Comparison of Tax Systems: Key Differences between France and Germany

Navigating another country’s tax system can be complex, especially when moving from France to Germany. Here is an overview of the main tax differences French expatriates should be aware of to optimize their financial situation in Germany.

Individual Income Tax

In France, income tax ranges from 0% to 45%, calculated based on the family quotient. In Germany, tax rates also range from 0% to 45%, but the “Splitting” system allows married couples to divide their taxable income by two before calculating the tax. This difference can significantly impact your tax burden.

Corporate Tax

In France, corporate tax is set at 25%, including a social contribution on corporate profits. In Germany, the basic corporate tax is 15%, to which a 5.5% solidarity surcharge and a local business tax (Gewerbesteuer) are added. Companies must therefore consider these various contributions to assess their overall tax burden.

Value Added Tax (VAT)

In France, the standard VAT is 20%, with reduced rates of 10%, 5.5%, and 2.1% for certain products and services. In Germany, VAT is generally 19%, with a reduced rate of 7% for specific products and services. This difference can affect the cost of goods and services you purchase in each country.

Wealth Tax

In France, net real estate assets exceeding 1.3 million euros are subject to the real estate wealth tax (IFI). In contrast, Germany does not levy a wealth tax, which can influence your estate planning if you own significant assets.

Local Taxes

In France, local taxes include property tax, housing tax (being phased out for primary residences), and the CET (Territorial Economic Contribution), which is composed of the CFE (Business Property Contribution) and the CVAE (Corporate Value Added Contribution)). In Germany, property owners must pay property tax (Grundsteuer), and businesses must pay the Gewerbesteuer, a local business tax.

Social Contributions

In France, social contributions (the CSG “General Social Contribution” and the CRDS “Contribution to the Repayment of Social Debt”) are high on earned income, replacement income, and capital income. In Germany, although direct social contributions on income are lower, social security contributions on wages (for health, retirement, unemployment, and long-term care) are significant. This can affect your net income and social contributions.

Conclusion

Understanding these tax differences is essential for effective management of your finances as an expatriate. Our specialized financial advisors can help you navigate these complexities and optimize your tax situation in Germany.

Contact us today for a personalized consultation and ensure you make the most of your cross-border tax situation.