Taxes in Germany

The German tax system is a complex and structured system in which both generally accepted and unique taxes get along. Trying to figure it out for a person who is not familiar with the nuances of the local bureaucracy can be a difficult task. In addition to the usual income and corporate taxes, there are also special fees, such as the church tax or even the rain tax. Such ambiguity and confusion is connected not only with the period of the division of the country, but also with the cultural peculiarity of the German state — the strong power of the federal lands “Bundesländer”.

In this article, we will take a detailed look at what taxes apply in Germany, what tax classes exist and how they affect the amount of taxes. In addition, let’s figure out who is recognized as a tax resident of the country, and what this means for taxpayers. 

Tax residency in Germany

According to the German Tax Code (Abgabenordnung), a person is considered a tax resident if he has a registered permanent residence in Germany. A person is also considered a tax resident if they spend more than 183 days a year in Germany. The condition applies even to persons without permanent housing in the country if their activities, work or other life circumstances lead them to spend most of their time in Germany.

Tax residents are required to declare and pay taxes in Germany not only on income earned domestically, but also on foreign income. This is due to the principle of global income (Welteinkommensprinzip), according to which all income of a tax resident, regardless of their country of origin, is subject to taxation in Germany. Exceptions are possible only in relation to income from countries with which an agreement on the prevention of double taxation has been concluded.

To pay taxes and conduct financial transactions, taxpayers are assigned a taxpayer identification number (Steuerliche Identifikationsnummer or Steuer-ID). It is issued by the Federal Central Tax Office (Bundeszentralamt für Steuern, BZSt) and does not change when you change your place of residence, surname or marital status.

Tax exemption

In Germany, tax exemption is possible for certain categories of persons and income. For 2024, the basic non-taxable annual minimum (Grundfreibetrag) in Germany is €11,604 for one person and €23,208 for married couples if they file a joint tax return. The amount is indexed annually taking into account inflation and the cost of living.

The main groups and circumstances that are exempt from taxation:

• Child benefits and deductions (Kindergeld and Kinderfreibetrag). Child benefits (Kindergeld) as well as child tax deductions (Kinderfreibetrag) are exempt from taxes. Parents are entitled to a tax deduction or child benefit, depending on which payments will be higher.
• Income from special sources. Some income, such as unemployment benefits (Arbeitslosengeld), child support (Elterngeld), scholarships, student benefits and social benefits are not included in taxable income, as they are considered social support.
• Mini jobs (Minijobs). Income from mini-jobs, in which earnings do not exceed €520 per month, is not subject to income tax. Instead, the employer itself pays fixed contributions to the tax authorities.
• Benefits and exemptions for the disabled. People with disabilities can receive a tax exemption or benefits based on their disability group. Additional deductions are also provided for them, such as medical expenses and personal care.
• Income from certain charitable and socially useful organizations. Non-profit organizations that engage in charitable, educational, or religious activities claim benefits or full tax exemption on income earned as part of their activities.

Tax return

Filing a tax return in Germany is not mandatory for most, but it is recommended because it allows you to refund taxes through deductions. If the declaration is mandatory, the deadline is before July 31 of the year following the reporting year (for example, the declaration for 2023 is submitted before July 31, 2024). With the involvement of a tax consultant, the deadline is extended until the end of February of the second year after the reporting one (for example, until February 2025 for the declaration for 2023).

The declaration can be submitted in paper form, but most taxpayers submit it remotely through the ELSTER (Elektronische Steuererklärung) system, the official online portal of the German tax authorities. You can also use commercial tax programs (for example, WISO Steuer or Taxfix) integrated with ELSTER to fill out the declaration.

Required documents and information:

• Income information. Income statements such as Lohnsteuerbescheinigung (for employees), which shows the amounts of income and withheld taxes paid by the employer.
• Expenses for deductions. Work expenses (Werbungskosten), medical expenses, insurance, education, child care and charity can be included to reduce the tax base.
• Investments and foreign income. Tax residents must indicate all income, including investment income and income from abroad.

