How to do taxes in Germany

The German Tax System

Before you move to Germany, it’s good to be familiar with the taxation system – this will be of utmost importance to those who will be working in the country. In Germany, the main taxes are income tax and social security contributions as well as solidarity tax, VAT, and church tax. Below, we answer the most important questions such as “What is the German income tax rate in Germany?” and give more details on the tax types and classes.

Individual income taxes in Germany

Before you start working in Germany you should get at least some brief knowledge about the individual income tax, the tax classes and other taxes.

Anyone who resides in Germany and is employed there is subject to individual income tax (Einkommensteuer), although there is a minimum untaxed allowance of up to 9,169€.

What is income tax?

Income tax is money paid to the government from your gross earnings. Your employer will automatically deduct any tax due from your gross paycheck and pay it to the German tax office. Your employer will also deduct any social security contributions.

When did income tax start?

To go way back, income tax in some form first began in Ancient Egypt. Income tax in Europe was rolled out from around the 18th century, usually when a country needed to fund a war. The German word for tax is Steuer, which translates, in one sense, as ‘duty’ – which is logical seeing as individuals are obliged to pay it towards national public funding.

What is the tax rate in Germany 2019?

The minimum taxable income is 9,169€ (no tax is charged under this amount). The tax rate starts at 14%, rising in a series of income tax brackets to 45% for the highest earners (over 265,327€).

Progressive tax: a definition

Germany has a progressive taxation system. A country with a progressive tax system such as Germany charges more tax to higher earners on a sliding scale.

How much will I make after taxes?

You need to calculate your monthly (or weekly) wage and then calculate how much will be deducted for income tax and social security contributions based on the bracket you will fall into.

Use an online German income tax calculator to find out how much you should take home after tax and social security contributions.

Advantages for Married Couples

If you are relocating to Germany with a long-term partner, this may be the time to get married; married people in Germany enjoy significant tax allowances.

German Tax Classes

Learn more about the German Tax System and the so called Steuerklassen.

There are six tax classes in Germany (called Steuerklassen), and the one you fall into will affect which rate you are taxed at.

What are the tax classes in Germany?

  • Class I = Single/widowed/civil partnership/divorced. Married persons not in tax classes II, III or IV.
  • Class II = Single but entitled to single parent allowance.
  • Class III = Married but spouse does not earn wages/is classified under tax category V/recently deceased.
  • Class IV = Married (not separated); both earning and residing in Germany.
  • Class V = Married but one spouse is classified under tax class III.
  • Class VI = Individuals on multiple wages from more than one employer.

Income tax declaration

If you work in Germany full-time or during your studies you need to know the basics about German income tax.

All those who are self-employed in Germany are expected to file an annual tax declaration. The tax year in Germany runs parallel with the calendar year, which means you should ideally be submitting your tax return in January each year, although the deadline is the 31st May.

Make sure you include all deductible costs such as insurance and maintenance. This will result in an assessment of how much you owe (or are owed) for the previous year. To get an idea of how much this will be and to help you budget, you can use a self-employment income tax calculator.

Those who are employed and taxed at source are not required to do a tax return unless they have changed jobs during the year or earned an additional self-employed income.

Although employed individuals are not required to do a tax return, it might just be in your interest to do one. If you have not been in Germany for a full tax year, for example, you may be entitled to a tax refund. Again, the help of a Steuerberater or other tax support services will be invaluable here.

How to pay less taxes

Tax declaration

Self-employed people are expected to file an annual tax declaration. For help you should go to a "Steuerberater".

Tax refund

Although employed individuals are not required to do a tax return, sometimes it is wise to do one: If you have not been in Germany for a full tax year you may be entitled to a tax refund.

Deadline

The deadline for submitting the tax return is the 31st May. The tax year in Germany runs parallel with the calendar year.

Tax advisor

It is highly advisable to use the services of a tax advisor or Steuerberater to file your tax return and even just to calculate estimates for what you do or will owe as a freelancer in Germany.

Other taxes

As well as income tax and social security contributions, there are several other significant taxes in Germany that you should be aware of, including solidarity tax, church tax, and VAT.

What is church tax in Germany?

Church tax (Kirchensteuer) is paid by every registered member of a Christian or Jewish congregation. It is typically collected at source from your gross wage, along with income tax and social security contributions. Church tax is charged at 8-9% of your gross salary.

What is Solidarity Tax in Germany?

In addition to income tax, everyone who earns above 972 € pays a Solidarity Tax (Solidaritätszuschlag) contribution of up to 5.5%, which again is removed at source from your wages. This tax was introduced in 1991 to rebuild and invest in Eastern Germany after reunification. It is still in place to help finance the ongoing costs associated with a unified Germany.

How much is VAT in Germany?

Value Added Tax, or VAT, (Mehrwertsteuer) is charged on all luxury or non-essential items and services in Germany. The current rate for standard VAT stands at 19%. Some items such as books and flowers have a reduced VAT rate of 7%.

Private health insurance

Seconded employees in Germany are advised to take out private health insurance, although EU citizens will be able to access some basic medical care with their EHIC - Electronic Health Insurance Card.

Seconded employees in Germany

What should I consider when working as a seconded employee?

Many people who move to Germany do so for work because they are seconded, either at their own request or that of their employer. Anyone who is seconded continues to be employed by the same company, which means seconded employees remain on the payroll of their home country and will continue to pay tax at home.

They therefore do not need to pay tax in Germany. Those who are paid by their employer in the country where they pay tax are also not obliged to make social security contributions in Germany. This goes for all EEA countries, but many other countries have similar bilateral agreements with Germany, too. This secondment rule typically applies to secondments of up to two years, although it is possible for this to be the case for up to five years.