Do you have to pay tax in Germany? What are the conditions applied? Find out in this article.
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 insurances, 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.
If you have worked more than 183 days in Germany and if your country has signed agreements with Germany to avoid double taxation, 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 trimester (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 of your municipality.
Tax rates vary from 15 to 42% of your income. Every German resident is required to file a tax return before May 31. Additional time is granted if your tax return file is completed by a tax adviser.
File your tax return
In practice, your municipality will send you your tax card directly by post mail. Upon reception, you must submit your tax card to your employer who is required to write down all wages and tax deductions for the last fiscal year. Once your card is completed by your employer, you must attach it 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").
The Finanzamt will assign a tax identification number to you that you will keep throughout your stay in Germany. This tax number is important and will be needed for many other administrative procedures in the country.
Good to know:
The VAT rate on most goods is fixed at 19%.