After submitting the declaration, the tax authorities check the data and, if necessary, may request additional documents. It usually takes from several weeks to several months to check and refund taxes. If the decision is positive, the tax service returns the overpaid amounts to the specified bank account. If a shortfall is found, the taxpayer is notified of the need for an additional payment.

Tax classes in Germany (Steuerklassen)

All those who pay income tax according to the standard scheme receive a tax class in Germany. They additionally affect the amount of taxes collected on a monthly basis and can both negatively and positively affect it when calculating the final amount of payments. 

What are the tax classes?:

1. Class I is assigned to single people, including divorcees and widowers. It also includes partners who temporarily live separately, but do not have other dependents. The class does not imply additional benefits or deductions and does not affect the final amount of deductions.
2. Class II provides the parent with an additional tax-free minimum, called the “single parent benefit” (Entlastungsbetrag für Alleinerziehende). The benefit protects the amount of annual income of €4008 from taxes. The class requires the child to live permanently with one parent without other adult members in the household.
3. Class III is assigned to one of the spouses in a marriage if the income of the second spouse is significantly lower. The spouse with a higher income receives class III, and the second spouse receives class V. 
4. Class IV is standard for couples with similar incomes. 
5. Class V applicable to a spouse with a lower income when his partner chooses Class III. As a result, a spouse with Class V faces a higher tax burden and fewer benefits. However, despite the large deductions for Class V, the total amount of taxes for the family turns out to be more balanced.
6. Class VI is used for employees with additional jobs. It lacks non-taxable amounts and benefits and serves mainly as a tool for the state to receive taxes from additional sources of citizens. 

Married couples can use the “factor method” (Faktorverfahren) when calculating taxes in Germany for individuals. Its essence is to share the tax burden depending on the income of the partners. For example, if one partner earns 70% of the total income, and the second earns only 30%, then they will pay the total tax in parts of 70% to 30%.

Classes related to married couples automatically double the basic non-taxable income (€23,208). And the combination of III/V allows you to pay a reduced tax on a high salary and an increased tax on a lower one.

However, when a couple files an annual tax return, the IRS recalculates the tax liability using the Ehegattensplitting method, in which the total income is divided into two equal parts, and a tax rate is applied to each half. Due to the progressive nature of income tax in Germany, the amount of tax may be more than what the couple has already paid during the year.

In this case, there is a difference between the taxes paid and the actual tax amount payable for the year, and the couple is obliged to compensate for this difference in the form of an additional payment.

Income tax

Income tax (Ertragssteuer) in Germany is an aggregate designation for various taxes applied to the profits of enterprises and the income of individuals. The main income taxes in Germany include corporate tax (Körperschaftsteuer) for legal entities, income tax (Einkommensteuer) for individuals and trade activity tax (Gewerbesteuer) for commercial organizations.

Corporate tax (Körperschaftsteuer)

The basic corporate tax rate in Germany is 15%. It applies to all legal entities such as joint stock companies (AG) and limited liability companies (GmbH). The exceptions are unprofitable enterprises that show a decrease in annual income.

The company’s profit is calculated based on income and expenses from retained earnings. At the same time, the company has the right to take into account allowable tax deductions, such as depreciation, production and operating expenses. The company can also claim tax deductions from reinvested funds.

Income tax (Einkommensteuer)

Income tax in Germany applies to the basic income of individuals, including individual entrepreneurs and partnership partners. The main income is considered to be income from independent activities, income from rent, capital and other sources. The tax is progressive and the rates start at 14% and reach a maximum rate of 45% for superannuation.

For 2024, the progressive income tax scale in Germany is as follows:

• Up to €11,604 — 0%. Tax-exempt basic income (Grundfreibetrag).
• From €11,605 to €62,809 — the rate gradually increases from 14% to 42%. The range covers most of the average salary and is subject to significant rate increases as income increases.
• From €62,810 to €277,825 — a fixed rate of 42%. An increased rate for people with high incomes.
• Over €277,826 — the maximum rate is 45%. The maximum possible rate is sometimes called a “wealth tax”.

