There are various tax obligations that affect different individuals that carry out short-term rentals in Germany. However, all short-term rental owners are obligated to pay Value Added Tax (VAT), you may also be required to pay either rental income tax or business tax depending on the type of accommodation used for the rental and the services rendered to guests, other taxes may also apply such as municipality tax, and tourist taxes that you are required to collect from guests and remit to the authority. The meaning of the various taxes and how they apply to you are explained below;

VAT: Short-term rental operators are required to collect 7% VAT from their guests. However, if your turnover for the previous year is 22,000 euros and you do not expect your turnover to exceed 50,000 euros in the current year, you qualify as a small business you do not have to charge your guests VAT, but your rental income is subjected to VAT and no deduction is allowed.

Tourist Tax: this tax is popularly known as Kurtaxe or municipality tax. The fees differ from state to state because they are determined by the state government and tourism association. Tourist taxes, for instance, range from 1.3 euros per person per day in Dresden to 5% of the cost of lodging in Berlin and Cologne.

Business Tax: the income realized from the rental of a residential property for a short period is considered a business tax if additional services such as catering services are offered. A short-term rental income is also considered a business tax if the income exceeds 24,500 euros tax. When this occurs the trade tax also applies in addition to the business tax. However, the exact trade tax rate varies depending on the municipality and the tax is reported on a trade tax return.

Rental income tax: this is the amount of tax you pay to the government for income that is derived from the use of your property for short-term rental. It is declared on your personal income return form, that, is Form V. The percentage charged for the tax varies depending on your personal income tax rate. However, you may not be required to pay taxes if you carry out the rental in your primary residence and earn 520 euros per year.

Traditional employees, civil servants, and retirees that carry out short-term rentals are also exempted from taxes if they earn less than 410 euros on top of their income per year from short-term rentals. The additional 410 euros earned is regarded as a supplementary income. Supplementary income between 410 and 820 euros per year must be filed in the tax return and it is taxed at a reduced rate. If your supplementary income exceeds 820 euros, it will be taxed in full.

However, income-related expenses such as cleaning, advertisement, maintenance fees, etc., incurred while subletting and allowances are deductible from rental income tax. the case of higher income minus income-related expenses taxes must be paid on the entire income. These expenses could include costs for advertisements as well as cleaning costs while subletting.

The income of an entire property used exclusively for short-term rental is also subjected to passive rental income.

NOTE

1. The most significant allowance is the baseline tax-free amount, which as of 2021 was 9,744 euros for singles and 19,488 euros for married couples. Any income up to this amount, including rental income, is not taxed.

2. Germany requires tax forms to be submitted by July 31 of each year.

3. Check with your local jurisdiction to be informed if you are required to pay municipality tax or tourist tax and also the exact amount you are required to charge your guests.