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TAXES in Germany

Taxes in Germany

TAXES in GERMANY

Travelling to a New Country is always an exciting moment but as soon you start working and earning in Germany the most commonly heard word is TAX. The terms “Taxation” and “Tax Returns” bring so much fear and confusion to expats, especially when the system is not very straightforward and filled with complicated German words.

Vanakkam Germany & SHORTAX Team provides you all the necessary knowledge and information about the types of taxes in Germany, who should pay taxes, how to get maximum tax returns and much more.  Keep reading to find out more about the topic of taxes and learn about the system of tax returns!

INTRODUCTION

Tax refers to the compulsory monetary contribution made to the revenue of a country that is levied on the residents – it comes from income of the workers, business profits, cost of goods, services and transactions.

In Germany, whether you are a citizen or resident, the law requires you to pay taxes. The Federal Government “Bundersregierung” is in charge of the tax collection, which is done locally by the tax offices called “Finanzamt”. If you are an expat, employed in Germany, you would have noticed the term “Lohnsteuer” on your paycheck. This deduction is the monthly tax on your income. However, if you have your business, second job or a freelancer, then you need to submit the annual tax return, so the government calculates the income tax that you need to pay.

Who Should pay taxes in Germany?

Almost everybody who lives in Germany pays taxes. Anybody who earns an income, either through employment, self-employment, capital investment, agriculture and many other revenues has to pay income tax. In short, those who receive an income (whatever the means) should pay tax to the government. Taxes are also paid by those who buy products and services. If you buy a house or car, then you need to pay different type of taxes. Read on to learn more about different types of taxes in Germany.

       TAX TERMS
File Tax Return Germany

The terms “Taxation” and “Tax Returns” bring so much fear and confusion to expats, especially when the system is not very straightforward and filled with complicated German words like Steuer ID, Steuernummer. Einkommensteuer, Lohnsteuer etc.. In this article we will give you a short overview about the basic terms one must know

  TAX SUBMISSION
Double Taxation

THREE Different Options available to submit the TAX SUBMISSION.

  • Online Software
  • TAX Consultant
  • Lohnsteuerhilfeverein
        TAX CLASS
TAX CLASS IN GERMANY

The Finanzamt allocates a tax class to you based on your marital or employment status. There are tax classes from 1-6. Read this article to know more about which tax class you belong to, benefits of tax classes and how to change your tax class

TAX slabs

The tax system in Germany is progressive, which means higher the income, higher the taxation. The taxable income is calculated by subtracting the deductions and special expenses that are determined by the Finanzamt
The tax-free income limit for single persons is €9,744 and married couples is €18,816. If your income exceeds this limit, then you are liable to pay tax between 14% and 42%.
The tax slab for the year 2021 is as follows:
Tax Slab 2021
Income rangeTax Rate
Up to €9,7440%
9,745–€57,91814–42%
57,919–€274,61242%
274,613 and above45%

What is the First step to file tax?

To be able to file taxes, you need to have a SteuerID (tax identification number) and a tax number. You also need to have a tax bracket.

The terms Tax ID and Tax ID sound very similar, thus causing confusion. Many expats are anxious about a variety of German technical terms when it comes to taxes and similar sounding words cause more chaos in their minds. Read this article to find out what is STEUER ID and STEUERNUMMER & how to get your SteuerID, if you lose them, What are the advantages of having them.

 

File Tax Return Germany
TAX SUBMISSION DEADLINE
TAX SUBMISSION DEADLINE

German financial year is from January-December. To claim tax refund, you can submit the “Income Tax Return”. Depending on how much income you earn and the expenses you claim, you are eligible for getting back some of the tax you paid every year. There are some categories of people who compulsorily have to submit their tax returns. For others, it is a voluntary process that can be used to check if they are paying too much tax.

There are deadlines to submit tax returns for the financial year. Read here to find out when these deadlines are!

PAYSLIPS & TAXES

If you are employed in Germany, then you are automatically paying “Lohnsteuer” which is deducted monthly from your paycheck. Wondering about the keywords used in the Payslip? 

If you still want to check if you are paying excess taxes or want to claim some expenses, you can voluntarily submit your tax returns. However, if you lost your paychecks and do not know how to fill the tax return form, read this article.

Income tax rates in Germany
English Tax Software
How to submit TAX return?

The old school way to file tax is to pick up the “Income Tax Return” Forms from FINANZAMT. This can nowadays be filled easily via the ELSTER Software online FREE. There are many software available today to help file taxes. Find the best software to help you file taxes easily. If you do not want to take up the task of declaring the taxes yourself, you can take the help of a Steuerberater (Tax Consultant) or a Lohnsteuerhilfeverein. To find the difference between the two and choose the right person help for you, read about the differences here.

TAX Deductions

There are many deductions that reduce your taxable income, hence reducing the amount of tax you pay every year. Some examples are travel costs to office, relocation costs, social security contribution, charity, etc. If you have children, you can benefit from declaring childcare costs and claim child benefits. In order to benefit from tax deductions, you will need to submit tax return. Read to find out what categories of tax deductions are applicable to expats.

Tax Deductions
Double taxation
Double taxation

If you are an expat living in Germany and you moved during the financial year, it is possible that you paid taxes in both countries. To ensure this does not happen, Germany has a double taxation agreement with many countries. Only the income which you earned in Germany will be used to calculate your taxes. It is called a double taxation treaty. It is a method of exemption with progression. It means that you won’t be taxed on your foreign income, the amount of your total (foreign + local) income will determine under which tax bracket your local income is taxed.

MEET OUR TAX SPECIALISTS

 

Vincenz works in a very well-known tax firm in Munich and already advises well over 200 international citizens who are taxable in Germany as well as a large number of freelancers. Vincenz developed the idea of offering taxable private individuals the know-how and advantages of a renowned tax firm at an unbeatable price. Shortax is the result.
OUR TAX SPECIALISTS

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