EXPLAINED: In which parts of Germany is property tax increasing?

A survey by the German Chamber of Industry and Commerce (DIHK) has revealed that every seventh municipality with over 20,000 residents raised their tax rate this year.

Property tax is an amount that homeowners and businesses have to pay and is based on their property's value. Unlike one-time property purchase taxes, the property tax is annual, affecting both property owners and renters, as landlords can pass this tax onto tenants through utility bills. 

The amount of tax paid largely depends on the property's value and the building on it. However, local governments have the final say on tax rates, which can make a big difference. For instance, two identical houses might have very different taxes in two municipalities: one might pay €100 while the other could pay up to €1000 annually.

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DIHK's analysis for this year showed Gladbeck in North Rhine-Westphalia and Oberursel in Taunus having some of the highest rates, while Ingelheim am Rhein has one of the lowest. 

The most significant increases this year were for property owners in the states of Mecklenburg-Western Pommerania, Rhineland-Palatinate, and Hesse. The largest increase was in Bad Homburg with a plus of 345 percentage points, followed by Xanten with a plus of 200 points and Oberursel with an increase of 197 points. 

One of the reasons for the tax increases is that some municipalities are trying to cover their financial shortfalls through increased revenues.

These taxes are vital for the local government's revenue, as they contribute to about 12 percent of their total tax income. This money is used for various local projects, like roads, swimming pools, and theatres. 

Towns are also getting ready for an upcoming property tax reform and are preemptively raising their rates to ensure future revenue. 

Business tax hikes

Fewer municipalities, however, have increased their business taxes: 51 of the 701 saw their rates increase from last year, but these are primarily in smaller places. Seven municipalities lowered the business tax rate, according to the DIHK survey.

Oberhausen and Mülheim an der Ruhr had the highest rates, while Leverkusen and Monheim in the Rhineland had the lowest. These rates influence where businesses choose to set up. For instance, a medium-sized business with an annual profit of €2 million would pay about €35,000 more in business tax in Dormagen, North Rhine-Westphalia, than in nearby Grevenbroich.

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In recent years, municipalities have seen record incomes mainly from the business tax. Last year, statistics showed nearly a 15 percent increase from the previous year.

Revenues from property taxes also increased by two percent, bringing the total income from both taxes to €85.5 billion, a 12.4 percent increase from the previous year.