In Germany, as in many other European countries, income tax is deducted at source on salaries according to the PAYE system (pay-as-you-earn). Income tax includes mandatory contributions such as unemployment, pension and health insurance, plus an additional solidarity contribution fixed at 5.5% of your monthly salary.
Germany has signed agreements with hundreds of countries to avoid double taxation. For a complete countries list, please visit the German Ministry of Finance website.
Requirements for taxable residents
If you have worked more than 183 days in Germany and if your country has signed agreements with Germany to avoid double taxation (Doppelbesteurung), you must pay income tax in Germany. The fiscal year in Germany runs from January 1 to December 31. Non-residents are taxed on their German income only.
Tax brackets are divided into 6 categories based on taxpayers' civil status (married, unmarried, with children etc.). Tax allowances and deductions may apply (professional expenses, mileage expenses etc..) If you're self-employed, you must pay for your income tax every quarter (based on your own income estimates) during the first year of activity. The following year, you will need to complete a single tax return. For more information, contact a tax advisor or contact the tax authorities in your municipality.
Tax rates vary from 15% to 45% of your income.
File your tax return
Not everyone is required to file a tax return (Steuererklärung), however, it is always recommended. In certain cases, German residents have to make a tax return (Veranlagungspflicht), for example when working for several employers, if you have an additional income such as through rent or being on supplementary benefits like child support, etc.
The tax return has to be filed before the 31st of May. Additional time is granted if your tax return file is completed by a tax adviser.
After obtaining your residency certificate the Finanzamt will have automatically assigned a tax identification number (Steuer-Identifikationsnummer) to you that you will keep lifelong and which is valid throughout all Bundesländer. This tax ID number is important and will be needed for many other administrative procedures in the country.
Additionally, when having sent your first tax declaration or registering your own business you will also receive a local tax number (Steuernumer) allocated by your regional Finanzamt and which may change when moving house or getting married. Therefore you may go through several Steuernummern during your stay in Germany.
Thanks to the electronic tax card, all relevant tax changes made at your registry offices (Melderegister) such as marital status or the birth of a child etc. are automatically submitted to your employer to be taken into account for your wages and tax deductions. Your employer is required to record all wages and tax deductions for the last fiscal year which you then must attach to your tax return file, including all supporting documents and certifications related to your tax allowances, and send your file to your local tax office (Finanzamt).
Good to know:
For questions regarding your tax return, declarations, applications and certificates, you can check with your local Finanzamt.
Most Germans use tax consultants when owning a business or earning additional money through property. However, even single households use tax declaration software like Smartsteuer or SteuerSparErklärung to submit the declaration online. There are many solutions available around €15 to €35 and you should check which suits your situation best.
The VAT rate on most goods is fixed at 19%.