OTHER SIGNIFICANT TAXES
21. Sales (Value-Added) Taxes
VAT is a tax on goods or services supplied in the course of
independently carrying on a business or other economic activity in Germany. Salaried employment is, therefore, outside the scope of the tax.
As a general rule, the place from which any goods are supplied or where the provider of services is established determines whether an activity takes place in Germany. However, there are exceptions, for example:
Service Where Supplied
In respect of immovable property Where land is situated
On movable goods Where goods are located
Conferences, exhibitions, entertainment, training, and education Where service is performed
Financial services, consulting services, most equipment Where recipient is located if leasing, use of intellectual property, and advertising the recipient is an entrepreneur
Supplies that do not take place within Germany are referred to as being outside the scope?of tax.
VAT is also due on goods imported into Germany from a country that is outside the EU and on goods that have been acquired?(i.e., imported) from other EU Member States under the EU Single Market procedures.
VAT is charged at the following rates, unless the goods or services are outside the scope of VAT or exempt from VAT:
Standard rate 15%
Lower rate on food, plants, books, etc. 7%
Exemptions apply, inter alia, to certain banking, insurance, and financial services, property transactions, education and health services, certain nonprofit-making activities, and sales and rentals of land and premises. The supply of goods to recipients outside of Germany also is exempt. Supplies that are not exempt are referred to as taxable supplies.
To avoid double taxation, credit is given for VAT paid on goods and services used for the purpose of making any taxable supply and any supply that is outside the scope of VAT if it would have been taxable if carried out in Germany. Credit for VAT paid is also given in respect of certain exempt transactions, e.g., exports. However, most exempt
transactions do not entitle the supplier to credit for VAT incurred, and, therefore, the underlying VAT represents a cost.
The principal mechanism for collecting the tax requires the
supplier (called a taxable person) to charge VAT on the goods or services supplied, to take credit for VAT paid on business expenditure, and to pay the net tax over to the authorities. However, for some transactions, e.g., the intra-Community supply of goods, the recipient of the supply of goods is required to account for the VAT due, rather than the supplier.
Special rules allow the recovery of VAT incurred by foreign
enterprises in Germany if the VAT is referable to the making of
supplies outside Germany.
22. Inheritance and Gift Taxes
A federal tax is imposed on estates and gifts at different rates with regard to the relationship of the persons involved. Several allowances, e.g., for business assets, personal belongings, and relatives, are available.
23. Taxes on Payrolls (Social Security)
In Germany, social security is not financed by taxes. Social security for employees is a comprehensive insurance scheme that includes three types of insurance. The first type old age or long-term disability and the second type unemployment insurance are institutions under public law, and all employees are compulsory members. Health insurance and insurance for nursing care the third type are organized both under public law and under private law; membership is compulsory for health
insurance and nursing care, up to a wage/salary level of DM 73,800 per year (new Federal States, DM 63,900) in 1997.
The basis of assessment for insurance contributions is the gross income of the insured employee up to DM 96,000 (in 1996) (new Federal States, DM 81,600) and for the purposes of health and nursing insurance up to the above-mentioned amount for compulsory membership. Any income in excess of this limit is irrelevant for the purpose of the assessment. These limits are adjusted on a yearly basis.
Both the employee and employer pay equal amounts of contributions, and the employer withholds the employee portion from his or her compensation. The amount is computed on a percentage basis in relation to the gross amount. The rates in 1997 are:
Old age and long-term disability 20.3% (employee and employer 10.15% each)
Health appr. 13.8% (6.9% each)
Nursing care 1.7% (0.85% each)
Unemployment
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