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Income tax in Germany

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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 categories

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%.

 Useful links: 

German ministry of finance www.bundesfinanzministerium.de
German Central tax office www.bzst.de
Electronic tax card ELSTER www.elster.de

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5 Comments
TominStuttgart
TominStuttgart
3 years ago

I agree with what has been written concerning the complexity of German tax law but have to add that I have found the tax authorities in Stuttgart to be generally friendly and helpful. I have often been late in filing my returns and know a number of people who owed a lot of back taxes and the bureaucrats were actually quite reasonable in giving extensions and coming up with payment plans to get people on back track again rather than just punishing them. In America the IRS often punishes people for the slightest mistake to make an example of them to scare people into staying honest. I have to disagree with Beppi's statement that ?filling something incorrectly in your favor is a criminal offense and can get you in jail, deported, or in the best case fined." WRONG - one is actually allowed and encouraged to take every reasonable deduction and is given the benefit of the doubt. If a deduction is disallowed, then they simply recalculate the resulting tax due but do not give punishments for honest mistakes or reasonable interpretations of the rules. Fraud gets punished but what can be seen as a simple mistake or reasonable interpretation (although rejected) is not. And in the courts, people often win against the tax authorities. The key is to be properly informed about what you are doing. The German tax bureaucrats are obliged to answer direct questions but not actually suggest what to do. For example, if you ask which is the best strategy to minimize taxes in a given situation they will say you need to go to a tax advisor. It saves the bureaucrats any effort but it is incorrect if they insist that you are required to have a tax advisor. But if you directly ask; can I do this? Or what are the limits for that, then they are obliged to tell you. I had a tax advisor do my returns my first 2 years in Germany and they charged me about 10% of my total income and basically just redid the calculations I had prepared for my American tax returns. (Yes, Americans, even if you end up not owing any tax, you still have to submit returns to the IRS on ALL of your income world-wide!). Despite this cost, they didn?t really give me any advice nor look for ways to save taxes. But with the copies of all of the forms they prepared, I have since then done my own taxes using the Taxman program (with handbook and CD) that comes out yearly. And there are a number of such programs on the market as well as clubs that help out wage earners (not self-employed) with their returns for free. The program organizes and makes all of the calculations and puts things in the proper categories but does require a good level of German and at least a basic feel for finances. A self-employed, low earner like me could probably fulfill the book keeping requirements just using Excel. If one does it themselves, they might need the occasional tip from an expert for unique or new things but the reality is that most thing concerning tax returns for most people are pretty routine and once someone has shown you how to do it ? one CAN do it themselves. Not only are tax advisors expensive but they like to insist that they have to take over and do everything and charge you a ton of money, so it helps to find one you can trust and just pay him for his time to answer specific questions.

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beppi
beppi
3 years ago

German tax regulations are the most complicated in the world and even locals struggle to fill their annual tax declaration correctly. Without very good German language skills and knowledge of the system, it is not advisable to attempt doing it yourself. Engage a tax advisor (Steuerberater) instead. Not only would you possibly miss out on tax-deductible items (there are hundreds of these!), but filling something incorrectly in your favour is a criminal offense and can get you in jail, deported, or in the best case fined. There are many tax advisors available. Their fees are fixed by law and not cheap.

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Peter Scheller
Peter Scheller
5 years ago

A comment on the first note: Income tax returns must be submitted to the tax authorities by 31 May of the following year (31 May 2012 for Income Tax Return 2011). The deadline 31 December is only applicable if a German Tax Adviser (Steuerberater) is filing the tax return. But every expatriate should use a tax adviser since German income tax law is complicated. And he or she will miss possible allowances or deductible expenses (job related or private). And most expats don't know that they have to declare also foreign source income in their German income tax return.

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Guest
Guest
5 years ago

other usefull links: http://www.somannscheller.de/category/internationale-steuern/anglo-american-platform/ http://iapa-online.com/category/countries/germany

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Guest
Guest
5 years ago

other usefull informations for expats: - There is an additional solidarity surplus charge(Solidaritätszuschlag)of 5,5% of the income tax - Income tax returns must be submitted to the tax office by 31 December if a German tax adviser (Steuerberater) is filing the tax return. - Be aware of the German trade tax (Gewerbesteuer)if you are self employed. - more interesting information you can find at http://iapa-online.com/category/countries/germany

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