INDIVIDUAL TAXES
SIGNIFICANT DEVELOPMENTS
For sales finalized after December 31,1998 the time limits for long-term capital gains are ten years for land and buildings and twelve months for securities and other assets.
For 1999, the employee monthly contribution to social security and unemployment taxes is limited to a maximum of DM1,139 for January-March and DM1,105 for April-December for an annual maximum of DM13,362.
As of January 1,1999 the employee monthly contribution to old-age medicare insurance is limited to a maximum of DM 54.
TERRITORIALITY AND RESIDENCE
All resident individuals are taxed on their worldwide income. Generally, individuals are deemed to be resident if they are physically present in Germany for more than six months in any one calendar year or for a consecutive period of six months over a yearend. Nonresident individuals are taxed (usually by withholding) on German-source income only.
Contrary provisions in double taxation treaties override German national law unless the latter is more favorable(from the German tax point of view only) to the taxpayer.
Nationality is not of itself a criterion for determining residence or tax liability, although it may serve as an indicator of residence in(unusual) cases of doubt.
GROSS INCOME
Employee gross income/Taxable compensation includes all remuneration, allowances and benefits-in-kind given to or provided for an employee. Benefits-in-kind are valued, in principle, at cost to the employer, although there are some cases of global allocations(mainly cars), mostly for administrative simplicity. Certain minor benefits-in-kind(such as annual employee outings) are not taxed. Reimbursement of an employee's relocation costs to Germany is not a taxable benefit, provided certain(basically adequate)limits are observed. There are no special concessions for foreigners.
Capital gains and investment income/Long-term capital gains are free of tax, while short-term gains totaling more than DM1,000 are added to an individual's taxable income. For any sales finalized after December31,1998 the time limits for long-term gains are ten years for land and building and twelve months for securities and other assets.
Special rules apply to the taxation of capital gains from the sale of a significant interest(10% or more)in a busiess.
Investment income is part of an individual's total income for tax purposes. It qualifies for an＂investor's allowance＂of DM6,000(as of 2000, DM3,000) per taxpayer and a global deduction of DM100 for related expenses, but otherwise does not lead to any special concessions. These amounts are doubled in the case of married taxpayers filing jointly.
If German-source interest and investment income other than dividends exceeds the above-mentioned investor's allowance, interest and surcharge withholding tax of 31.65% is automatically withheld at source.
German-source dividends are subject to an automatic dividend and surcharge withholding tax of 26.375%. The withholding tax is treated as a payment on account of the final income tax liability.
Short-term capital gains and investment income from abroad are taxed under normal German rules, subject to the provisions of the relevant double taxation treaty. If, under the treaty, they cannot be taxed in Germany, they are taken into account when determining the tax rate to be applied to taxable income.
DEDUCTIONS
Business deductions/Various properly documented and necessarily incurred business expenses may be deducted by an individual unless they are reimbursed by the employer. This includes the cost of traveling to and from work, business literature, business subscriptions, and professional dues. There is a blanket employee allowance for business deductions of DM2,000 per annum. To the extent actual employment-connected expenses
exceed the lump sum of DM2,000, they are deductible if they can be substantiated.
Personal allowances/The allowances shown below are deductible in computing gross income.
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