income tax table for the splitting system for
spouses: €1,944
When income tax exceeds these exemption thresholds, the soli-

darity surcharge is not immediately imposed in full. Rather, the law
stipulates that the surcharge be imposed in accordance with a tran-
sitional scale.
The solidarity surcharge is levied at a rate of 5.5% of the applicable How much is the
> income and > corporation tax (which constitutes its tax base). surcharge?
The surcharge on > corporation tax is assessed on the corporation

tax liability less any creditable or refunded corporation tax, where the
result is a positive amount.
The solidarity surcharge is calculated using the amount of > in-

come and > wages tax that would be assessed or withheld, taking into
account tax allowances for children, even in cases when child benefits
are determined to be more beneficial than tax allowances for children
and the amount of taxable income is not reduced as a result.
Where > income tax or > corporation tax prepayments must be

made for the 1995 tax year onwards, such prepayments constitute the
basis for assessing the solidarity surcharge. If > income tax is withheld
at source (> wages tax, > withholding tax on income from capital, >
final withholding tax (as of 1 January 2009), and > withholding tax on
income of non-residents), the basis of assessment is the tax amount
withheld.
Solidarity surcharge retained at source is allowed as a credit in the

assessment of > income and > corporation tax.
108 | An ABC of Taxes Solidarity surcharge / Sparkling wine duty
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No time limit has been placed on the imposition of the solidarity
surcharge.
What is the legal The legal basis for assessing and imposing the surcharge is the Sol-
basis? idarity Surcharge Act of 1995 as published on 15 October 2002 (Feder-
al Law Gazette I, p. 4131) and most recently amended by the Growth
Acceleration Act of 22 December 2009 (Federal Law Gazette I, p. 3950).
The solidarity surcharge is levied as a surtax in accordance with Arti-
cle 106 paragraph (1) number 6 of the Basic Law. The solidarity sur-
charge is administered by the Länder, and the revenue accrues to the
Federation.
Sparkling wine duty

What is the duty Sparkling wine duty is an > excise duty regulated by federal statute.
payable on? The law defines dutiable “sparkling wine” by reference to specific hea-
dings in the Combined Nomenclature (CN).
Dutiable sparkling wine comprises sparkling wines contained in

bottles with sparkling wine stoppers held in place by special ties or
fastenings, as well as sparkling wines that at +20°C have an excess
pressure, due to carbon dioxide in solution, of 3 bar or more and
that fall under CN headings 2204, 2205 or 2206 in terms of alcoholic
strength and composition.
The alcoholic strength by volume must be at least 1.2% and must

be no higher than 15%. Furthermore, where the alcoholic strength by
volume totals 13%-15%, the alcohol content must originate entirely
through fermentation.
Who is liable for If the duty originates from the withdrawal of sparkling wine from
duty? a tax warehouse or from the consumption of sparkling wine therein,
liability attaches to the tax warehouse keeper, regardless of whether
the duty originated as a result of actions by the warehouse keeper or
whether it originated without his/her knowledge or even against his/
her will (e.g. due to unlawful withdrawal such as theft, in which case
additional persons would become liable for duty).
However, if sparkling wine is produced without the necessary

permission from the main customs office, the duty originates upon
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production. In this case, the producer and all persons involved in the
production process are liable for duty.
If sparkling wine is released from a tax warehouse to persons who

do not possess valid authorisation to use the sparkling wine commer-
cially and free of duty, both the tax warehouse keeper as well as any
such unauthorised persons are liable for duty.
If irregularities in the movement of sparkling wine occur while a

duty suspension arrangement is in place, liability for duty attaches to
the tax warehouse keeper as consigner, the registered consigner, and
any other persons involved in such irregularities.
The duty amounts to €136 per hectolitre. The duty on sparkling How much is the
wine with an actual alcoholic strength by volume of less than 6% is duty?
€51 per hectolitre.
Exemption from duty
Sparkling wine is exempt from duty in certain cases, e.g.:

when it is used either inside or outside a tax warehouse as a sample
for analysis and testing that is required for operational reasons, or
when it is withdrawn for inspections by the tax or trade authorities
when it is used inside the tax warehouse to produce beverages that
are not subject to sparkling wine duty
when it is presented to the competent authorities for quality con-
trol purposes or withdrawn at the instigation of these authorities
The legal basis for imposing sparkling wine duty is the Sparkling What is the legal
Wine and Intermediate Products Duty Act of 15 July 2009 (Federal basis?
Law Gazette I, p. 1870).
Sparkling wine duty is collected by federal revenue authorities Who collects the
(specifically, the customs administration). The revenue accrues to the duty?
Federation.
Sparkling wine duty was introduced in 1902 as a new source of How did the duty
government revenue to meet the rising financial needs of armed forc- develop?
es. However, the Sparkling Wine Duty Act of 9 May 1902 was rescinded
in 1933 as a measure to help fight the effects of the world-wide depres-
110 | An ABC of Taxes Sparkling wine duty / Spirits duty
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sion. Sparkling wine duty was reintroduced in 1939 as a war surcharge
under the War Economy Ordinance of 4 September 1939.
Following revocation of this surcharge in 1952, legislation intro-

ducing a sparkling wine duty (the Sparkling Wine Duty Act of 23 Oc-
tober 1952) then took effect. Upon completion of the European inter-
nal market as of 1 January 1993, the Sparkling Wine Duty Act of 1952
was then succeeded by the Sparkling Wine and Intermediate Products
Duty Act. This Act, which took effect on 1 April 2010, currently serves
as the basis for collecting sparkling wine duty.
Spirits duty
What is the duty Spirits duty is an > excise duty regulated by federal statute. The law
payable on? defines dutiable spirits and spirituous products by making reference
to specific headings in the Combined Nomenclature (CN).
In particular, this comprises:

ethyl alcohol of any strength, whether denatured or undenatured,
other spirituous beverages with an alcoholic strength by volume
exceeding 1.2% (CN headings 2207 and 2208)
other beverages with an alcoholic strength by volume exceeding
22% and mixtures of such, each with an alcoholic strength by vol-
ume exceeding 22% (CN headings 2204, 2205 and 2206)
Who is liable for If the duty originates from the withdrawal of products from a tax
duty? warehouse or from the consumption of the products therein, liability
attaches to the tax warehouse keeper, regardless of whether the duty
originated as a result of actions by the warehouse keeper or whether
it originated without his/her knowledge or even against his/her will
(e.g. in the case of theft from the producer).
If the duty originates when products are removed from a duty

suspension arrangement for the purpose of entering the commercial
operations of a registered consignee, duty attaches to the registered
consignee.
In the case of spirits produced by small-scale flat-rate distilleries,

the producer is liable for the duty.
S
If irregularities in the movement of spirits occur while a duty sus-
pension arrangement is in place, liability for duty attaches to the tax
warehouse keeper as consigner, the registered consigner, and any oth-
er persons involved in such irregularities. The standard rate of duty is
€1,303 per hectolitre of alcohol.
Tax relief
The system of standard yield rates for production in the case of distil-
lery owners and distillery users means that both are generally entitled
to excess yields of alcohol on which they do not have to pay any duty.
This applies to the processing of fruit mashes and the production of
spirits from mealy products.
Tax relief is also granted to small-scale flat-rate distilleries and dis-

tillery users. Diverging from the standard rate of €1,303/100l alcohol,
the duty was reduced to €1,022/100l of alcohol. This results in a reduc-
tion of €140.50 in the case of processing, for instance, 1,000l of cherry
products.
If goods are imported that can be produced domestically using

duty-free alcohol, such goods will also be exempted from duty. Al-
cohol (excluding spirits from small-scale flat-rate distilleries) may be
transported under duty suspension arrangements (to other tax ware-
houses) within the EU or exported out of the fiscal territory of the EU.
There are tax exemptions (as specified in law) for specific purposes,
such as the commercial production of:
cosmetic products
medicines
foodstuffs (excluding beverages), aromas and vinegar
heating and cleaning products for purposes other than manufac-
turing
The duty on spirits is regulated by the Spirits Monopoly Act of What is the legal
8 April 1922 (Reich Law Gazette I, p. 405), in the version published in basis?
Federal Law Gazette III, no. 612-7, most recently amended by Article 2
of the Sixth Act Amending the Excise Duty Acts of 16 June 2011 (Fed-
eral Law Gazette I, p. 1090). The Spirits Monopoly Act covers both the
taxation of spirits and the spirits monopoly as well.
112 | An ABC of Taxes Spirits duty / Spirits monopoly
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Spirits duty is collected by federal revenue authorities (specifically,
the customs administration). The revenue accrues to the Federation.
Spirits duty is one of the duties harmonised with the EU with effect
from 1 January 1993.
Spirits monopoly
How did the spirits As the consumption of spirits became more widespread in Germany
monopoly develop? and other countries towards the end of the 15th century, they were
soon added to the beverages on which towns and territories levied
taxes (under the name of Ungeld or Akzisen or in the form of gate
tolls and purveyance charges). Under the territorial excise regulations
of the 17th and 18th centuries, duty was levied variously on the sale,
on the raw materials or on the equipment used in production. In the
course of the Stein-Hardenberg reforms in Prussia, the mash-volume
duty was ultimately adopted and subsequently formed the basis for
the North German Spirits Duty Association, which came under Reich
jurisdiction starting in 1871.
Spirits duty was made subject to new arrangements in a Reich

statute of 1887 which was also adopted by Bavaria, Württemberg and
Baden and was reformed in 1909. For some time this duty was the
most productive of all the taxes imposed by the Reich, but although
the revenue accrued to the Reich it had to be remitted to the con-
stituent states in proportion to their matricular contributions. The
attempts to set up a Reich spirits monopoly that had been underway
since 1886 finally succeeded at the end of the First World War. The
Reich Act on the Spirits Monopoly of 26 July 1918 established a state
monopoly with effect from 1 October 1919, originally with the aim of
furthering agriculture by promoting the use of farm produce in agri-
cultural distilleries. The Basic Law of 1949 assigned sprits duty and the
fiscal monopoly to the Federation. The Treaty on German Unification
extended the spirits monopoly and the imposition of spirits duty to
the new Länder.
As a rule, alcohol produced in the territory covered by the monop-

oly must be delivered to the Federal Spirits Monopoly Administration
in Offenbach am Main – a higher federal authority charged with im-
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plementing the monopoly. Alcohol distilled from grain, fruit, wine
and materials other than agricultural produce is exempt from this re-
quirement. In other cases, the Administration may exempt producers
on application. The Administration rectifies the spirits thus obtained
and sells them to commercial buyers as neutral alcohol.
The Spirits Monopoly Act has been extensively amended by the

Budget Consolidation Act. The spirits monopoly now focuses on
promoting distilleries linked to agricultural family businesses. Com-
mercial distilleries, which have hitherto been covered by the spirits
monopoly in order to protect agricultural distilleries, have no longer
been part of the spirits monopoly since the end of the 2005–2006 op-
erating year at the latest. The vast majority of these distilleries had al-
ready voluntarily exited the monopoly with compensation. Commer-
cial distilleries linked to agricultural family business were converted
into agricultural distilleries.
With effect from 1 January 2004 a common EU market came into

effect for alcohol from agricultural raw materials. The aim is to moni-
tor trade in agricultural alcohol in the EU and make the alcohol mar-
ket more transparent.
It includes a temporary exemption for the granting of produc-

tion-based state aid under the German spirits monopoly.
The EU Council of Ministers and the European Parliament official- What is the legal
ly adopted the final extension to exemptions for aid granted within basis?
the framework of the German spirits monopoly via Regulation (EU)
No 1234/2010 of 15 December 2010 (OJ L 346/11, 30/12/2010). Under
this Regulation, agricultural bonded distilleries (landwirtschaftliche
Verschlussbrennereien) may continue to produce alcohol under the
spirits monopoly and deliver it to the Federal Spirits Monopoly Ad-
ministration until the end of 2013. In the case of small-scale, flat-rate
distilleries (Abfindungsbrennereien), distillery users (Stoffbesitzer)
and fruit cooperative distilleries (Obstgemeinschaftsbrennereien), the
period expires at the end of 2017.
The spirits monopoly expires at midnight on 31 December 2017.

