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Germany - Taxation

Everyone who is resident in Germany or who has an income from Germany is subject to income tax on salaries, self-employed earnings and other sources of income, although there are various exemptions. Foreign nationals must obtain a tax registration card once they start working in Germany. Employers normally deduct tax direct from employees' salaries, along with social security contributions. All employees and self-employed people are required to complete an annual tax return.

Germany is currently introducing major tax reforms, which should benefit the individual taxpayer. The main change is the abolition of provincial income taxes, although federal rates are being increased. The personal tax rate now ranges from 15% to 42% of income. There is also a "solidarity surcharge" of 5.5%, which contributes to the costs of reintegration of the country. The corporate tax rate is being reduced to 25%.

In addition to personal income tax, there are a large number of different types of tax in Germany including sales taxes, automobile tax, inheritance tax, property tax and church tax.

Value Added Tax is payable at 19% on most purchases, and at a reduced rate of 7% on some items such as food and books. Medical and insurance services, and export of goods and services are mostly exempt from VAT. Additional sales taxes are payable on a number of products including alcohol and tobacco, tea and coffee and gasoline.

Residents who are officially affiliated with one of Germany's established churches are required to pay a church tax of around 8% of their salary. Without such an affiliation, it may not be possible to use the church for services such as marriage, baptism or burial.

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