Living
Taxation
Reviewing the stub of your first German payslip might leave you in serious shock. In addition to the steep deductions for health insurance, unemployment insurance and the country’s pension programme, your employer will also be required to deduct federal income tax. Germany calculates tax on a sliding scale starting at 15% for anyone earning more than €7,700 per year and up to 42% of taxable income for those who earn more than €52,000. Anyone earning more than €250,000 per year is defined as rich and must pay an additional 3% in income tax. The government also adds a ‘solidarity surcharge’ to fund the absorption of the former East Germany. It usually works out to another 2% of your taxable income.
If you’d like to get an idea of how much you’d actually pay, in 2005 those that earned €15,000 paid an average €1,110 in income tax. This is well below the 15% cited above, but that’s because everyone gets a tax-free allowance of €7,664, and there are further deductions if you have children under the age of 18.
There are also special tax laws for married couples, who are taxed as couples rather than individuals. Those that earned €75,000 paid €23,550 in income taxes – which is below the 42% rate cited above.
Because of the automatic deductions, the German tax authority, known as the Finanzamt, only requires you to file a tax return when it asks for one – and it rarely does. However, it would be to your advantage to complete one each year. Although your employer will take into account things such as marriage and children, they won’t be able to consider other deductions you might take, so employers usually deduct too much. The only possible exception would be for anyone who doesn’t own their own house and has no investments or other potential sources for tax credits. There are thousands of potential deductions and only an accountant familiar with the hefty German tax code can help you identify them.
If you live in Germany for more than six months, you’ll be required to pay German income taxes. If you stay less than that, you might be able to get a refund of any deducted taxes. If you get caught dodging taxes in Germany, it’s likely you’ll be required to pay the taxes plus interest. If you’re a regular offender, however, there may be prosecutions.
If you’d like to get an idea of how much you’d actually pay, in 2005 those that earned €15,000 paid an average €1,110 in income tax. This is well below the 15% cited above, but that’s because everyone gets a tax-free allowance of €7,664, and there are further deductions if you have children under the age of 18.
There are also special tax laws for married couples, who are taxed as couples rather than individuals. Those that earned €75,000 paid €23,550 in income taxes – which is below the 42% rate cited above.
Because of the automatic deductions, the German tax authority, known as the Finanzamt, only requires you to file a tax return when it asks for one – and it rarely does. However, it would be to your advantage to complete one each year. Although your employer will take into account things such as marriage and children, they won’t be able to consider other deductions you might take, so employers usually deduct too much. The only possible exception would be for anyone who doesn’t own their own house and has no investments or other potential sources for tax credits. There are thousands of potential deductions and only an accountant familiar with the hefty German tax code can help you identify them.
If you live in Germany for more than six months, you’ll be required to pay German income taxes. If you stay less than that, you might be able to get a refund of any deducted taxes. If you get caught dodging taxes in Germany, it’s likely you’ll be required to pay the taxes plus interest. If you’re a regular offender, however, there may be prosecutions.