114 | An ABC of Taxes Tax identification number / Taxes on income, property and transactions /
Tobacco duty
T
Tax identification number
What is the tax The tax identification number system replaces the former system of
identification tax numbers. Previously, a new tax number had to be issued when a
number? taxable person changed his/her place of residence from one German
Land to another. In contrast, a tax identification number issued under
the new system is permanent. During the current transition period,
both the old tax numbers and the new tax identification numbers will
continue to be used in parallel.
Who receives a Every person born or domiciled in Germany receives a tax iden-
tax identification tification number in order to ensure unambiguous identifiability in
number? connection with taxation procedures. Revenue authorities use the
identification number in order to carry out taxation procedures.
Third parties may record and use identification numbers solely for the
purpose of transmitting data to the revenue authorities. The Federal
Central Tax Office’s Tax Information Centre offers detailed informa-
tion on the tax identification number system (in German) online at
www.identifikationsmerkmal.de.
What is the legal Rules on the issuance and use of tax identification numbers are laid
basis? down in sections 139a and 139b of Fiscal Code.
Who issues the Tax identification numbers are issued by the Federal Central Tax
tax identification Office on the basis of information provided by the registration au-
number? thorities.
How did the The tax identification number forms part of the Federal Govern-
identification number ment’s e-government strategy. The 2003 Tax Amendment Act (Federal
develop? Law Gazette I, p. 2645) created the legal basis for introducing tax iden-
tification numbers. The Federal Central Tax Office has been issuing
the new tax identification numbers since 1 August 2008. Since 2012,
the new numbers have helped modernise Germany’s procedure for
withholding wages tax, which dates back to the 1920s. They also make
it easier for revenue authorities to engage in the electronic exchange
of information at the international level (e.g. for interest payments),
thereby enhancing the equality of tax treatment.
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Taxes on income, property and transactions
Taxes on income and property are imposed on returns/income (> in- What is the tax
come tax) or property (> inheritance tax). Transactions taxes are taxes payable on?
linked to legal and commercial transactions.
Taxes are assigned to these categories as follows:
Income:
income tax (including wages tax and withholding tax on income
from capital)
corporation tax
solidarity surcharge
trade tax
church tax (in part)
Property:
inheritance tax
real property tax
church tax (in part)
Transactions:
VAT (excluding import VAT)
real property transfer tax
motor vehicle tax
aviation tax
betting and lottery tax
gaming casinos levy
insurance tax
fire protection tax
Tobacco duty
Tobacco duty is an > excise duty regulated by federal statute.
Duty is payable on tobacco products (cigars, cigarillos, cigarettes What is the duty
and smoking tobacco) as well as equivalent products comprised whol- payable on?
ly or partly of materials other than tobacco.
If the duty originates from the withdrawal of tobacco products Who is liable for
from a tax warehouse or from the consumption of tobacco products duty?
116 | An ABC of Taxes Tobacco duty
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therein, liability attaches to the tax warehouse keeper, regardless of
whether the duty originated as a result of actions by the warehouse
keeper or whether it originated without his/her knowledge or even
against his/her will. In addition, duty attaches to persons who unlaw-
fully withdraw tobacco products from a tax warehouse (e.g. by theft),
persons on whose behalf such products were unlawfully withdrawn,
and persons involved in such unlawful withdrawals.
If the duty originates when tobacco products are removed from a

duty suspension arrangement for the purpose of entering the com-
mercial operations of a registered consignee, duty attaches to the reg-
istered consignee.
If tobacco products are produced without the necessary permis-

sion from the main customs office, the duty originates upon produc-
tion. In this case, the producer and all persons involved in the produc-
tion process are liable for duty.
How much is the Tobacco duty is determined on the basis of both the quantity and
duty? the value of the excisable good.
The Tobacco Duty Act stipulates that the following information is

needed in order to calculate tobacco duty:
volume, either in units (for cigarettes, cigars and cigarillos) or in
kilograms (smoking tobacco)
the retail sales price
The retail sales price is the price per unit for cigars, cigarillos and
cigarettes or the price per kilogram for smoking tobacco, as deter-
mined by the producer or importer. This is often simply the price
per packet, which must be denominated in whole euros and cents. In
this case, the retail sales price is derived from the packet price and the
packet content per unit or kilogram.
Tobacco products in packets containing the same quantity and

sold under the same brand name or corresponding designation are
assigned the same retail sales price. A producer domiciled in another
member state may confer the authority to determine the retail sales
price to a person resident in German fiscal territory who is authorised
to procure duty-suspended tobacco products from other member
states.
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The duty rates are as follows:
For cigarettes:
• for the period 1 January 2014 – 31 December 2014: 9.63 cents
per unit and 21.74 per cent of the retail sales price, resulting in
at least 19.259 cents per unit less VAT on the retail sales price of
the dutiable cigarette
• for the period 1 January 2015 – 14 February 2016: 9.82 cents per
unit and 21.69 per cent of the retail sales price, resulting in at
least 19.636 cents per unit less VAT on the retail sales price of
the dutiable cigarette
• from 15 February 2016 onwards: 9.82 cents per unit and 21.69
per cent of the retail sales price, resulting in at least 100 per cent
of the total tax burden (tobacco duty and VAT) on the weighted
average retail sales price of cigarettes less VAT on the retail sales
price of the dutiable cigarette and at least 19.636 cents per unit
less VAT on the retail sales price of the dutiable cigarette
For cigars and cigarillos:

• 1.4 cents per unit and 1.47 per cent of the retail sales price, re-
sulting in at least 5.76 cents per unit less VAT on the retail sales
price of the dutiable cigar or cigarillo
For fine-cut tobacco:

• for the period 1 January 2014 – 31 December 2014: €46.75 per
kilogram and 14.63 per cent of the retail sales price, resulting in
at least €91.63 per kilogram less VAT on the retail sales price of
the dutiable fine-cut tobacco
• for the period 1 January 2015 – 14 February 2016: €48.49 per
kilogram and 14.76 per cent of the retail sales price, resulting in
at least €95.04 per kilogram less VAT on the retail sales price of
the dutiable fine-cut tobacco
• from 15 February 2016 onwards: €48.49 per kilogram and 14.76
per cent of the retail sales price, resulting in at least 100 per cent
of the total tax burden (tobacco duty and VAT) on the weight-
ed average retail sales price of fine-cut tobacco less VAT on the
retail sales price of the dutiable fine-cut tobacco and at least
€95.04 per kilogram less VAT on the retail sales price of the du-
tiable fine-cut tobacco
For pipe tobacco:

• €15.66 per kilogram and 13.13 per cent of the retail sales price,
resulting in at least €22 per kilogram
118 | An ABC of Taxes Tobacco duty / Trade tax
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Duty exemptions and relief
In certain cases, the Tobacco Duty Act provides for

duty exemptions, for example on tobacco products used for official
or scientific testing and on cost-free benefits in kind
reimbursement of duty for taxed tobacco products taken into a tax
warehouse
Special provisions
Along with rules governing fiscal supervision of the production and

sale of tobacco products, the Tobacco Duty Act contains additional
special provisions to secure the state’s tax claims. These include pro-
visions that:
permit tobacco products to be withdrawn from tax warehouses
only in fully sealed, ready-for-sale retail packets, which may be
opened by retailers only under specific conditions
prohibit manufacturers from adding to retail packages any objects
intended to be given to consumers free of charge
generally prohibit retailers of tobacco products from granting
discounts on the sale of tobacco products to consumers or giving
away objects free of charge in connection with a sale
prohibit the sale of tobacco products from being linked to the sale
of other goods
prohibit the sale of tobacco products to consumers at a price lower
than the retail or packet price displayed on the excise stamp
prohibit the sale of tobacco products at a price higher than the re-
tail or package price displayed on the excise stamp
What is the legal The legal basis for imposing tobacco duty is the Tobacco Duty Act
basis? of 15 July 2009 (Federal Law Gazette I, p. 1870).
Who collects the With few exceptions, tobacco duty is remitted through the use of
duty? excise stamps – i.e. by attaching cancelled stamps to retail packets –
rather than through direct payment of the duty amount. Producers
and importers of tobacco products purchase excise stamps from the
central excise stamp agency located in the city of Bünde. Payment for
the stamps does not have to be made immediately but rather must oc-
cur within specific deadlines in accordance with the liability amount.
Tobacco duty is collected by the federal revenue authorities (specif-
T
ically, the customs administration), and the revenue accrues to the
Federation.
When tobacco consumption spread rapidly through Germany How did the duty
during the Thirty Years’ War, attempts were initially made to stem it develop?
by imposing state-wide bans (as in Bavaria in 1652). However, from
the late 17th century onwards, this policy shifted toward the practice
of deriving state revenue from domestic uncured tobacco by creat-
ing state monopolies or imposing luxury taxes (i.e. tobacco excises).
In 1819, Prussia introduced a weight-based duty on tobacco leaves,
which was replaced in 1828 with a duty based on surface area. This
latter duty became the basis for a “tobacco duty confederation” with
several northern and central German states, which was then expand-
ed to encompass the entirety of the German Customs Union in 1868.
In 1871, the authority to impose tobacco duty was transferred to the
Reich. After Bismarck’s repeated attempts to introduce a Reich tobac-
co monopoly failed, a weight-based tobacco duty was introduced in
1879. A manufacturing tax on cigarettes was added in 1906, which was
based on the retail sales price of cigarettes and took the form of a ban-
derole tax. This system was expanded in subsequent laws enacted in
1919, 1939 and 1953. Since 1949, the former Reich duty has been levied
by the Federation. Germany overhauled its legal provisions on tobac-
co duty in 1971 in order to simplify the law, adapt it to changing eco-
nomic conditions, and bring Germany’s system of taxing cigarettes
into line with EU legislation. The 1980 Tobacco Duty Act laid down
the definitions of tobacco products in accordance with Community
law. Tobacco duty has a similar and considerable level of economic
and fiscal significance in all EU member states.
Harmonisation of tobacco duty within the EU was initiated by

Council directives in 1972 and further advanced by the establishment
of the single market as of 1 January 1993.
Trade tax
Trade tax is directed at businesses and their real earning capacity. As What is the tax
a non-personal tax, it is charged on the earnings generated by a busi- payable on?
ness, irrespective of the personal circumstances of any of the business
owners. This sets trade tax apart from personal taxes such as > income
tax or > corporation tax, which are linked to the existence or econo-
120 | An ABC of Taxes Trade tax
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mic performance of a natural or legal person. The tax is thus imposed
on an object, namely the business operation.
All businesses that operate in Germany are liable for trade tax.
Businesses are deemed to operate in Germany if they have a perma-
nent establishment in the country. Businesses (within the meaning of
the Income Tax Act) include, for example, sole traders and commer-
cial partnerships. The activities of a corporation always count fully as
business operations.
Agricultural and forestry businesses, as well as freelance work and

other forms of self-employment, are not subject to trade tax.
The tax is levied on business profits. For trade tax purposes, this
means the profits of a business as determined under the Income Tax
Act or Corporation Tax Act. The profits thus determined are increased
or decreased by certain adjustments, which are intended to take ac-
count of the nature of trade tax as a tax on an object.
Trade tax belongs to the category of taxes imposed on objects.
Tax liability attaches to the business entity on whose account the

business is carried out. This may be a sole trader or a corporation. If a
partnership is engaged in commercial activity, then it is the partner-
ship itself that is liable for the tax.
As part of their personal tax assessment, sole traders and partners

in a commercial partnership can claim a credit against their income
tax liability reflecting the trade tax they have paid.
How much is the tax? The computation of trade tax starts with what is termed the “base
tax amount”. This is obtained by multiplying the business profits by
3.5% (the basic tax rate). Individuals and partnerships qualify for a tax-
free allowance of €24,500. The tax office is responsible for determining
the tax bases and for assessing and dividing up the base tax amount.
The local authorities in which the permanent establishments car-

rying out the business are maintained have the right to impose the
tax. If a business maintains establishments in several local authorities
during the period for which the tax is collected (calendar year), the
T
base tax amount must be divided among them. The wages paid by the
business are generally taken as a yardstick for the dividing-up process.
Trade tax is collected by the local authorities, which calculate the

tax due by applying a multiplier to the base tax amount (or if this has
been divided up, to their allocated share). The local authority with the
right to impose tax stipulates this multiplier. It must be at least 200%.
Taxation is imposed on the basis of the current versions of the What is the legal
Trade Tax Act and the Trade Tax Implementing Ordinance. In addi- basis?
tion, trade tax guidelines in the form of general administrative regu-
lations have been issued to clarify uncertainties and points calling for
interpretation.
Trade tax is collected by the local authorities. It is their most im- Who collects the tax?
portant direct source of revenue for expenditure on public services.
The Federal Government and the Länder also receive a share of

trade tax revenue by way of apportionments.
The flourishing development of trades and crafts in medieval How did the tax
towns also led to the imposition of the first levies on trade in Ger- develop?
many, some of which took the form of market fees, surcharges on
commercial goods or special taxes on certain classes of traders.
As modern-era territorial states emerged, the imposition of extraor-
dinary and in some cases regular territorial taxes on businesses be-
came increasingly commonplace from the 17th century onwards. In
the process the older taxes on property were gradually transformed
into taxes on earnings specifically charged on land, buildings and
finally on trade. New tax laws were drawn up accordingly in the
19th century (for example, in 1808 in Bavaria, 1810/1820 in Prussia,
1815 in Baden, 1821 in Württemberg, 1827 in Hesse). A pioneering
achievement in the further development of the tax was the Prussian
tax reform under finance minister Miquel. As part of this, the Trade
Tax Act of 1891 was passed, which included both business profits and
business capital in the tax base. In the same context, the 1893 Act on
Local Authority Levies transformed the state tax into a local author-
ity tax. The Reich financial reform of 1919/1920 assigned trade tax to
the individual states, which were entitled as necessary to claim
the revenue themselves or allocate it to the local authorities. The
1936 reform of non-personal taxes set up a uniform Trade Tax Act
122 | An ABC of Taxes Trade tax / VAT
T
on the Prussian system for the Reich as a whole. Business profits
and business capital were established as generally binding tax bases,
whilst payroll taxation was made optional and the entitlement to
tax was assigned to the local authorities without involving the
Länder.
The Basic Law enacted in Bonn in 1949 gave the Federation

