Frankfurt

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Taxes

Overview of the tax system in Frankfurt, including income tax, VAT, and other relevant taxes.

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Comprehensive Guide to Taxes in Frankfurt, Germany

Frankfurt, as part of Germany, follows the national tax system, which is regulated by federal laws. Taxes in Germany are complex and comprehensive, covering various aspects of income, consumption, and property. Below is a detailed guide to help visitors and immigrants understand the tax system in Frankfurt.

1. Types of Taxes in Frankfurt, Germany

a. Income Tax (Einkommensteuer)

  • Who Pays?
    Residents and non-residents earning income in Germany. Residents are taxed on their worldwide income, while non-residents are taxed only on income earned in Germany.
  • Rates:
    Germany has a progressive income tax system. The rates for 2023 are as follows:
    • Income up to โ‚ฌ10,908: 0% (tax-free allowance)
    • โ‚ฌ10,909 to โ‚ฌ62,809: 14% to 42% (progressive rate)
    • โ‚ฌ62,810 to โ‚ฌ277,825: 42%
    • Above โ‚ฌ277,826: 45% (top tax rate, known as "Reichensteuer" or wealth tax)
  • Solidarity Surcharge (Solidaritรคtszuschlag):
    An additional 5.5% of the income tax amount is levied for higher earners to support economic development in former East Germany. However, most middle-income earners are exempt from this surcharge as of 2021.
  • Church Tax (Kirchensteuer):
    If you are a member of a recognized religious community, an additional 8-9% of your income tax is levied as church tax. In Hesse (Frankfurt's state), the rate is 9%.

b. Value-Added Tax (VAT, or Mehrwertsteuer)

  • Who Pays?
    Consumers pay VAT on goods and services.
  • Rates:
    • Standard rate: 19%
    • Reduced rate: 7% (applies to essential goods like food, books, and public transportation)
  • How It Works:
    VAT is included in the price of goods and services, so you donโ€™t need to calculate it separately. Businesses collect VAT and remit it to the tax authorities.

c. Property Tax (Grundsteuer)

  • Who Pays?
    Property owners in Frankfurt.
  • Rates:
    Property tax is calculated based on the assessed value of the property (Einheitswert) and a municipal multiplier (Hebesatz). In Frankfurt, the multiplier is relatively high compared to other cities in Germany.
  • How It Works:
    The tax is paid annually, and the amount depends on the size, location, and use of the property.

d. Capital Gains Tax (Kapitalertragsteuer)

  • Who Pays?
    Individuals earning income from investments, such as dividends, interest, or the sale of assets.
  • Rate:
    A flat rate of 25% applies, plus the solidarity surcharge (5.5% of the tax amount) and church tax if applicable.

e. Trade Tax (Gewerbesteuer)

  • Who Pays?
    Businesses operating in Frankfurt.
  • Rates:
    The trade tax rate is determined by the municipality. In Frankfurt, the effective rate is approximately 16.1% of taxable profits.
  • How It Works:
    This tax is deductible from corporate income tax.

f. Inheritance and Gift Tax (Erbschaft- und Schenkungsteuer)

  • Who Pays?
    Individuals receiving an inheritance or gift.
  • Rates:
    Rates range from 7% to 50%, depending on the value of the inheritance/gift and the relationship between the giver and receiver. Close relatives benefit from higher tax-free allowances.

2. Tax Calculation and Payment Procedures

a. Income Tax

  • Calculation:
    Employers deduct income tax directly from employees' salaries (pay-as-you-earn system). Self-employed individuals and freelancers must calculate and pay their taxes quarterly.
  • Filing a Tax Return:
    • Filing is mandatory for self-employed individuals, freelancers, and those with additional income (e.g., rental income).
    • Employees may file voluntarily to claim deductions (e.g., for work-related expenses, childcare, or medical costs).
    • Tax returns are filed online via the ELSTER portal (Germanyโ€™s official tax filing system).
  • Deadlines:
    • For employees: July 31 of the following year.
    • For self-employed individuals: July 31, or later if using a tax advisor (extensions may apply).

b. VAT

  • Payment:
    Businesses must register for VAT and file monthly, quarterly, or annual VAT returns, depending on their turnover.
  • Deadlines:
    VAT returns are typically due by the 10th of the following month.

c. Property Tax

  • Payment:
    Property tax bills are issued annually by the local tax office (Finanzamt). Payments are usually made in quarterly installments.

d. Trade Tax

  • Payment:
    Businesses must file trade tax returns annually. Payments are made in advance quarterly, with adjustments at the end of the year.

3. Local Considerations and Services

a. Tax Identification Number (Steueridentifikationsnummer)

  • Every resident in Germany receives a unique tax ID upon registration (Anmeldung) at the local Bรผrgeramt (citizenโ€™s office). This number is required for all tax-related matters.

b. Tax Advisors (Steuerberater)

  • Tax laws in Germany are complex, and many residents and businesses hire tax advisors to ensure compliance and optimize deductions. Fees for tax advisors are regulated and depend on the complexity of the case.

c. Taxpayer Support

  • The local tax office (Finanzamt Frankfurt) provides assistance for basic tax queries. However, they do not offer personalized advice.
  • Volunteer-based organizations, such as Lohnsteuerhilfevereine, help employees with tax returns for a small annual fee.

d. Cultural Considerations

  • Germans take tax compliance seriously, and evasion is heavily penalized. It is culturally expected to be transparent and accurate in tax matters.
  • The tax system is designed to be redistributive, with higher earners contributing more to social welfare.

4. Tips for Visitors and Immigrants

  • Register Early:
    If you plan to stay in Frankfurt for more than three months, register your address at the Bรผrgeramt to receive your tax ID.
  • Understand Double Taxation Agreements:
    Germany has agreements with many countries to avoid double taxation. Check if your home country has such an agreement.
  • Claim Deductions:
    Common deductions include work-related expenses, health insurance premiums, and childcare costs.
  • Language Barrier:
    Most tax documents and services are in German. Consider hiring a bilingual tax advisor or using translation services.

5. Useful Resources

  • ELSTER Portal: www.elster.de (for online tax filing)
  • Finanzamt Frankfurt:
    Address: GutleutstraรŸe 114, 60327 Frankfurt am Main
    Phone: +49 69 2545 0
    Website: www.finanzamt.hessen.de
  • Lohnsteuerhilfevereine: Search for local tax assistance clubs in Frankfurt.
  • German Tax Authority (Bundeszentralamt fรผr Steuern): www.bzst.de

By understanding the tax system in Frankfurt, you can ensure compliance and take advantage of deductions and benefits. If in doubt, consult a tax advisor to navigate the complexities of German tax law.