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Income tax in Germany

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

Conditions

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. 

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 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%. 

  Useful links: 

German ministry of finance www.bundesfinanzministerium.de
German Central tax office www.bzst.de

Last update on 31 October 2014 11:48:45

 Comments

  • TominStuttgart
    TominStuttgart 14 March 2014 13:13:42

    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.

  • beppi
    beppi 16 February 2014 14:34:13

    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.

  • Peter Scheller
    Peter Scheller 23 January 2012 14:03:32

    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.

  • Guest 23 January 2012 12:54:41

    other usefull links:

    http://www.somannscheller.de/category/internationale-steuern/anglo-american-platform/

    http://iapa-online.com/category/countries/germany

  • Guest 18 October 2011 12:09:03

    other usefull informations for expats:

    - There is an additional solidarity surplus charge(Solidaritńtszuschlag)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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