concurrent power to legislate on trade tax. The Trade Tax Act adopted
in 1950 for the whole of the Federal Republic of Germany has sub-
sequently been through several amendments, for instance in 1967
when for constitutional reasons it became necessary to abolish the
branch tax on retail trade businesses and the supra-local establish-
ments of banks and credit institutions. The reform of local authori-
ty finances obliged the local authorities as from 1970 to pass on part
of the revenue from trade tax to the Federation and the Länder in
the form of apportionments. To compensate for this, the local author-
ities were assigned a much larger share (namely 14%) of the revenue
from > wages tax and assessed income tax. The 1979 Tax Amend-
ment Act reduced the trade tax apportionment by one third as from
1 January 1980 and increased the local authorities’ share of the rev-
enue from wages tax and assessed income tax to 15%. The optional
imposition of payroll tax was abolished as from 1 January 1980. To
offset the shortfalls in tax revenue resulting from changes in income
attribution arrangements the trade tax apportionment was reduced
by a further 28% as from 1983 and by a total of 35% from 1984 on-
wards.
Trade tax on business capital was abolished as from 1 January 1998

under the reform of corporate taxation. To compensate the local au-
thorities for their resulting loss in revenue, they were given a 2.2%
share of VAT revenue. Article 28 and Article 106 of the Basic Law were
amended to safeguard the local authorities’ entitlement to a share of
VAT revenue and to the revenue from trade tax.
The 2008 Business Tax Reform Act increased the extent to

which financing costs are attributed to income and abolished the
deductibility of trade tax as a business expense when calculating prof-
its for tax purposes. In return, the basic tax rate was cut from 5% to a
uniform 3.5%. Furthermore, partnerships’ entitlement to credit trade
tax paid against their income tax liability was increased.
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VAT
Under the tax system, value added tax (VAT) is classified among the > What is the tax
taxes on income, property and transactions (with the exception of > payable on?
import VAT). VAT operates in the same way as a general > excise duty
and is chargeable in principle on all public and private consumption
(i.e. goods and services purchased by final consumers). In this respect,
it differs from > income tax and > wages tax, which take into account
the individual taxpayer’s ability to pay taxes.
VAT cannot have a cumulative effect, i.e. there can be no tax on tax.
This is achieved by making input VAT deductible. In other words, a
business can reclaim the input taxes charged by suppliers against the
VAT it owes on its own turnover. Additional input taxes that may be
deducted include (i) VAT paid on intra-Community acquisitions (ac-
quisition tax), (ii) VAT payable by someone acting as recipient with-
in the framework of the reverse charge system and (iii) > import VAT
paid to customs offices on imports from non-EU countries.
This can be illustrated using a schematic example that follows a

product through several commercial transactions until it reaches the
final consumer: Supplier A sells goods to Supplier B for €100 plus VAT
of €19 (19% of €100). For this transaction, Supplier A pays VAT of €19
to the tax office, while Supplier B deducts the same amount from her
taxes as input VAT. If Supplier B sells the goods to Supplier C for €140
plus VAT of €26.60 (19% of €140), Supplier B pays VAT of €26.60 to
the tax office while Supplier C deducts this amount as input tax. If
Supplier C then sells the goods to a final consumer for €200 plus VAT
of €38 (19% of €200), he is required to pay VAT of €38 to the tax office.
This is the final amount retained by the tax authorities. This example
shows that revenue from VAT is realised only through sale to a final
consumer.
If goods spoil or for other reasons remain unsold to a final consum-

er, no revenue is generated for the exchequer.
As a tax on consumption, VAT is designed so that the cost is ul- Who is liable for tax?
timately borne by consumers. However, it would not be technically
feasible to collect VAT from consumers. For this reason, tax liability
attaches to businesses realising taxable turnover, who pass VAT on to
their customers by including it in the prices they charge. Businesses
124 | An ABC of Taxes VAT
V
usually indicate this by listing VAT separately on invoices for taxable
sales, and they are required to do so on invoices to other businesses
and legal persons. The same is true for the taxable supply of work and/
or materials or other services connected with immovable property.
VAT is classified as an indirect tax because it is collected from con-
sumers via the intermediary of the supplier charging VAT.
In practice, of course, the commercial activities of basically every

business involve multiple inputs and taxable transactions. Businesses
offset their input VAT against their output VAT within the framework
of provisional returns submitted on a monthly or quarterly basis. For
example, if a business realises total taxable turnover of €100,000 (sub-
ject to VAT at a rate of 19%) during a specific provisional return period
and has paid input VAT totalling €10,200 on goods and services pur-
chased during the same period, the total VAT owed by the business for
that tax period is computed as follows:
total taxable turnover: €100,000
plus 19% VAT: €19,000
less deductible input VAT: €10,200
VAT payable to the tax office: €8,800
Only businesses are entitled to deduct input VAT. In order to have

the right to deduct input VAT, businesses are not required to supply
goods or services, be domiciled, or operate a production site in Ger-
many. For this reason, non-resident businesses with no turnover in
Germany may apply for regular input tax refunds under a special re-
fund arrangement (specifically, the input tax refund procedure).
However, input tax is deductible only if it applies to goods and ser-

vices sold for use by the business. Tax charged to a business for goods
intended exclusively for personal use (e.g. a private television set) is
not deductible as input tax. If an asset (such as a computer) is used
both for business and private purposes, input tax is generally deduct-
ible in its entirety, but the private use is subject to VAT as goods or ser-
vices supplied free of charge. As of 1 January 2011, new rules apply for
mixed-use immovable property, i.e. immovable property that is used
for both business and private non-business purposes. Under these
new rules, VAT on purchases connected to non-business use of such
property is not deductible as input tax. In these cases, however, such
purchases are also exempt from taxation as goods or services supplied
free of charge.
V
Businesses selling goods and services that are exempt from VAT
are not entitled to deduct input tax charged to them in connection
with such supplies. Intra-Community supplies and exports to non-EU
countries are excepted from this rule. Providing for the deductibility
of input tax connected to VAT-exempt intra-Community supplies and
exports allows these goods to cross the frontier free of any VAT bur-
den. This rule is necessary to ensure the competitiveness of German
products on world markets and conforms to the country-of-destina-
tion principle generally applicable within the EU, under which VAT is
to be paid in the country where the goods or services are purchased.
Input tax is also deductible for other VAT-exempt supplies of goods
and services, particularly certain supplies related to import, export
and transit goods as well as certain supplies connected to shipping
and aviation.
Businesses with both (i) taxable turnover and (ii) tax-exempt turn-
over with no input tax deductibility must separate deductible from
non-deductible input tax.
In general, liability for VAT attaches to the business. The term

“business” is defined by law as any person who engages independently
in trade, commercial or professional activity.
The following activities are subject to VAT:

supplies of goods and services
imports (> import VAT)
intra-Community acquisitions
Within ten days after the end of each calendar quarter, businesses
are required to file an electronic provisional return that states their
self-assessed tax liability for the elapsed quarter. This amount must
then be remitted to the tax office as a prepayment. Businesses with
high tax burdens in the previous year must file provisional returns on
a monthly basis. Businesses newly entering a commercial or profes-
sional activity must also file monthly provisional returns for the first
two calendar years of business activity. Businesses that had a low tax
burden or that received a refund in the previous year may be exempt-
ed from submitting provisional returns.
At the end of each calendar year, businesses are required to submit

a tax return that states their self-assessed tax liability for the elapsed
V
calendar year. This return is equivalent to a final assessment subject
to subsequent review by the tax authorities. The tax office issues an
official tax assessment notice only in cases when its calculation differs
from the taxpayer’s self-assessment.
In accordance with the VAT Competency Ordinance, the collection

of VAT from non-resident businesses liable for tax is administered by
certain designated tax offices or by the Federal Central Tax Office.
Do you have questions about which tax office to turn to? You can
call the Federal Central Tax Office’s Tax Information Centre at +49
(0)228-406-1200 for more information.
The VAT Act provides an extensive list of VAT-exempt goods and

services. One category covers turnover for which input tax remains
deductible. This includes, in particular, exports to non-EU countries
and intra-Community supplies; certain supplies connected to ship-
ping and aviation; and certain supplies related to import, export and
transit goods. The second category covers turnover for which input
tax may not be deducted. This includes the extension of credit; sales
and rental of immovable property; services provided by doctors and
other medical professionals; certain services provided by statutory so-
cial insurance funds; services provided by most hospitals and rehabil-
itation centres; services provided to persons in need of assistance or
care; turnover realised by registered blind persons; services provided
by officially recognised voluntary welfare organisations; educational
services; services provided by certain theatres, orchestras, museums
and zoos; and youth welfare services.
Businesses resident in Germany, in a free zone or in certain coast-

al water regions whose turnover (excluding VAT payable thereon) did
not exceed €17,500 in the previous calendar year and is not expected
to exceed €50,000 in the current calendar year (i.e. small businesses)
are not required to pay VAT.
However, these small businesses are not entitled to deduct input

tax charged to them. They are also not allowed to issue invoices show-
ing a separate amount for tax. Because small businesses are not enti-
tled to deduct input tax, this arrangement may have an unfavourable
impact on their economic situation. For this reason, the law provides
them with the option of waiving this special arrangement and paying
V
tax in accordance with the general provisions under tax law. A waiver
declaration is binding for five years.
Businesses whose previous year’s turnover (excluding VAT payable

thereon) exceeded €17,500 are required, without exception, to pay tax
in accordance with the general provisions. Consequently, they are en-
titled to deduct input tax and must issue invoices showing a separate
amount for tax. The same applies to businesses whose turnover did
not exceed the €17,500 threshold in the previous year but is expect-
ed to exceed €50,000 (excluding VAT payable thereon) in the current
calendar year.
In cases where non-resident businesses provide taxable supplies

of work and/or materials or other taxable services in Germany, VAT
is generally payable by the customer if the latter is a business or le-
gal person (this is referred to as the reverse charge system). This also
applies to taxable supplies of goods as collateral by the grantor of a
security interest to the secured party outside insolvency proceedings,
as well as to:
turnover that falls under the scope of the Real Property Transfer
Tax Act
certain construction services to businesses who themselves pro-
vide construction services
supplies of gas, electricity, heat and cooling
trade in emissions allowances
certain sales of investment gold, industrial scrap, scrap metal and
other waste
the cleaning of buildings or parts thereof, when the recipients
themselves provide these kinds of services
the supply of mobile telephones, tablet computers, game consoles,
certain integrated circuits as well as certain metals, if the sum of
billable charges within the framework of a business transaction
amounts to at least €5,000.
In order to ensure correct observance of the country of destination

principle generally applicable within the EU, businesses taking part in
intra-Community trade are given a VAT identification number. This
number is issued by the Saarlouis branch of the Federal Central Tax
Office upon submission of an application. Applications may be made
by telephone (+49 (0)228 406-1222), online (www.BZSt.de), or in writ-
ing. Issuance of a VAT identification number is conditional upon VAT
V
registration with the German tax office responsible. Furthermore, in
accordance with section 18 of the VAT Act, businesses are required to
file recapitulative statements on their tax-exempt intra-Community
supplies of goods and services and/or supplies within the framework
of triangular transactions (section 25b subsection (2) of the VAT Act).
How much is the tax? There are several different tax rates under the VAT Act: the general
rate (19%), the reduced rate (7%), and special rates for farmers and for-
esters (5.5% and 10.7%).
Most turnover is taxed at the general rate.
The reduced rate applies in particular to supplies, imports and in-

tra-Community acquisitions of almost all foodstuffs, with the excep-
tion of beverages and food service activities. The reduced rate also ap-
plies, for example, to public transport; to sales of books, newspapers/
periodicals and certain art objects; and to accommodation services.
In general, VAT is determined on the basis of the agreed payment

amount (i.e. on an accrual basis). This means that the liability for tax
occurs when the supply of goods or services takes place, not when the
consideration for such supply is ultimately collected. Likewise, busi-
nesses may deduct input tax during the assessment period in which
an invoice showing a separate VAT amount is received, provided the
taxable goods or services have already been supplied. In cases when
down-payments are made before the supply is realised, liability for tax
occurs upon receipt of the down-payment. Accordingly, the customer
may deduct as input tax the VAT charged on the down-payment as
soon as the down-payment has been made. Because taxation on an
accrual basis can cause difficulties for small and medium-sized busi-
nesses, the law also permits certain businesses to apply for taxation
on the basis of payments received (i.e. on a cash basis). This does not
change the rules regarding the period during which input tax may be
deducted, however.
What is the legal VAT legislation has largely been harmonised within the Europe-
basis? an Union, particularly through the VAT Directive. Member states are
obliged to enshrine the rules of the VAT Directive in their national
legislation. In Germany, the main legal bases for imposing VAT are the
current versions of the VAT Act; the VAT Implementing Ordinance;
the “Council Implementing Regulation (EU) No 282/2011 of 15 March
V
2011 laying down implementing measures for Directive 2006/112/EC
on the common system of value added tax”, which entered into force
on 1 July 2011 and replaced Implementation Regulation No 1777/2005
of 17 October 2005; and the Import VAT Exemption Ordinance. The
VAT Application Ordinance, which took effect on 1 November 2010
and replaced the 2008 VAT Guidelines, provides revenue authorities
with instructions on how to interpret VAT law.
VAT is administered by the Länder on behalf of the Federation, and Who collects the tax?
the revenue accrues jointly to the Federation and the Länder. Local
authorities have also received a share of VAT revenue since 1998.
In terms of revenue, VAT is one of the most important taxes in Ger-

