German Upper House Approves 'Wealth Tax'

by Ulrika Lomas, Tax-News.com, Brussels

11 July 2006

Germany's upper house of parliament, the Bundesrat, has passed a new law which will give effect to the 'wealth tax' on individuals and couples from next year.

The passing of the legislation in the upper house follows its approval in the lower house last month.

Under the bill, individuals earning more than EUR250,000 a year (US$316,000), and couples earning more than EUR500,000 a year will face a 3% tax increase from 2007, as the top rate of income tax rises to 45%.

However, small family-owned companies, which typically pay income tax rather than corporate tax, have been spared from the latest tax hike given the importance of maintaining business confidence as the coalition government attempts to nurture the country's fragile economic recovery.

Self-employed professionals such as doctors and lawyers will also be exempt from the tax hike.

The bill also abolish tax breaks for commuters, and the measures will go into effect at the same time as a 3% hike in value added tax to 19% on January 1, 2007.

The Finance Ministry has estimated that the tax package will raise an additional EUR18 billion ($23 billion) in revenues between 2007 and 2010.

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