Whether you’re a German citizen or an expat, you are required by law to pay taxes if you earn money while living or working in Germany.
Taxes are levied by the federal government (Bundesregierung), federal states (Bundesländer) and municipalities (Gemeinden). Tax administration is shared between two taxation authorities: the Federal Central Tax Office (Bundeszentralamt für Steuern) and the approximately 650 regional tax offices (Finanzämter).
Tax revenue, derived from income tax, VAT, corporation tax and various other streams, is distributed between the federal government, states and municipalities.
Income tax in Germany
If you earn money in Germany, you are required to pay tax on your income. The German tax system operates a progressive tax rate in which the tax rate increases with taxable income. Most people will pay income tax through payroll deductions by their employer. If you have multiple professions, run your own business or are self-employed in Germany, you will be required to submit an annual tax return to work out your income tax (see below).
German Income tax rates 2019
The income tax brackets for 2019 are as follows:
|Less than 9.169 euros||0%|
|9.169 - 14.255 euros||14% to 24%|
|14.256 - 55.960||24% to 42%|
|55.961 - 265.236 euros||42%|
|More than 265.327 euros||45%|
Withholding tax (Lohnsteuer)
Withholding or payroll tax is income tax and other contributions that your employer withholds from your salary. This will apply to the vast majority of expats in Germany and means your rate of income tax has already been worked out and paid for you. If this is your only source of income, you are not obliged to submit a tax declaration.
The withholding tax is taken from your pay each month. When discussing salary and employment contract terms for a new job, it is important to be aware of this deduction. There is a large difference between your gross salary and your net salary once taxes have been paid.
The withholding tax levy comprises a tax on your salary (Lohnsteuer), national insurance contributions, taxes on “benefits in kind”, a solidarity surcharge, and a church tax:
Social security payments (Krankenversicherung, Rentenversicherung, Pflegeversicherung & Arbeitlosenversicherung)
Any employment income earned in Germany is subject to compulsory social security contributions covering the following areas:
- Health insurance (Krankenversicherung)
- Pension insurance (Rentenversicherung)
- Nursing insurance for disability and old age (Plegeversicherung)
- Unemployment insurance (Arbeitlosenversicherung)
These payments are usually shared between you and your employer, with your employer typically contributing 50%. Your share of contributions will be withheld from your salary and transferred to the relevant organisations. The total contribution for social security generally amounts to around 20-22% of your salary up to a specified maximum limit.
Benefits in kind (geldwerter Vorteil)
You may also be obliged to pay tax on anything deemed a “benefit in kind”, that is, perks or benefits you receive from your employer, such as the use of a car. Company cars are taxed at 1% of the car’s list price, including VAT. Shares given as perks or bonuses are also subject to taxes.
Solidarity surcharge (Solidaritätzuschlag)
Often called “Soli” for short, this 5.5% tax supplement is payable on all income tax above 972 euros. It was initially introduced in 1991 to cover the costs of German reunification, for instance paying the pensions and debts of the former East German government. This supplementary tax is also payable on capital gains and corporation taxes.
Church tax (Kirchensteuer)
When you register in Germany, you are asked to declare a religion. If you declare yourself Protestant, Catholic or Jewish you are liable to pay the church tax, which the tax office collects on behalf of religious organisations in Germany. It is currently 8% in Bavaria and Baden-Württemberg and 9% in all other federal states. If you have no declared religion, you will not pay church tax.
The German tax system allows for a relatively wide variety of deductions that can reduce your tax liability. You are also able to claim tax credits such as child benefits. Tax deductions are possible for the following types of payments:
- Employment expenses (unless already reimbursed by an employer)
- Relocation expenses
- Alimony payments to divorced or separated partners
- Charitable contributions to German charities
- Cost of childcare
- Expenses for education or schooling
- Social security contributions
- Church tax
- Mortgage interest payments (buy-to-let mortgages only)
In order to benefit from tax deductions, you will need to complete an annual tax return. Many employees in Germany submit one, even if they are not obliged to, to make sure they are not overpaying tax.
To get an idea of how much income tax you will have to pay, you can use this income tax calculator (German).