many.
The respective revenue shares of the Federation and the Länder are
fixed by federal statute requiring the consent of the Bundesrat.
Records show that a general levy on consumption already existed How did the tax
during early German history. This levy re-emerged during the Caro- develop?
lingian period, in some instances under the collective Latin term telo-
neum (for customs duties, fees, transaction duties and consumption
duties). Later, in German medieval towns, turnover or poundage fees
imposed during the 12th and 13th centuries in connection with vari-
ous market levies then evolved into both general and specific turnover
duties that had the character of taxes. From the 15th century onwards,
these duties fragmented into a large number of separate consump-
tion duties called Akzisen (i.e. excises). Although proposals were made
to impose a generalised excise tax, this concept had not gained trac-
tion by the time the Akzisen were replaced by modern consumption
taxes during the 19th century. The only German city to transform its
Akzisen into a generalised turnover tax was Bremen, which imposed
this tax from 1863-1884.
The concept of turnover tax was taken up again by the Reich during
the First World War. In 1916, as part of the Reich Stamp Duty Act, the
Reich introduced a goods turnover stamp duty as a tax on supplies of
goods. Then in 1918, the Turnover Tax Act ushered in an all-stage tax
on gross turnover, a system that was retained until the end of 1967.
Repeated amendments increased the original tax rate of 0.5% to 2% in
1935, 3% in 1946 and 4% in 1951.
130 | An ABC of Taxes VAT / Wages tax
V/W
The most important turning point in the historical development
of turnover tax in Germany was the adoption of the VAT Act of 1967,
which marked the transition to a value-added tax system incorporat-
ing input tax deduction. The shift in the system of taxation was nec-
essary due to the ongoing process of harmonising turnover taxation
within the European Communities. All of the other member states
introduced systems of turnover taxation involving VAT and input
tax deduction. Another key step toward the further harmonisation of
turnover taxes was taken with the adoption of the “Sixth Council Di-
rective of 17 May 1977 on the harmonisation of the laws of the mem-
ber states relating to turnover taxes”. This directive was revised in the
form of the VAT Directive, which entered into force on 1 January 2007.
German VAT law is regularly adapted to ongoing developments in
EU law. Both amendments to the VAT Directive as well as rulings by
the European Court of Justice play a key role in this connection.
Wages tax
What is the tax The > income tax payable on the wages and salaries of employees is
payable on? collected through deduction by employers (and is then referred to as
wages tax). This deduction at source usually serves to conclude the
taxation procedure, unless the employer carries out an annual adjust-
ment of wages tax paid or unless the tax office assesses the employee
for income tax after the end of the calendar year. The employer is ob-
liged to deduct wages tax from each wage or salary payment.
In order to withhold an appropriate amount of wages tax for each

individual employee, employers need certain types of information
about employees, such as their tax class, any allowances, and any
membership in a religious community that requires withholding of
church tax. The revenue administration has stored this information
in a database since 2013 and makes it available to employers elec-
tronically upon request. This information is referred to as “electronic
parameters for withholding wages tax” (abbreviated as “ELStAM” in
German). Employees’ local tax offices are responsible for setting up
the ELStAM procedure for individual employees and making any nec-
essary modifications such as changes in tax class, taking allowances
into account, and issuing any paper documents that may still be need-
ed for the withholding of wages tax (see below).
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In order to register an employee with the revenue administration
and gain access to the employee’s ELStAM information, employers
must submit the employee’s date of birth and tax identification num-
ber to the revenue authorities. The revenue authorities then check
whether the employer is authorised to access the employee’s ELStAM
information and, if so, set up the ELStAM procedure. The employer
then downloads the information, adds it to the employee’s wages ac-
count, and uses this information for the duration of the employee’s
tenure. If any of these parameters change, the revenue authorities
make the new information available to the employer. The electronic
parameters used to withhold wages tax must appear on employees’
payslips. Exemptions are in place for certain situations (for example,
employees who are resident abroad and cases of hardship). In these
cases, the tax office issues a paper certificate for the withholding of
wages tax that replaces the electronic parameters.
The employer pays over the wages tax for all employees in a single
sum to the company’s local tax office on certain prearranged dates
(monthly, quarterly or annually). To do this, the employer submits a
self-assessed wages tax return (usually electronically) to the tax office.
This states the total amount of wages tax deducted at source.
Any excess of tax withheld during the calendar year is refunded to

the employee at the end of the year. The mechanism used is an annual
adjustment of wages tax, which employers must carry out in certain
cases. Alternatively, employees may apply for an income tax assess-
ment. Assessment upon application is particularly used to allow ex-
cess wages tax paid to be credited towards income tax. Assessment for
income tax also enables the taxpayer to claim for any income-related
expenses, special expenses and other deductions (such as an increase
in the tax relief for single parents) that were not taken into account
when wages tax was deducted at source.
In certain circumstances employees are required by law to submit

an income tax return. This is particularly true of cases in which:
the positive sum of taxable income on which no wages tax has
been paid, or the positive sum of income and benefits that are not
themselves taxed but influence the rate of tax payable (e.g. ben-
efits for unemployment, sickness and short-time work including
seasonal short-time work, as well as parental benefit, supplemen-
132 | An ABC of Taxes Wages tax
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tary amounts in the case of partial retirement and foreign income)
amounts to more than €410
the tax office has calculated a tax-free allowance and added this as
an ELStAM parameter, if the amount of wages or salary exceeds the
threshold of €11,000 (from 2016; €10,800 in 2015) for individual
filers or €20,900 (from 2016; €20,500 in 2015) for joint filers; how-
ever, tax assessment is not mandatory if the tax office has merely
entered the fixed allowance for disabled persons, surviving depen-
dents and care-givers, entered the tax relief for single parents in
special cases or increased the amount of the tax relief for single
parents, or has only amended the number of available tax allow-
ances for children.
the employee received wages or a salary from more than one em-
ployer at the same time
spouses/registered partners assessed jointly for tax both received
wages or a salary and one was taxed in class V or VI, or both opted
for tax class IV using a special factor, for part or all of the assess-
ment period
the provisions of section 34 of the Income Tax Act serving to reduce
the progressive effect have been applied when deducting wages tax
While any excess of tax collected will be refunded when an em-

ployee is assessed for income tax, additional tax will also be demanded
in the event of underpayment.
Who is liable for tax? Liability for wages tax attaches to the employee. However, the em-
ployer is responsible for withholding and remitting the tax correctly.
If the tax office determines on examination that insufficient wages tax
has been withheld, it may enforce payment of the amount still due,
collecting it either from the employer or directly from the employee.
Every resident employer is obliged by law to withhold wages tax

and to remit it to the tax office. Resident employers include those who
pay wages or salaries and have their residence, habitual abode, place of
management, headquarters, a permanent establishment or a perma-
nent representation in Germany.
Wages tax must be withheld for employees who:

are subject to unlimited tax liability in Germany (section 1 subsec-
tions (1) to (3) of the Income Tax Act)
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are subject only to limited tax liability in Germany – that is, they
are resident or have an habitual abode in another country
receive income as described in section 49 subsection (1) number 4
of the Income Tax Act – for example, if they are employed in Ger-
many (e.g. cross-border commuters)
As a rule, when wages tax is deducted from income that individuals
who are subject to limited tax liability earn from employment, this
discharges their income tax liability (> withholding taxes on the in-
come of non-residents). If their liability is not discharged, employees
subject to limited tax liability are obliged to submit a tax return. Em-
ployees who are citizens of an EU member state or a country coming
under the scope of the Agreement on the European Economic Area
may apply for income tax assessment to prevent the effect of final dis-
charge of tax liability.
Wages tax is withheld from an employee’s wage or salary (classed How much is the tax?
as income from employment). The wage or salary is defined as all the
income accruing to an employee from a current or former contract of
employment. This includes not only cash payments, but payments in
kind as well (e.g. room and board) and other benefits (for instance, the
private use of a company car). It is immaterial whether such income is
recurrent or non-recurrent, or whether the employee has a legal right
to it; the name given to the income and the form in which it is granted
are also of no consequence.
Wages tax on employment income is calculated to correspond to

the income tax an employee would pay if he or she derived income
exclusively from employment.
To ensure that the actual amount of wages tax deducted is as ap-

propriate as possible, employees are put into different tax classes ac-
cording to family status. Furthermore, all the statutory tax-free allow-
ances and fixed allowances are taken into account when wages tax is
deducted. These are:
the standard allowance for employees of €1,000 a year (for tax
classes I to IV)
the standard allowance for special expenses of €36 a year (for tax
classes I to IV)
the flat-rate allowance for provident expenses (which is taken into
account for all tax classes and has components for pension insur-
134 | An ABC of Taxes Wages tax
W
ance, statutory health and long-term care insurance, and private
insurance for basic health care and compulsory long-term care)
tax relief for single parents of €1,908 a year for one child/the first
child (for tax class II). If the employee is eligible for the increase of
€240 for each additional child living in the same household, this
is taken into account upon application to the employee’s local tax
office in the form of a tax-free allowance, in addition to tax class II.
Employees are categorised into the individual tax classes using the
following criteria:
Class I: single and divorced employees, as well as married employ-

ees and employees in registered partnerships whose spouse/partner
lives outside of Europe or who are permanently separated from their
spouse/partner. Widowed employees also belong to class I if they no
longer meet the criteria for class III.
Class II: employees listed under class I if they are entitled to relief
for single parents. Such relief is available to employees who are single
parents with at least one child living in their household, provided that
the employee is entitled to child benefit or a tax allowance for chil-
dren, and that the child is registered as having a primary or secondary
residence with the employee.
Class III: married employees and employees in registered partner-

ships subject to unlimited income tax liability, who are not perma-
nently separated, if
a) the employee’s spouse/partner does not receive income from em-
ployment
b) the employee’s spouse/partner has been assigned to class V upon
application by the couple
c) the employee is widowed (in this case, class III applies only for the
calendar year following the year of the spouse’s death.
Class IV: married employees and employees in registered partner-

ships subject to unlimited income tax liability, who are not perma-
nently separated and who both receive income from employment.
Class V: married employees and employees in registered partner-

ships subject to unlimited tax liability, who are not permanently sep-
arated and whose spouse/partner has been assigned to class III upon
application.
Class VI: employees who receive a wage or salary from several em-
ployers at the same time.
Married employees and employees in registered partnerships who

(i) are subject to unlimited income tax liability, (ii) are not perma-
nently separated and (iii) both receive income from employment may
choose one of two combinations: class IV with class IV, or class III with
class V. It is also possible to choose the combination of class IV with
class IV and to apply a factor to this (factor system). Using class IV and
class IV together with a factor has the effect that the legal provisions
on tax relief (particularly the basic personal allowance) are applied to
the wages tax deduction for each spouse/partner. The factor serves to
ensure that the tax-reducing effect of the income-splitting method
is taken into account in the wages tax deduction for both spouses/
partners. Anyone wishing to use the factor system must apply to their
tax office. The application must be made jointly by both spouses/part-
ners using the application form for a change of tax class for married
couples/registered partners. The couple must also state their expected
income from employment for the calendar year in question. Alterna-
tively, the application can be made when applying for a reduction in
wages tax. As is the case for married couples/registered partners who
choose the combination of class III with class V, those who opt for the
factor system are required to submit a tax return to the tax office after
the end of the calendar year.
A feature on www.bmf-steuerrechner.de (in German) allows you to

work out your wages tax for the period (day, week, month, or – in ex-
ceptional cases – year) for which the wages are paid.
Wages tax is not a tax in its own right but merely a separate meth- What is the legal
od of collecting > income tax. The legal basis is the Income Tax Act. basis?
To complement the Income Tax Act’s provisions on wages tax, a piece
of secondary legislation entitled the Wages Tax Implementing Ordi-
nance has been issued. This includes legal rules on the withholding of
wages tax, insofar as the Income Tax Act fails to provide any definitive
ruling. In addition to this, wages tax guidelines have been issued to
clarify uncertainties and points calling for interpretation.
136 | An ABC of Taxes Wages tax / Withholding tax on construction work
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Who collects the tax? The revenue authorities of the Länder monitor the withholding
and remittance of wages tax by employers. The Federation is entitled
to 42.5% of the revenue, as are the Länder. The local authorities receive
15%.
How did the tax The taxation of income from employment may be traced back to
develop? the old poll taxes which were imposed in Germany from the end of
the Middle Ages onwards, mainly on persons without property whose
only asset was their ability to work. In a similar manner, personal tithes
were levied by the church on the output of individuals’ industry or oc-
cupation. In Württemberg, for instance, the taxation of employment
income developed from fixed poll taxes originally imposed according
to the property tax code of 1470. Starting in 1694, wage-earners were
divided into different classes and taxed accordingly. The withholding
of tax at source began in 1708 in some instances and was extended
to all salaried employees in 1764. The first German income tax, intro-
duced in East Prussia from 1808 to 1811, also made provision for the
deduction of tax at source from employment income. Income from
employment was subsequently taxed in Prussia under the class tax of
1820, in Bavaria under the family tax of 1814 and the employment
earnings tax of 1856, and in Württemberg under the service and oc-
cupational income tax of 1852. It then developed into a modern form
of income taxation (though originally without deduction at source)
around the turn of the century. The Reich Income Tax Act of 1920 first
introduced tax withholding by the employer across the board and for
all earnings from labour. Until 1924, employers were required to affix
and to cancel tax stamps in the tax card of each employee. The income
tax reform of 1925 introduced the special category of income from
dependent employment, and the present system of wages tax cards
and deduction at source emerged when the use of tax stamps was dis-
continued. The relevant legal provisions were combined in 1934 in a
Wages Tax Implementing Ordinance. The wages tax guidelines issued
by the revenue authorities were added in 1937 as a basis for interpret-
ing the law.
An important development was the introduction in 1948 of the

