Income tax (ESt) simply explained: forms, basic table, wage tax & Co.
Income tax – Most legal forms of business are subject to taxation. Depending on the legal form, income tax, corporate income tax, sales tax, trade tax and/or capital gains tax are due by law. Under certain circumstances, it is possible for some companies to be exempt from one or more of these types of tax. How much income tax do I have to pay? How do you calculate income tax? How much income tax do I pay? What do I pay income tax on? An overview! Back to: Taxes.
Income tax (ESt) – tax for natural persons
Income tax – ESt for short – is usually levied on the income of natural persons, according to their ability to pay. Income is understood as the sum of all income earned within the meaning of the Income Tax Act (EStG) minus the sum of all deductions relevant under tax law – such as any allowances. Taxable individuals are divided into self-employed persons, who generally have to pay their income tax themselves, and employees, whose income tax is withheld by their employer in the form of wage tax and paid to the tax office on their behalf.
Other taxes for businesses:
If you want to learn more specifically about taxes for real estate companies, you can learn more here:
Income tax in detail – collection, levy & tax liability
As a joint tax, this tax revenue is divided between the federal, state and local governments. The municipalities receive the rate applicable under federal law – currently 15 percent of wage tax and assessed income tax – while the remainder goes to the federal government and the states in equal shares. Overall, all natural persons are generally liable to income tax and must pay tax on their income derived from self-employed and non-self-employed activities. The basic principles of income tax law are as follows:
- Net principle
- Periodicity principle
- World Income Principle
- Principle of differentiated rates
- Ability-based taxation
Individuals resident in Germany are subject to unlimited tax liability; individuals resident abroad who earn income in Germany are subject to limited tax liability.
Allowance for low earners & Deductible business expenses
Natural persons with low income can use an allowance for themselves up to a current amount of 9,168 euros – this applies to both income from self-employment and income from non-self-employment. Entrepreneurs with income tax liability can also declare the following deductible business expenses in order to reduce their profits and, as a result, their taxable income:
- Rental costs
- Car costs
- Personnel costs
- Deductible input tax
- Sales tax paid
- Purchases of goods & services
- Expenses for low-value assets
Which companies are subject to income tax?
Most natural persons are charged with income tax. Therefore, this type of tax is particularly relevant for sole proprietorships (EU) and BGB companies (GbR). In addition, general partnerships (OHG) and limited partnerships (KG) are usually subject to income tax. However, income tax may also be obligatory for a limited liability company (GmbH) or a stock corporation (AG), if applicable.
Partnerships such as the general partnership (OHG) or the limited partnership (KG) are generally not subject to corporation tax or income tax, but the natural persons and legal entities with partner status belonging to them are. The profit generated by the partnership is subject to uniform and separate determination and is allocated directly to the individual partners in accordance with their legal form: Legal entities must charge their profit shares to corporation tax, natural persons to income tax.
- Partnerships: Natural persons with profit shares
Overview of company law forms
You can find more information about the different legal forms under the following links. Starting with the sole proprietorship and the registered traders… to the various partnerships and corporations… to other companies such as the family foundation – all the essential aspects of formation, liability, tax burden and more explained simply and understandably! First of all, an overview of the individual legal forms of companies:
- Sole proprietorship (EU)
- Small business
- Registered traders (e. K.)
- Silent partnerships
- BGB companies / civil law partnership (GbR)
- Limited partnership (KG)
- General partnership (OHG)
- Limited Liability Company and Company Limited Partnership(GmbH & Co KG)
- Limited Liability Company and Compagnie General Partnership(GmbH & Co OHG)
- Stock corporation (AG)
- AG & Co KGaA
- Partnership limited by shares (KGaA)
- Limited liability company (GmbH)
- GmbH & Co KGaA
- Entrepreneurial company / UG (limited liability)
- European Company / Societas Europaea (SE)
- SE & Co KGaA
- Stock corporation (AG)
- Other companies
- Foundations / Family Foundations
- Registered associations (e. V.)
- Registered cooperatives (e. G.)
Taxes in Germany: List
Corporation tax (KSt), income tax (ESt), capital gains tax (KapESt), turnover tax (USt), trade tax (GewSt) – who pays what? In this overview of the different types of taxes / tax forms in Germany, you will find relevant taxes for you as an individual and for your business, depending on which legal form you have chosen. Also, after the tax list: How does the tax cycle work around month-end closing, year-end closing and balance sheet? A little insight for those starting their first company. What taxes are there? Simple explanations, definitions, tax optimization, an insight into taxes.