Annual Tax Return (Steuererklärung)
At the end of the financial year (which in Germany runs from January to December), you can submit a tax declaration to the Federal Central Tax Office to make sure you have been paying the correct amount of tax. On the basis of the figures you and your employer supply, the deductions you claim, and the amount of income tax you have paid in the previous year, the tax office will determine whether you are entitled to a refund. You can complete the forms on paper and submit them to the tax office, or do them using the online tax office system ELSTER (Elektronische Steuererklärung).
To find out whether you are required to submit an annual tax return, what deductions you can make to save money, and how the application process works, visit our Annual tax return page.
Business Taxes in Germany
Alongside regular income tax, the Federal Central Tax Office also imposes taxes on business income. Whether you pay VAT and corporation tax, and the amount you pay, depends on the size of your business and your annual turnover.
If you are thinking of starting your own business in Germany, a good accountant or financial advisor is essential to make sure you pay the correct taxes. On our business taxes page, you can find an overview of the different types of taxes you might need to pay as an entrepreneur.
Other taxes in Germany
You will encounter many other forms of direct and indirect taxation as an expat in Germany. This might include:
Licence Fee (Rundfunkbeitrag)
Since 2013, every residence in Germany has been required to pay the TV and radio licence fee (Rundfunkbeitrag), regardless of whether you own a TV or a radio. The rationale behind this is that in the modern world you can still access content via a computer or a phone. As soon as you register, you will most likely receive a letter from the Beitragsservice requesting payment. It costs 17,50 euros per household per month, no matter how many people are living there. You may be eligible for reduced payments or exempt if you receive benefits, are disabled, or are a student.
Motor vehicle tax (Kraftfahrzeugsteuer)
This kind of tax will apply to you if you own a car. The tax depends on fuel type and engine size, anything from five to 37 euros per 100cc. Vehicles first registered before June 30, 2009, are taxed according to their emission class. Vehicles registered after that date are taxed based on their carbon dioxide emissions. You can find out more on our Taxing a car in Germany page.
Dog tax (Hundesteuer)
If you own a dog in Germany, you are required by law to register it at your local tax office, where it will receive a tag (Hundemarke) confirming you have paid the licence. This usually costs somewhere between 90 to 150 euros per year for the first dog. The tax is higher for any additional dogs, to deter owners from having too many pets. Services dogs, such as guide dogs, are exempt, as are other pets.
Property sales tax (Grunderwerbssteuer)
You will be liable to pay a property sales tax if you are buying a house in Germany. This one-off tax applies when a property valued at more than 2.500 euros is transferred from one owner to another. The rate varies between federal states, from 3,5 to 6,5% of the property’s value.
Capital and capital gains tax (Abgeltungsteuer)
This type of tax applies when you make a profit when selling your property in Germany. The capital gains tax in Germany is currently a flat rate of 25%. You are exempt from this tax rate, however, if you have lived in the property for more than 10 years.
Inheritance and gift tax (Erbschafts- und Schenkungssteuer)
If you are a taxpayer in Germany, or you are the beneficiary of a German taxpayer, you will be taxed for any assets you may receive. The tax rate varies from 7% to 50%, depending on the value of the inheritance.
Real Property tax (Grundsteuer)
This tax is imposed by municipalities on properties in Germany. The amount of tax payable is calculated on the value of the property and the local tax rate (which varies from 0,26% to 1%)
Double taxation agreements
Double taxation agreements ensure that nobody has to pay tax on the same income twice. Technically, it would be possible for someone to be liable to pay tax in two countries - for example, if you’re a cross-border commuter.
Germany has double taxation agreements with multiple countries worldwide. You can see a full list of countries on the Federal Tax Office’s website. This means that income earned worldwide will be used to calculate your tax bracket and the amount of tax to pay on income in Germany. You will not be taxed by the German tax authorities on income earned elsewhere that has already been taxed.
If your country doesn’t have a double taxation agreement with Germany, you may be able to claim instead for a foreign income tax credit, which allows you to claim the foreign income tax you’ve paid against your German income tax bill. A tax consultant can help you with this process.
German Tax Penalties
If you file or pay your taxes late, fail to file your tax declaration or fail to declare income, you risk a hefty fine of up to 50.000 euros. You could also face a prison sentence.