annual adjustment of wages tax. However, this was not the current
system of adjustment by the employer, but rather income tax assess-
ment for the employee.
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With effect from 1975, the most important procedural rules from
the Wages Tax Implementing Ordinance were incorporated into the
Income Tax Act.
Withholding tax on construction work
The tax is payable on income from the provision of construction ser- What is the tax
vices. payable on?
When a service provider performs construction services in Germa- Who is liable for the
ny for a business within the meaning of section 2 of the VAT Act or for tax?
any legal entity under public law, the service recipient is required to
withhold tax from the consideration paid for such services. Taxation
at source secures the state’s tax claim.
Businesses within the meaning of the VAT Act include not only
those businesses that submit provisional VAT returns but also small
businesses, farmers who pay flat-rate taxes, and VAT-exempt busi-
nesses. This also includes persons who earn proceeds from renting or
leasing. The construction services must be performed for the business
itself. Service recipients who let dwellings are not required to withhold
taxes in connection with construction services for these dwellings if
the recipient lets no more than two dwellings. The tax is withheld on
behalf of the service provider.
The tax does not have to be withheld in cases when the service
provider furnishes the service recipient with an exemption certificate
from the tax office or when the consideration paid for the construc-
tion services is not expected to exceed specific exemption thresholds
in the current year. The tax office issues an exemption certification
upon request as long as this is not detrimental to the state’s tax claim.
The withholding tax is credited to the following taxes payable by

the service provider:
wages tax
income and corporation tax prepayments
income and corporation tax
tax withheld by the service provider in connection with construc-
tion services
138 | An ABC of Taxes Withholding tax on construction work / Withholding tax on income
from capital
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How much is the tax? The withholding tax on construction work amounts to 15% of the
consideration paid including VAT.
What is the legal Like wages tax, the withholding tax for construction work is a spe-
basis? cial method for collecting > income tax and is based on sections 48 to
48d of the Income Tax Act.
Who collects the tax? The withholding tax for construction work is collected by the
Länder and must be remitted to the tax office competent for the ser-
vice provider. Specifically designated tax authorities act as a central
point of contact for foreign service providers.
How did the tax The withholding tax for construction work was introduced by the
develop? Act to Curb Illegal Activity in the Construction Sector of 30 August
2001 and took effect for considerations paid from 31 December 2001
onwards.
Withholding tax on income from capital

What is the tax The system for taxing income from capital assets was reformed by the
payable on? 2008 Business Tax Reform Act (cf. Federal Law Gazette I, p. 1912). A sep-
arate tax schedule applies to investment income from assets held by
private individuals. As a rule, the withholding tax on income from cap-
ital serves to discharge in full any income tax obligations that private
individuals have in respect of that income. The individuals are then
not required, in principle, to state the income from capital in their tax
returns. In cases where business assets yield capital income, the with-
holding of the tax merely constitutes a prepayment. The income in
question must still be stated in the tax return.
The tax is payable on income from capital assets. Examples include

income from shareholdings in companies, the sale of shares, invest-
ment funds, futures, and interest. Foreign dividends are also covered if
a domestic paying agent credits them to the investor.
Who is liable for tax? Investment income becomes liable to withholding tax on income
from capital when it accrues to the beneficiary. The party liable to pay
income from capital, if in Germany, must then withhold the tax on
behalf of the person to whom the income is due. The same applies to
domestic paying agents (such as credit institutions).
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The withholding of tax is not required under certain circumstanc-
es. For example, upon instruction from the recipient of the income,
the paying agent can take account, in whole or in part, of the standard
savers’ allowance of €801 (or €1,602 for married couples or registered
partners assessed jointly for tax). If certification of non-assessment
issued by the tax authorities is presented to the paying agent, the lat-
ter is permitted to credit the capital income to the recipient without
withholding the tax.
Sole traders and partnerships are also subject to withholding tax

on income from capital. Exceptions allowing the tax not to be with-
held exist for certain corporations.
More detailed information is available from credit institutions.
In principle, withholding tax on income from capital amounts to How much is the tax?
25% of that income; > solidarity surcharge and, where appropriate, >
church tax are then imposed on top. When deducting the tax, the pay-
ing agent may, provided certain conditions are met, offset losses and
credit foreign tax for which a reduction is no longer available.
For individuals resident in Germany, withholding tax on income

from capital generally has the effect of definitively discharging tax li-
ability in respect of that income (> final withholding tax). As a rule,
the tax rate is 25% of the income generated by private individuals’ in-
vestments. Taxpayers whose marginal rate of tax is less than 25% may
apply to have the income from capital included in their income tax
assessment.
For non-residents subject to limited tax liability, the withholding

tax on income from capital also generally serves to fully discharge
that tax liability (> withholding taxes on the income of non-residents).
Withholding tax on income from capital is not a tax in its own What is the legal
right but, like > wages tax, is a special form of levying > income tax. Its basis?
legal basis is found in sections 43 to 45d of the Income Tax Act. As a
consequence of the 2008 Business Tax Reform Act, as of 1 January 2009
the withholding tax on income from capital has served to definitively
discharge the tax liability of private individuals.
For further information see > final withholding tax.

140 | An ABC of Taxes Withholding tax on income from capital / Withholding taxes on the
income of non-residents
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Who collects the tax? Withholding tax on income from capital is collected by the Länder.
It is paid over to the tax office responsible either for taxing the income
of the entity generating the capital income or for the paying agent.
How did the tax In the course of the development of systems of earnings taxation
develop? in the 19th century, “capital taxes” were introduced in southern Ger-
many from 1820 onwards (first in Württemberg, thereafter in Bavar-
ia). These gained in significance with the increasing spread of mobile
capital invested to generate earnings, but were then incorporated into
the new income taxes at the turn of the century. In 1920, Erzberger’s
financial reform introduced a separate tax on income from capital
which was not credited towards > income tax and > corporation tax
and did not affect the income and corporation tax liability attached to
income from capital. Following the tax reform of 1925, income from
capital was always subjected to tax within the scope of income taxa-
tion.
The 2008 Business Tax Reform Act (Federal Law Gazette (2007) I
p. 1912) inserted section 43 subsection (5) into the Income Tax Act.
This took effect on 1 January 2009, and has the consequence that
withholding tax on income from capital now fully discharges private
individuals’ tax liability in respect of such income. In other words,
withholding tax on income from capital is a “final” tax. The income
involved no longer needs to be stated on an individual’s income tax
return. To ensure that different types of income are treated equally
for tax purposes, capital gains have been included in the category of
income from capital since 1 January 2009.
Withholding taxes on the income of non-residents

What is the tax Non-residents are people who have neither their domicile nor habitu-
payable on? al place of abode in Germany but derive income from German sourc-
es. They are subject to limited tax liability (section 49 of the Income
Tax Act). The same applies to corporations that do not have their reg-
istered office or place of management in Germany. As is the case for
people resident in Germany, non-residents are subject to withholding
tax on income earned from employment by an employer in Germa-
ny (> wages tax) and on certain types of income from capital assets
(> final withholding tax, > withholding tax on income from capital).
Under section 50a subsection (1) of the Income Tax Act, the following
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other types of income earned by non-residents are subject to a special
withholding tax:
remuneration for artistic, athletic, entertainment and similar per-
formances in Germany
remuneration for the domestic exploitation of such performances
remuneration for the use of, or the right to use, for example, copy-
right, industrial property rights, or expertise, as well as remunera-
tion generated from mediating the opportunity to contract a pro-
fessional athlete for a limited period
supervisory board fees
The party liable to pay the remuneration (for example, the concert Who is liable for tax?
organiser at whose concert a non-resident artist with limited tax lia-
bility performs) withholds at source the tax on the agreed fee. That li-
able party then pays it over to the Federal Central Tax Office on behalf
of the beneficiary of the remuneration (in the example above, the art-
ist). Because the artist has neither his/her domicile nor habitual place
of abode in Germany, it is simpler and more reliable to withhold tax
rather than to assess him/her for income tax purposes.
In exceptional cases, tax offices may require the withholding of tax
from other types of income accruing to non-resident individuals (cf.
section 49 of the Income Tax Act) if this is regarded as expedient to en-
sure the collection of tax (cf. section 50a subsection (7) of the Income
Tax Act).
Tax must generally be based on the full amount of income without How much is the tax?
any deductions. The tax amounts to
30% of income in the case of supervisory board fees
15% for the other forms of remuneration under section 50a sub-
section (1) of the Income Tax Act
25% (as a rule) in special cases when the tax office deems it appro-
priate to withhold tax in order to ensure the collection of tax (as
provided under section 50a subsection (7) of the Income Tax Act)
The solidarity surcharge has to be added in each case.
EU/EEA nationals who have their domicile or habitual place of

abode in an EU/EEA state, as well as certain corporations with limited
tax liability, may, as part of the withholding tax process, claim their
business expenses or income-related expenses that have a direct com-
mercial connection to their income. In these instances, the tax rate for
142 | An ABC of Taxes Withholding taxes on the income of non-residents/
Eliminated or expired taxes: an overview
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individuals increases to 30% of the remaining income (net income),
plus the solidarity surcharge.
Any > income tax liability is generally deemed to have been dis-
charged with the deduction of final withholding taxes. Assessment for
income tax/corporation tax may be conducted subsequently in cer-
tain cases (cf. section 50 subsection (2) number 4 letter b and number 5
of the Income Tax Act, and section 32 subsection (2) number 2 of the
Corporation Tax Act).
What is the legal The legal basis for taxation by withholding (with the exception of
basis? wages tax and withholding tax on income from capital) is section 50a
of the Income Tax Act. The tax is collected by the Federal Central Tax
Office. The Federation and the Länder share the revenue. Procedures
to provide relief from withholding taxes under double taxation agree-
ments, the Parent-Subsidiary Directive and the Interest and Royalties
Directive (such as the refunding of tax withheld, the exemption meth-
od and a simplified procedure for reduction of/exemption from taxa-
tion) are regulated in section 50d of the Income Tax Act.
How did the tax Regulations governing the withholding of tax from the income of
develop? non-residents have been in place for a long time. They were incorpo-
rated into the Income Tax Act in 1930 and subsequently underwent
various changes. The 2009 Annual Tax Act revised section 50a of the
Income Tax Act. Particular aspects of note include a change in the list
of income subject to final withholding tax and the ability of EU/EEA
nationals to elect to claim business expenses/income-related expens-
es as part of the withholding tax procedure. The aim of this change
was to adapt the provision to fit with European Court of Justice case
law.
A/B
Eliminated or expired
taxes: an overview
(in alphabetical order)
Acetic acid duty
Apart from earlier duties on vinegar levied at local level, acetic acid How did the duty
duty as a tax on consumption was first introduced by the Spirits Duty develop?
Act of 15 July 1909. The bill introduced at that time under the Reich
financial reform was intended to protect the agricultural production
of vinegar by fermentation and to this end initially included a ban
on the use of industrially produced acetic acid in foodstuffs and pre-
serves. However, the decision was taken instead to introduce a duty
on the consumption of acetic acid, in order to (i) avoid increases in
the price of vinegar, which might occur if the ban on industrially pro-
duced acetic acid were put in place and (ii) ensure a contribution to
the revenue of the Reich.
The duty was designated acetic acid duty starting in 1922. The fi-
nancial burdens borne by the acetic acid and fermented vinegar in-
dustries were equalised under a law adopted on 21 May 1929 in re-
sponse to joint applications by both industries. The former Reich duty
was assigned to the Federation in 1949.
In order to help simplify the tax system, and due to the minor
amount of revenue generated by the duty, acetic acid duty was re-
scinded as of 1 January 1981 on the basis of a law adopted on 3 July
1980 (Federal Law Gazette I, p. 761).
Berlin emergency levy
When the Soviet occupation force began a blockade of Berlin in au- How did the levy
tumn 1948, the city’s vital needs had to be supplied by way of a costly develop?
airlift. Legislation adopted on 8 November 1948 introduced the Ber-
lin emergency levy with the aim of providing the city with financial
support.
144 | An ABC of Taxes Eliminated or expired taxes: an overview
B
The levy was comprised of (i) a special tax on the income of in-
dividuals and legal entities not exceeding approximately 4% and (ii)
a postage stamp duty of DM 0.02 on every postal item. The levy was
originally limited to a period of three months, but was repeatedly ex-
tended and amended as the emergency situation in Berlin persisted.
It was ultimately rescinded in three stages: the duty on postal items
was eliminated on 1 April 1956; the tax on individuals was eliminated
on 1 October 1956; and the tax on legal entities was eliminated on
1 January 1958, although the latter was continued in the form of a si-
multaneous increase in corporation tax rates.
Bills of exchange tax