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Trade Activity Tax (Gewerbesteuer)

The trade Activity tax (Trade tax) is mandatory for all commercial enterprises, regardless of their legal form. The tax is paid by both large corporations and private entrepreneurs if their activities are classified as commercial. 

The basic tax rate for commercial activities is 3.5%, but a local multiplier (Hebesatz) is added to it, which is set by municipalities and can vary from 200% to 900% depending on the region. For example, the municipality has set a multiplier of 400%. Then the effective tax rate on trading activities will be 14% (3.5% x 400%).

The tax does not apply to professions that are not related to trade, such as doctors, lawyers, engineers. Private entrepreneurs are entitled to a deduction of €24,500 from the taxable profit base for calculating the tax on trading activities.

Solidarity contribution

The solidarity contribution was introduced during the unification of Germany to finance measures to reunify the country’s economic system. Initially, it was 5.5% of the amount of income tax (Einkommensteuer) and corporate tax (Körperschaftsteuer). But from January 1, 2021, for most taxpayers, it was abolished by introducing a basic tax-free limit instead of a percentage.

If the annual income tax amount exceeds €16,956 for single persons or €33,912 for married couples, then a 5.5% contribution is charged from the amount exceeding these thresholds. Since 2024, the thresholds for the solidarity contribution have been raised and now amount to €18,130 for single persons and €36,260 for married couples.

Due to the fact that income tax amounts exceeding these limits are possible only for super-rich entrepreneurs or companies, 90% of the population does not pay this fee.

Consumer taxes and fees

Consumer taxes and fees are collected when purchasing goods and services, as well as when receiving income from capital gains. Such fees are an instrument of state regulation of prices and consumption of goods, for example, tobacco and alcohol products.

Value added tax (VAT, Mehrwertsteuer)

In Germany, as in other countries, VAT is charged at a standard rate of 19%. It applies to most goods and services such as clothing, consumer electronics, consulting and legal services, automobiles, entertainment and restaurant services.

The reduced VAT rate is 7% and is intended for specific socially significant goods and services such as food, prescription drugs, books, some medical devices and public transport services.

The zero VAT rate in Germany, which actually exempts from taxation, applies to certain categories of goods and services, mainly export-oriented and socially significant functions, for example:

• Export of goods. All goods exported (outside the EU) are subject to a zero VAT rate.
• Financial services. In the financial sector, securities transactions, banking transactions, insurance services, as well as the issuance of loans are exempt from payment.
• Educational services. Courses and programs offered by public educational institutions or private institutions with state recognition are generally exempt from VAT.
• Social and medical services. Socially oriented services exempt from VAT include assistance to people with disabilities, care for the elderly, health services and housing for socially vulnerable groups.

Companies that operate in Germany or have a turnover of over €22,000 per year are required to register for VAT. For cross-border electronic sales, the registration threshold is €10,000. After registration, companies receive a VAT number (USt-IdNr), which must be indicated on all accounts. VAT reporting can be monthly, quarterly or annual, depending on the level of the company’s annual turnover. Declarations must be submitted before the 10th day of the month following the reporting period​

Capital Gains tax (Kapitalertragsteuer/Abgeltungsteuer)

In Germany, the capital gains tax, also known as Abgeltungsteuer, was introduced in 2009 to simplify the taxation of capital gains. It applies to income earned from assets such as stocks, bonds, dividends, interest on deposits and capital gains from the sale of financial instruments. This also includes income from investments outside Germany, which reflects the principle of global taxation of income from capital for tax residents of Germany.

The main aspects of the tax:

• The tax rate. The standard rate is 25%. A church tax is added for church members, which increases the total rate to 27-28%, depending on the region.
• The released limit (Sparerpauschbetrag). Taxpayers can receive an annual capital tax exemption of €1,000 for single individuals and €2,000 for married couples. To apply for an exemption, you must apply for an exemption (Freistellungsauftrag) to a bank or a broker managing capital. Without submitting an application, the tax is charged on the entire amount.
• The possibility of recalculation (Günstigerprüfung). For low-income taxpayers, it is possible to recalculate capital tax at their personal tax rate if it is below 25%.
• Features for real estate. If the property is sold less than 10 years after its acquisition, the profit from such sale is also subject to capital gains tax. However, if the property was used by the owner personally, the tax may be waived.