How did the tax The forerunners of bills of exchange tax were stamp duties, introduced
develop? in the 17th and 18th centuries in Germany and elsewhere, that were
imposed on the use of officially required documents. Various German
states introduced stamp duties on bills of exchange in the early years
of the 19th century, for instance Prussia under the Stamp Tax Act of
1822. In 1869, the North German Confederation adopted uniform leg-
islation governing the stamp tax on bills of exchange, which applied
to all of the confederation’s member countries. After the Reich was
established in 1871, the tax was extended to cover the entire territo-
ry of the Reich. After minor amendments in 1879, 1909 and 1918, the
law was revised in 1923 to omit the designation “stamp” and then re-
worked again in 1925.
The bills of exchange tax was temporarily suspended by the war-

time tax simplification ordinance of 14 September 1944, but was rein-
troduced in 1948 under Military Government Ordinance no. 64 when
the currency reform took effect. Revenue from the tax was assigned to
the Länder under the Basic Law of 1949, then reassigned to the Feder-
ation starting in 1970 under the Financial Reform Act of 1969.
Tax was payable on the issuance, by the drawer, of a bill drawn in

Germany, or in the case of a bill drawn abroad, by the first German
holder.
How much was the Tax was calculated on the amount of the bill at a rate of DM 0.15
tax? for each DM 100 or fraction thereof. It was reduced by half for certain
cases involving cross-border transactions.
B/C
Bills of exchange tax was paid through the purchase of stamps that
were available at post offices and that were affixed to the reverse side
of the bill. Authorised franking machines were also available for this
purpose that accepted prepaid cards purchasable at post offices.
The legal bases for imposing bills of exchange tax were the Bills of What was the legal
Exchange Tax Act as amended on 24 July 1959 (Federal Law Gazette I, basis?
p. 536) and the Bills of Exchange Tax Implementing Ordinance as
amended on 20 April 1960 (Federal Law Gazette I, p. 274).
Bills of exchange tax was eliminated as of 1 January 1992 under

the Financial Market Promotion Act of 22 February 1990 (Federal Law
Gazette I, p. 266).
Building land tax
Building land tax was a form of > real property tax (category C) impo- How did the tax
sing a higher charge on land that was suitable for construction proj- develop?
ects but remained undeveloped, the aim being to increase the supply
of building land. Building land tax was levied only in 1961 and 1962.
Company tax
The growth in industrial activity in the early years of the 20th century How did the tax
gave rise to increasing numbers of incorporated companies whose develop?
profits were not subject to > income tax or > corporation tax at the
time. In order to bring these companies within the scope of the tax
system, the individual German states began imposing stamp duties on
company articles from 1850 onwards.
Under the Prussian Stamp Tax Act of 1909, a tax of 1.4% to 1.5%
was imposed on limited liability companies upon (i) their formation,
(ii) increases in share capital and (iii) contributions of supplementary
capital.
In 1913, the authority to impose this tax was transferred to the

Reich in accordance with a revision of the Reich Stamp Duty Act. In
1922, the tax was incorporated into the new Capital Transactions Tax
Act; from this point on, the tax was imposed on capital inflows them-
C
selves and not on the documentation of such inflows. After multiple
amendments to the law, company tax was suspended by the Tax Sim-
plification Ordinance of 14 September 1944. After company tax was
reintroduced by the military government in 1948, revenue from the
tax was initially assigned to the Länder in 1949 under the Basic Law
and then reassigned to the Federation in 1969 under the Financial Re-
form Act.
Company tax was imposed primarily on the initial acquisition of

shareholder rights in connection with the formation of domestic lim-
ited companies and capital increases, as well as on contractual and
voluntary contributions of capital by shareholders, advance contri-
butions, supplementary contributions, waivers of outstanding claims,
and the assumption of losses. Contributions of investment and op-
erating capital to domestic subsidiaries of foreign limited companies
(except for limited companies from other EC member states) were also
subject to tax.
In the case of acquisitions of shareholder rights, the tax was cal-

culated based on the value of the consideration given or on the value
of such rights; in the case of shareholder contributions, the tax was
calculated based on the value of the contribution. The tax rate was 1%.
What was the legal
basis? The legal basis for imposing company tax was the Capital Trans-
actions Tax Act as revised on 17 November 1972 (Federal Law Gazette
I, p. 2129) with subsequent amendments, together with the Capital
Transactions Tax Implementing Ordinance (Federal Law Gazette 1960
I, p. 243).
Company tax was eliminated as of 1 January 1992 under the Finan-

cial Market Promotion Act of 22 February 1990 (Federal Law Gazette
I, p. 266).
Counter-cyclical surcharge
How did the
surcharge develop? Within the framework of the Federal Government’s economic policy,
a temporary 10% “counter-cyclical surcharge” on > income tax and
> corporation tax was levied from 1 August 1970–30 June 1971. The
revenue was deposited in a non-interest-bearing account at the Bun-
desbank and refunded to taxpayers as of 15 June 1972.
C/I
What was the legal
The legal basis was the Counter-cyclical Surcharge Act of 23 July basis?
1970 (Federal Law Gazette I, p. 1125). The surcharge was not a conven-
tional “tax” but rather a special levy (cf. Federal Constitutional Court
decision of 15 December 1970, Federal Tax Gazette 1971 II, p. 39).
Coupon tax
How did the tax
Interest from fixed-interest securities and debt register claims paid develop?
to non-residents was subject to capital yields tax (coupon tax) until
31 July 1984.
This type of taxation on capital yields was eliminated under the

1985 Tax Adjustment Act.
Credit profits levy

How did the levy
The credit profits levy was a currency-related charge imposed within develop?
the framework of post-war legislation geared toward the equalisati-
on of financial burdens (Lastenausgleich). The levy was imposed on
profits from business debt realised as a result of post-war currency
reform.
The credit profits levy expired on 10 January 1974 (see also the de-
scription of the > mortgage profits levy).
Ice cream duty

How did the duty
As an offshoot of the old > beverage duty, ice cream duty derived from develop?
an emergency decree issued by the Reich President on 26 July 1930
that also included duties on non-alcoholic beverages such as mineral
water and soft drinks. It was a local duty based on Länder legislation
and communal by-laws and was last levied in Bavaria in 1971.
The duty was imposed on the sale of ice cream for immediate con-
sumption at the place of sale. The duty rate was generally 10% of the
sales price.
I/L
Investment tax
How did the tax The imposition of an investment tax of 11% for a period not excee-
develop? ding two years was envisaged on 9 May 1973 as part of the Federal
Government’s stability policy. This tax was enacted by the Bundestag
under the Tax Amendment Act of 26 June 1973 (Federal Law Gazette I,
p. 676) with the proviso that the revenue – together with the revenue
from the > stability surcharge – be deposited at the Bundesbank as a
counter-cyclical reserve.
A Federal Government resolution of 19 December 1973 shortened

the originally envisaged application period of 9 May 1973–30 April
1975 to 9 May–30 November 1973.
The revenue collected under the investment tax was released in ac-
cordance with Article 8 of the Investment and Employment Promo-
tion Act of 23 December 1974 (Federal Law Gazette I, p. 3676).
Lamp duty
How did the duty Early forms of tax on illuminants included levies on candle wax (wax
develop? impost, wax tithes) during the Middle Ages and certain luxury taxes
on candles during the Baroque period.
When petroleum gained increasing use as an illuminant during

the second half of the 19th century, this fuel became subject to fiscal
duties that subsequently gave rise to mineral oil duty. As the revenue
requirements of the Reich grew, the rapid spread of electricity and gas
spurred discussions on the possible introduction of a duty on electric-
ity and gas consumption as part of the 1909 Reich financial reform.
However, this type of duty was rejected in favour of a duty on elec-
tric light bulbs and gas mantles. The Reich legislation adopted in 1909
formed the basis for the modern Reich lamp tax, which was retained
as a federal tax from 1949 onward.
In order to avoid distortions of competition within the European

internal market, lamp duty was abolished as of 1 January 1993 under
Article 5 of the Act Adapting the VAT Act and Other Legislation to the
EC Internal Market, which was adopted on 25 August 1992 (Federal
Law Gazette I, p. 1548, 1561).
M
Match monopoly
The state match monopoly established on 1 June 1930 under Reich le- How did the
gislation adopted on 29 January 1930 was based on a contract conclu- monopoly develop?
ded between the German Reich and the Swedish match manufacturer
Svenska Tändsticks Aktiebolaget (STAB) on 26 October 1929 for a loan
of US $125m during the world economic crisis. The Swedish group
sought to gain a monopoly over Germany’s match market because it
believed its strong position there was being threatened by the sale of
Russian matches at dumping prices. The fiscal monopoly was taken
over by the Federation in 1949.
When the Kreuger loan was fully repaid on 15 January 1983, Ger-
many’s contractual obligation in relation to the Swedish group to
maintain the match monopoly ended. The monopoly was therefore
abolished as of 16 January 1983 under legislation adopted on 27 Au-
gust 1982 (Federal Law Gazette I, p. 1241), and a free match market was
created.
Matches and lighters duty
The taxation of matches was introduced in Germany by Reich legis- How did the duty
lation adopted on 15 July 1909. A parliamentary financial commissi- develop?
on – which, as part of the Reich financial reform, was charged with
identifying new revenue sources to meet the government’s increasing
financial requirements – referred to similar models in other countries
(e.g. Russia in 1848, France in 1871, Italy in 1895) that had imposed
duties on matches as a complement to > tobacco duty. Liability for
duty was initially restricted to matches and tapers but was extended
in 1919 to cover lighters and flints, though this extension was repealed
in 1923 due to technical difficulties.
amount of revenue generated by the duty, matches and lighters duty
was rescinded as of 1 January 1981 on the basis of a law adopted on
3 July 1980 (Federal Law Gazette I, p. 761).
M/N/P
Mortgage profits levy
How did the levy After the First World War and the hyperinflation of 1923, fiscal mea-
develop? sures were taken to capture the currency depreciation gains made by
house owners (mortgage debtors).
Under a Reich emergency tax ordinance of 1924, in conjunction

with legislation to offset currency depreciation adopted in 1926, all
of the Länder were required to introduce a “house interest tax”, desig-
nated in some instances as “appreciation tax” or “building disencum-
berment tax”.
From 1931 onward, these taxes were gradually dismantled; an or-

dinance adopted in 1942 provided for the cancellation of these taxes
upon payment of the tenfold annual charge by 1 January 1943.
What was the legal After the Second World War, so-called land charge conversions
basis? were introduced under the 1948 “Act to Secure Claims for the Equali-
sation of Burdens”; these conversions amounted to 90% of mortgages
converted at a ratio of 10:1. In accordance with the 1952 Equalisation
of Burdens Act, interest and amortisation payments made on these
converted charges were credited toward the final equalisation taxes.
In order to bring the collection of mortgage profits tax to an end in
1979, surcharges were imposed from 1 July 1972 to 31 December 1979
on payments that would have had to have been made after 31 Decem-
ber 1979 under the conditions of Reichsmark debt.
Net worth tax

How did the tax Because the legislature did not enact a revision of net worth tax follo-
develop? wing the Federal Constitutional Court’s decision of 22 June 1995 (Fe-
deral Tax Gazette II, p. 665), it was no longer possible to impose the tax
as of 1 January 1997.
Packaging duty
What was the duty Packaging duty was imposed on disposable packaging and table-
payable on? ware when the food and beverages contained therein were sold for
consumption at the place of sale. Duty was assessed on each item of
P
disposable packaging or disposable tableware (e.g. cans, bottles, cups,
dishes and cutlery).
The legal bases for imposing packaging duty were provided under What was the legal
Article 105 paragraph (2a) of the Basic Law as well as under the local basis?
authority tax laws and by-laws of the relevant Länder and local au-
thorities.
Packaging duty was a local excise duty levied by a number of local Who collected the
authorities. Its aim was to help prevent waste. duty?
Packaging duty was first introduced by the city of Kassel (in the How did the duty
Land of Hesse) with effect from 1 July 1992. Additional local author- develop?
ities in Hesse and in other Länder followed this example. However,
in 1998 the Federal Constitutional Court declared Kassel’s packaging
duty unconstitutional (Federal Constitutional Court Decision 98, pp.
106-134).
Packaging duty revenue in 1999 amounted to DM 0.6m.
Payroll tax
Payroll tax was formerly a component of > trade tax. Subject to au- How did the tax
thorisation by the respective Land government, local authorities develop?
could select payroll as a tax base, together with the mandatory tax ba-
ses of trading profits and business capital prescribed under the Trade
Tax Act.
In such cases, businesses were required to submit monthly or quar-

terly returns stating the self-assessed payroll tax in accordance with
the tax rate determined by the local authority in question.
Payroll tax was eliminated as of 1 January 1980 on the basis of the

1979 Tax Amendment Act.
Playing card duty
In medieval German towns, gaming equipment (such as the “gaming How did the duty
boards” in Nuremberg) served – along with lotteries for non-money develop?
P
prizes and gaming casinos – as a source of tax revenue. During the
mercantilist period, stamp duties modelled on French levies were
introduced in the German territories, sometimes in connection with
state monopolies on the trade in playing cards. For example, Prussia
used this system as early as 1714 before replacing it in 1838 with a sim-
ple stamp tax (in the form of an official stamp affixed to playing cards)
that was then further refined in 1867. The Customs Union Treaty of
8 July 1867 confirmed the stamp duty on playing cards as a territorial
levy.
What was the legal Assigned to the Reich by legislation adopted on 3 July 1878, the
basis? duty was designated an > excise duty under the Reich Playing Card
Duty Act of 10 September 1919. Authority to impose the duty was
transferred to the Federation in 1949.
amount of revenue generated by the duty, playing card duty was re-
scinded as of 1 January 1981 on the basis of a law adopted on 3 July
Property levy
How did the levy Exceptional levies to overcome the effects of wars and emergencies
develop? have been recorded from the earliest times, and in Germany from the
Middle Ages onwards these were imposed from time to time in the
form of special aids (Bede), pecuniary assistance, property charges,
contributions, exceptional taxes, etc.
In more recent times, the “One-time Supplementary Defence Con-

tribution Act” adopted by the Reich in 1913 introduced a number of
property charges, which were levied at comparatively moderate rates
under wartime tax legislation enacted between 1916 and 1919. These
culminated in the imposition of a “Reich emergency levy” under
Reich legislation adopted on 31 December 1919, which provided for
a “substantial levy on property” at rates ranging from 10%−65% with
the option of paying in instalments. In 1922, due to the pressure of
persistent inflation and the need to take the interests of trade and
industry into account, this special levy was replaced with an ongo-
ing Reich property tax. After the Second World War, a provisional
“immediate assistance levy” was introduced in 1949; under the 1952
P/S
Equalisation of Burdens Act, this special levy was credited towards the
property levy. This proved to be the most important levy under the
equalisation of burdens scheme, which also included the > mortgage
profits levy and the > credit profits levy. The property levy was pay-
able in equal quarterly amounts, and was charged for the last time on
10 February 1979.
Salt duty
The use of salt to generate tax revenue on German territory started How did the duty
with salt duties that were modelled on Roman levies and that were develop?
imposed as early as the period of the Frankish kingdom. From the
High Middle Ages onwards, these duties spread throughout towns
and territories, evolving into > excise taxes referred to as Ungeld or
Akzisen on salt. At the same time, salt monopolies developed that ori-
ginally took the form of a royal monopoly over saltworks. These mo-
nopolies were then delegated to electors (Kurfürsten) under the Gol-
den Bull of Charles IV in 1356, and to other territorial rulers under the
Peace of Westphalia in 1648. These rulers either leased the monopolies
to private persons against payment of a concession (salt interest, salt
tithes, etc.) or operated saltworks themselves as a state monopoly (as in
Saxony in 1561, Brandenburg in 1583 and Bavaria in 1587/94). Because
the differing monopoly arrangements in the individual German states
posed a major obstacle to trade between the members of the German
Customs Union, they were replaced with a standardised salt levy in
the form of a product tax under an agreement concluded on 8 May
1867. The tax rate at that time was two thalers for one hundredweight
(equivalent to DM 12 per 100 kg). This rate remained constant apart
from temporary variations caused by inflation in the aftermath of the
First World War.
Salt duty was transferred to the Reich in 1871, temporarily abol- What was the legal
ished between 1926 and 1931, and then assigned to the Federation basis?
under the Basic Law of 1949.

internal market, salt duty was abolished as of 1 January 1993 under
S
Securities tax
In addition to > stock exchange transactions tax and company tax, a
third capital transactions tax was levied up to the end of 1964 on the
initial purchase of bonds. Like the other two taxes, this securities tax
had its roots in stamp duties that were originally imposed in the 19th
century. The tax was eliminated for reasons of monetary and capital
market policy by legislation adopted on 25 March 1965.
Stability surcharge
How did the As part of a stability programme adopted by the Federal Government,
surcharge develop? a 10% “stability surcharge” on > income tax and > corporation tax was
levied from 1 July 1973 to 30 April 1974. The purpose of the surcharge
was to help restore economic stability during this period.
What was the legal The legal basis for the stability surcharge was provided by the 1973
basis? Tax Amendment Act (Federal Law Gazette I, p. 676). Persons with
annual taxable income exceeding DM 24,000 (for single persons) or
DM 48,000 (for married couples) were liable for tax.
The revenue (together with the revenue from > investment tax) was
deposited at the Bundesbank as a counter-cyclical reserve.
Stock exchange transactions tax

How did the tax The stock exchange transactions tax, which was originally adopted
develop? to offset the fiscal burden arising from documents used in stock ex-
change dealings, was imposed on turnover from trading in securities
(e.g. bonds, shares and mutual funds shares). During the post-war pe-
riod, revenue from the tax originally accrued to the Länder from 1949
onward but was reassigned to the Federation following the financial
reform of 1969. Most other EU member states impose similar taxes or
have imposed them in the past. A tax on securities transactions is also
imposed at the stock exchanges in New York and London.
What was the legal The Reich Stamp Duty Act of 1881 stipulated for the first time that
basis? contract notes and invoices related to certain securities purchases
were subject to a fixed-rate stamp duty that was uniform throughout
the Reich. From 1885 onward, the tax was no longer imposed on the
S
documents but rather on the commercial transactions themselves,
which were taxed at a certain percentage rate. In 1922, the stock ex-
change transactions tax was combined with company tax and secu-
rities tax under the Capital Transactions Tax Act. The tax was discon-
tinued in September 1944, then reintroduced in 1948 by the military
government. Stock exchange transactions tax was abolished as of
1 January 1991 by the Financial Market Promotion Act of 22 February
Sugar duty
The use of sugar as a source of tax revenue began with the imposi- How did the duty
tion of sugar duty, which was generally applied from the 16th cen- develop?
tury onwards as overseas trade in cane sugar from colonial territo-
ries flourished. After the high sugar content of beets was discovered
in the 18th century, the commercial production of sugar from do-
mestically cultivated sugar beets grew rapidly, especially during the
continental blockade under Napoleon. As a result, competition be-
tween domestically produced sugar (which was initially tax-exempt)
and dutiable foreign sugar became increasingly intense. As a result, in
1841, sugar duty on domestic beet sugar was introduced in Germany.
This duty took the form of a common input tax under the German
Customs Union in 1844 (assessed according to the delivery weight of
sugar beets), and was later adopted in this form as a Reich duty in 1871.
Improved production methods led in 1887 to a combined input and
product tax, with tax liability attaching to release for circulation. The
duty was revised under the Sugar Duty Acts of 1923 and 1938 and then
assigned to the Federation in 1949.

internal market, sugar duty was abolished as of 1 January 1993 under
Surtax on income tax and corporation tax
The Fiscal Constitution Act of 1955 extended the list of federal taxes How did the tax
under Article 106 paragraph (1) of the Basic Law to include a “surtax develop?
on > income tax and > corporation tax.” This was intended to enable
S/T
the Federation, without having to seek the consent of the Bundes-
rat, to meet rising revenue requirements resulting from economic or
fiscal developments either by increasing federal > excise duties or by
imposing a surtax on personal and corporate income tax. The surtax
was collected for the first time starting on 1 January 1968 on the basis
of the Surtax Act of 21 December 1967, adopted as the first part of
the Act Implementing Multi-year Federal Financial Planning (Second
Tax Amendment Act of 1967), and was intended to help close the fo-
reseeable gaps in the federal budget. The tax rate was generally 3% of
income tax or corporation tax liability.
The surtax on income tax was rescinded as of 1 January 1975 under

the Income Tax Reform Act of 5 August 1974, and the surtax on cor-
poration tax was discontinued as of 1 January 1977 when the corpora-
tion tax reform entered into force.
Sweetener duty
How did the duty Under Reich legislation adopted on 14 July 1922, a sweetener duty was
develop? imposed on sugar substitutes in the form of sweeteners. The aim was
to balance out the effects of the already existing sugar duty. The duty
was assigned to the Federation in 1949 and rescinded under the 1965
Tax Amendment Act due to the minor amount of revenue it generated
(approximately DM 2m per year).
Tea duty
How did the duty As the use of tea spread throughout Germany in the 17th and 18th
develop? centuries, legislators demanded that it be used as a source of tax re-
venue in the same way that coffee and other luxury goods were. Im-
port duties were seen as the easiest and most lucrative way to tax this
imported good, and the early development of tea duty coincides clo-
sely with that of > coffee duty. After tea duty was assigned to the Reich
in 1871, it was reduced substantially with the aim of boosting sugar
consumption. Then from 1909 onward, it was subject to repeated rais-
es as the Reich’s financial requirements increased. After the Second
World War, an attempt to increase tea duty following the 1948 cur-
rency reform failed due to lack of authorisation by the Allied Control
Council. This led to the introduction of a separate > excise duty on
tea starting in March 1949 under legislation adopted by the adminis-
T
tration of the Combined Economic Area on 21 October 1948 (for the
Länder in the French Occupation Zone, the duty took effect starting
in February 1950). The duty was meant to supplement the coffee duty
that had been adopted a short time previously, as it was considered
inappropriate to treat the two luxury goods differently.

internal market, tea duty was abolished as of 1 January 1993 under
Article 7 of the Act Adapting the VAT Tax Act and Other Legislation to
the EC Internal Market, which was adopted on 25 August 1992 (Feder-
al Law Gazette I, p. 1548, 1561).
Transport tax
The history of the taxation of commercial transport dates back to me- How did the tax
dieval overland, waterway and road tolls that served as forerunners develop?
for a type of travel duty that emerged with the spread of excise duties
in the 17th century. The subsequent development of stamp duties on
transport-related contracts was ultimately extended to cover freight
documents as well, for instance under the Reich Stamp Duty Acts of
1900, 1906 and 1913. The Reich Act on the Taxation of Passenger and
Goods Transport of 8 April 1917 was the first tax of this kind that was
not fiscal in nature but instead sought to fulfil purposes of transport
and economic policy. As such, it had a strong influence on the shape of
future transport-related taxes. Shipping was exempted from transport
tax in 1921 due in part to the international Rhine Navigation Conven-
tion, and motor transport became subject to a specific > motor vehicle
tax in 1922. As the competition between railway and road transport
increased, transport tax was introduced in 1936 on long-distance
commercial transport and goods haulage by road, although long-
distance own-account transport and long-distance furniture trans-
port were exempted from 1944−1951.
Transport tax was applied to the commercial transport of passen-

gers and goods by railway and road and was mainly imposed for traffic
management purposes, particularly in order to curtail long-distance
own-account transport with motor vehicles.
Transport tax accrued to the Federation and was eliminated as of

1 January 1968 in connection with VAT reform. Short-haul goods
transport by road was not subject to the tax. In 1969, the tax was re-
placed in part with the road haulage tax, which expired in 1971.
158 | An ABC of Taxes List of taxes mentioned
List of taxes mentioned

(English – German)
English German
Acetic acid duty Essigsäuresteuer
Acquisition tax Erwerbsteuer
Alcopops duty Alkopopsteuer
Aviation tax Luftverkehrsteuer
Beer duty Biersteuer
Betting tax Rennwettsteuer
Beverage tax Getränkesteuer
Bills of exchange tax Wechselsteuer
Building land tax Baulandsteuer
Church tax Kirchensteuer
Cinema tax Kinosteuer
Class tax Klassensteuer
Coffee duty Kaffeesteuer
Company tax Gesellschaftsteuer
Corporation tax Körperschaftsteuer
Counter-cyclical surcharge Konjunkturzuschlag
Coupon tax Kuponsteuer
Credit profits levy Kreditgewinnabgabe
Dog tax Hundesteuer
Electricity duty Stromsteuer
Employment earnings tax Arbeitsertragsteuer
Energy duty Energiesteuer
Entertainment tax Vergnügungsteuer
Excise duties Verbrauchsteuern
Expenditure tax Aufwandsteuer
Family tax Familiensteuer
Final withholding tax Abgeltungsteuer
Fire protection tax Feuerschutzsteuer

Gaming casinos levy Spielbankabgabe
Hunting and fishing tax Jagd- und Fischereisteuer
Ice cream duty Speiseeissteuer
Import VAT Einfuhrumsatzsteuer
Income tax Einkommensteuer
Inheritance and gift tax Erbschaftsteuer/Schenkungsteuer
Insurance tax Versicherungsteuer
Intermediate products duty Zwischenerzeugnissteuer
Investment tax Investitionsteuer
Lamp duty Leuchtmittelsteuer
Lottery tax Lotteriesteuer
Matches and lighters duty Zündwarensteuer
Mineral oil duty Mineralölsteuer
Mortgage profits levy Hypothekengewinnabgabe
Motor vehicle tax Kraftfahrzeugsteuer
Net worth tax Vermögensteuer
Nuclear fuel duty Kernbrennstoffsteuer
Packaging duty Verpackungsteuer
Payroll tax Lohnsummensteuer
Playing card duty Spielkartensteuer
Property levy Vermögensabgabe
Real property tax Grundsteuer
Real property transfer tax Grunderwerbsteuer
Road haulage tax Straßengüterverkehrsteuer
Salt duty Salzsteuer
Secondary residence tax Zweitwohnungsteuer
Securities tax Wertpapiersteuer
Service and occupational Dienst- und
income tax Berufseinkommensteuer
Solidarity surcharge Solidaritätszuschlag
Sparkling wine duty Schaumweinsteuer
Spirits duty Branntweinsteuer
160 | An ABC of Taxes List of taxes mentioned / List of laws mentioned
Stability surcharge Stabilitätszuschlag

Sugar duty Zuckersteuer
Surtax on income tax and Ergänzungsabgabe (zur
corporation tax Einkommensteuer und
Körperschaftsteuer)
Sweetener duty Süßstoffsteuer
Taxes on income, property Besitz- und Verkehrsteuern
and transactions
Tea duty Teesteuer
Tobacco duty Tabaksteuer
Trade tax Gewerbesteuer
Transport tax Beförderungsteuer
VAT Umsatzsteuer
VAT equalisation tax Umsatzausgleichsteuer
Wages tax Lohnsteuer
Withholding tax on Steuerabzug bei Bauleistungen
construction work
Withholding tax on income Kapitalertragsteuer
from capital
Withholding taxes on the Abzugsteuern bei beschränkt
income of non-residents Steuerpflichtigen
List of laws mentioned

(English – German)
English German
1893 Act on Local Authority Kommunalabgabengesetz (KAG)
Levies von 1893
2008 Annual Tax Act Jahressteuergesetz 2008
2008 Business Tax Reform Act Unternehmensteuerreformge-
setz 2008
Act Implementing the Federal Gesetz zur Umsetzung des
Consolidation Programme Föderalen Konsolidierungspro-
gramms
Act to Curb Illegal Activity in Gesetz zur Eindämmung
the Construction Sector illegaler Betätigung im
Baugewerbe
Act to Proceed with Ecological Gesetz zur Fortführung der
Tax Reform ökologischen Steuerreform
Act to Reform Real Property Gesetz zur Reform des
Tax Law Grundsteuerrechts
Administrative Offences Act Ordnungswidrigkeitengesetz
Alcopops Duty Act Alkopopsteuergesetz
Aviation Tax Act Luftverkehrsteuergesetz
Basic Law Grundgesetz
Berlin Promotion Act Berlinförderungsgesetz
Betting and Lottery Act Rennwett- und Lotteriegesetz
Budget Consolidation Act Haushaltssanierungsgesetz
Capital Formation Act Vermögensbildungsgesetz
Code of Procedure for Fiscal Finanzgerichtsordnung
Courts
Concomitant Act on the Second Begleitgesetz zur zweiten
Federalism Reform Föderalismusreform
Corporation Tax Act Körperschaftsteuergesetz
Corporation Tax Implementing Körperschaftsteuerdurchfüh-
Ordinance rungsverordnung
162 | An ABC of Taxes List of laws mentioned
EC Mutual Assistance Act EG-Amtshilfe-Gesetz

EC Recovery Act EG-Beitreibungsgesetz
Electricity Duty Act Stromsteuergesetz
Electricity Duty Implementing Stromsteuerdurchführungs-
Ordinance verordnung
Energy Duty Act Energiesteuergesetz
External Tax Relations Act Außensteuergesetz
Federal Building Code Baugesetzbuch
Financial Reform Act Finanzreformgesetz
Fire Protection Tax Act Feuerschutzsteuergesetz
Fiscal Code Abgabenordnung
Growth Acceleration Act Wachstumsbeschleunigungs-
gesetz
Housing Construction Premium Wohnungsbau-Prämiengesetz
Act
Implementation of the Gesetz zur Durchführung
Common Organisation of der gemeinsamen
Markets Act Marktorganisationen
Import VAT Exemption Einfuhrumsatzsteuer-
Ordinance Befreiungsverordnung
Income Tax Act Einkommensteuergesetz
Income Tax Implementing Einkommensteuer-
Ordinance Durchführungsverordnung
Inheritance and Gift Tax Act Erbschaftsteuer- und
Schenkungsteuergesetz
Inheritance Tax Reform Act Erbschaftsteuerreformgesetz
Investment Grants Act Investitionszulagengesetz
2009 Annual Tax Act Jahressteuergesetz 2009
Legislation to improve the Gesetz zur Verbesserung des
protection of young people Schutzes junger Menschen
against the dangers of alcohol vor Gefahren des Alkohol und
and tobacco consumption Tabakkonsums
Market Organisation Act Marktorganisationsgesetz
Motor Vehicle Tax Act Kraftfahrzeugsteuergesetz
Motor Vehicle Tax Kraftfahrzeugsteuer-
Implementing Ordinance Durchführungsverordnung
Nuclear Fuel Duty Act Kernbrennstoffsteuergesetz

Property Tax Code (of 1470) Schatzungsordnung (von 1470)
Prussian District and Provincial preußische Kreis-Provinzial-
Taxes Act of 1906 Abgabengesetz von 1906
Prussian Financial Equalisation preußische Finanz-
Act of 1938 ausgleichsgesetz von 1938
Public Gaming Casinos Verordnung über öffentliche
Ordinance Spielbanken (1938)
Real Property Tax Act Grundsteuergesetz
Real Property Transfer Tax Act Grunderwerbsteuergesetz
Reich Act on the Sprits Reichsgesetz über das
Monopoly Branntweinmonopol
Reich Act on the Supervision of Reichsgesetz über die
Private Insurers and Building Beaufsichtigung der privaten
Societies Versicherungsunternehmer und
Bausparkassen
Reich Beer Duty Act Reichsbiersteuergesetz
Reich Financial Equalisation Act Reichsfinanzausgleichsgesetz
Reich Stamp Duty Act Reichsstempelgesetz
Reich Valuation Act Reichsbewertungsgesetz
Revenue Administration Act Finanzverwaltungsgesetz
Road Traffic Registration Straßenverkehrs-
Regulations Zulassungs-Ordnung
Sixth Act Amending the Excise 6. Gesetz zur Änderung von
Duty Acts Verbrauchsteuergesetzen
Solidarity Surcharge Act Solidaritätszuschlaggesetz
Sparkling Wine and Schaumwein- und
Intermediate Products Duty Act Zwischenerzeugnissteuergesetz
Sparkling Wine Duty Act Schaumweinsteuergesetz
Spirits Monopoly Act Branntweinmonopolgesetz
Surtax Act Ergänzungsabgabengesetz
Tax Adjustment Act Steuerbereinigungsgesetz
Tax Amendment Act Steueränderungsgesetz
Tax Audit Ordinance Betriebsprüfungsordnung
Tax Consultancy Act Steuerberatungsgesetz
164 | An ABC of Taxes List of laws mentioned / Index
Tobacco Duty Act Tabaksteuergesetz

Trade Tax Act Gewerbesteuergesetz
Trade Tax Implementing Gewerbesteuer-Durchführungs-
Transfer of Functions Funktionsverlagerungs-
Treaty on German Unification Einigungsvertrag
Valuation Act Bewertungsgesetz
VAT Act Umsatzsteuergesetz
VAT Competency Ordinance Umsatzsteuerzuständigkeits-
verordnung
VAT Implementing Ordinance Umsatzsteuer-Durchführungs-
verordnung
Vehicle Licensing Regulations Fahrzeug-Zulassungs-
verordnung
Wages Tax Implementing Lohnsteuer-Durchführungs-
Index
Taxes and tax-related terms given detailed explanations in this pub-
lication are marked in bold. Taxes and terms described within these
explanations are marked in normal font. Taxes that have been elimi-
nated are marked with an asterisk.
Accident insurance > Insurance tax 90

Acetic acid duty* 143
Agricultural levies > Agricultural levies in the EU 20
Alcopops duty 32
Assessment upon application > Wages tax 130
Aviation tax 33
Beer duty 35
Berlin emergency levy* 143
Betting and lottery tax 37
Beverage duty 39
Bills of exchange tax* 144
Building land tax* 145
Child benefit > Income tax 72
Church tax 40
Cinema tax > Entertainment tax 62
Coffee duty 42
Company tax* 145
Corporation tax 45
Counter-cyclical surcharge* 146
Coupon tax* 147
Credit profits levy* 147
Customs Administration Act > Customs duties 48
Customs Code > Customs duties 48
Customs duties 48
Customs Tariff Ordinance > Customs duties 48
Dog tax 53
Ecological tax reform > Energy duty 58
Electricity duty 54
Energy duty 58
Entertainment tax 62
Excise duties 63
Extraordinary financial burdens > Income tax 72
Final withholding tax 64
166 | An ABC of Taxes
Fire protection tax 67

Gaming casinos levy 68
Gift tax > Inheritance and gift tax 83
Goods or services supplied free of charge > VAT 123
Hail insurance > Insurance tax 90
Hunting and fishing tax 69
Ice cream duty* 147
Import duty > Import VAT 70
Import VAT 70
Income from capital >
Income tax 72
Input tax > VAT 123
Insurance tax 90
Interest income deduction > Income tax 72
Intermediate products duty 92
Investment tax* 148
Joint heirs > Real property transfer tax 103
Lamp duty* 148
Licensing tax 93
Local taxes 94
Lottery tax > Betting and lottery tax 37
Marine hull insurance > Insurance tax 90
Match monopoly* 149
Matches and lighters duty* 149
Mortgage profits levy* 150
Motor vehicle tax 94
Net worth tax* 150
Nuclear fuel duty 99
Packaging duty* 150
Payroll tax* 151
Playing card duty* 151
Property levy* 152
Real property tax 100
Real property transfer tax 103
Road haulage tax* > Transport tax* 119
Salt duty* 153
Secondary residence tax 106
Securities tax* 154
Shareholder > Corporation tax 45
Solidarity surcharge 106

Sparkling wine duty 108
Special expenses > Income tax 72
Spirits duty 110
Spirits monopoly 112
Stability surcharge* 154
Stock exchange transactions tax* 154
Sugar duty* 155
Surtax on income tax and corporation tax* 155
Sweetener duty* 156
Tax identification number 114
Tax relief for single parents > Income tax 72
Tax-free allowance for maintenance purposes >
Tea duty* 156
Tobacco duty 115
Trade tax 119
Transactions taxes >
Transport tax* 157
VAT 123
VAT identification number > VAT 123
Wages tax 130
Wages tax card > Wages tax 130
Withholding tax on construction work 137
Withholding taxes on the income of non-residents 140
168 | An ABC of Taxes
Publisher:
Federal Ministry of Finance
Public Relations Division
Wilhelmstrasse 97
10117 Berlin, Germany
Photo credits:
Ilja C. Hendel
Jörg Rüger
Last Updated:
May 2016
Concept and design

Public Relations Division
Edited by:
Directorates-General III and IV
This brochure is published as part of the public relations work of the Federal Ministry of
Finance. It is distributed free of charge and is not intended for sale. It may not be used by
political parties, candidates or electoral assistants for purposes of election campaigning.
This applies to federal parliamentary, Länder parliamentary and local elections. In parti-
cular, the distribution of this brochure at campaign events or at information stands run
by political parties is prohibited, and political party-related information or advertising
shall not be inserted in, printed on, or affixed to this publication. The distribution of this
brochure to third parties for purposes of election campaigning is likewise prohibited.
Irrespective of when, how, and in what quantity this brochure reaches the recipient, it
shall not be distributed or used – even outside the context of election campaigns – in
any manner that suggests support on the part of the Federal Government in favour of
specific political groupings.

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An ABC of Taxes | 1

This booklet provides information about the different types of tax-

The Federal Ministry of Finance

Real property tax 78

Eliminated or expired taxes: an overview

Taxes and fiscal charges:

“Taxes shall mean payments of money, other than payments in Taxes

The term “taxpayer” as used in tax legislation is defined in sec-

The provisions concerning the implementation of the tax process

The provisions relating to the enforceability of tax assessment no-

This is followed by the rules on out-of-court remedies (the appeals Appeals

Finally, the Fiscal Code includes substantive regulations on tax Penalties

Tax consultancy (assistance in tax matters)

The group authorised to provide unrestricted assistance in tax

Persons who are professionally established in neither Germany nor

Other persons, businesses or entities may also render limited assis-

It is permitted for instance, for:

 trades organisations to establish service facilities to address their

 forwarding agents to provide assistance concerning import duties

The Tax Consultancy Act includes provisions on the tax advisory

Jurisdiction in tax matters

Jurisdiction in tax matters is exercised by specialised independent

Action may be brought before the fiscal courts in order to have an

Subject to certain conditions, an appeal against the decision of a

International and supranational tax law

Agreements on the avoidance of double taxation and tax evasion

Double taxation poses a considerable barrier to trade and invest-

These agreements are international treaties that provide a con-

In addition, the External Tax Relations Act pools the provisions on

As supranational law, the provisions contained in the Treaty on Eu-

The Parent-Subsidiary Directive, the Merger Directive, the Interest

A guidance note on the principles applying to international as-

In the field of VAT, international administrative assistance is gov-

Harmonised excise duties (on tobacco products, alcohol, alcoholic

The principles of international assistance in collecting (and recov-

Agricultural levies in the EU

 to increase agricultural productivity

As far as most agricultural products are concerned, the aim is to

Import levies Agricultural import levies are imposed on imports of agricultural

a) Regulation No 1308/2013 of the European Parliament and of the

The national implementing regulations on export levies are set out

There is currently no provision for export levies on agricultural

Sugar and isoglucose produced in excess of the quotas may not be

 Export these products to third countries without benefiting from

Failure to do so will result in the imposition of a surplus levy on the

In order to compensate for unforeseen fluctuations in production

Tasks and structure of the revenue administration

The revenue administration is that part of the public administration

Tasks and structure of the revenue administration

Supreme federal authority

Federal Ministry of Finance

Higher federal authorities of the federal revenue administration (narrowly defined)

Central Customs Authority Federal Central Tax Office Federal Office of

Local authorities of the customs administration

43 main customs offices (HZÄ) 8 customs investigation offices (ZFÄ

Federal Information Technology Centre

Ministry’s wider portfolio

Federal Financial Supervisory Federal Agency for Institute fo

trades organisations to establish service facilities to address their

forwarding agents to provide assistance concerning import duties

to increase agricultural productivity

Export these products to third countries without benefiting from

€7.38 for destinations in EU member states, EU candidate coun-

when it is used either inside or outside a tax warehouse as a sample

if the coffee is destroyed under the supervision of the tax author-