Tobacco tax (Tabaksteuer) and alcohol excise tax (Alcoholsteuer)

Germany complies with the recommendations of the World Health Organization (WHO) and the European Union calling for an increase in excise taxes on tobacco and alcohol. The main purpose of such recommendations is to replenish the budget and curb the spread of bad habits by raising prices. WHO has long recognized the taxation of these products as one of the most effective measures to combat excessive alcohol and tobacco consumption. The tax is calculated based on a fixed rate and a percentage depending on the retail price:

• Cigarettes and tobacco. The tax consists of a fixed amount per unit (€0.09 per cigarette) and a percentage (14% of the retail price). The rate varies slightly depending on the packaging of tobacco.
• Electronic cigarettes and vapes. It is not the device itself that is taxed, but the liquid for it at the rate of € 0.20 per milliliter. It is planned to increase the rate in 2025 to €0.26/ml, and to €0.32/ml by 2026.

The tax is paid by manufacturers and importers of tobacco products. Despite this, an increase in the rate directly affects the cost of products for the end user. The same applies to alcohol, the tax is paid by the manufacturer or importer, but in order not to suffer losses, they often put the tax in the final price of the goods.

Social contributions (Social insurance)

In 2024, the cumulative rate of social contributions is about 38.1% of income, and it is equally divided between the employee and the employer. Each of them pays approximately 19.05% of the salary up to the set limit. The rate is not included in the income tax, but is added to it. That is, if the income tax is 20%, then the total amount of deduction will be 39% of income.

The social contribution includes:

• Pension insurance (Rentenversicherung). The contribution rate for 2024 is 18.6% of income up to a certain limit, which this year has been increased to €90,600 per year in the western regions and €89,400 in the east.
• Unemployment insurance (Arbeitslosenversicherung). Unemployment insurance contributions amount to 2.6% of income, and it is also divided between the employee and the employer. Funds from these contributions are used to pay unemployment benefits and to support vocational retraining for people who have lost their jobs. As for pension insurance, the upper limit of income taxed by this contribution is also €90,600 in the western regions and €89,400 in the eastern regions.
• Health insurance (Krankenversicherung). The basic rate for health insurance is 14.6% of income. However, medical funds may charge an additional fee, usually about 1-2%, which is also partially covered by the employer. 
• Patient care insurance (Pflegeversicherung). Nursing insurance is designed to support citizens in need of long-term care (for example, the elderly or the disabled). In 2024, the insurance premium is 3.05%. Despite the fact that there is no childlessness tax in Germany, persons without children increase insurance contributions by 0.25%. Thus, the amount of 3.05% of income for people over the age of 23 who do not have children increases to 3.4%.

The self-employed, pensioners, and students pay only part of the contributions or are exempt from them altogether. For example, the self-employed are exempt from paying unemployment insurance contributions, and pension and health insurance are optional for them. Pensioners are exempt from making pension contributions and unemployment insurance, and medical insurance and care insurance are paid at a reduced rate.

Property and inheritance taxes

The property tax system is designed to take into account a variety of types of property — from real estate and financial assets to personal items such as cars and jewelry. In addition to the standard tax on the transfer of real estate, inheritance and gift taxes apply in Germany. Taxes on pets can also be included in this category.

• Property tax (Grundsteuer). The tax is paid annually and calculated at a fixed base tax rate of 0.35% multiplied by a coefficient set by local authorities. The value of the real estate tax coefficient in Germany varies depending on the region and type of property and as a result ranges from 0.26% to 1% of the estimated value of the property.
• Real estate transfer Tax (Grunderwerbsteuer). The amount of tax varies depending on the federal state and ranges from 3.5% to 6.5% of the value of the purchased real estate. For example, in Bavaria the rate is 3.5%, and in North Rhine-Westphalia it is 6.5%
• Animal tax in Germany (Hundesteuer). There is no single tax rate for dogs in Germany, it needs to be clarified in the local municipality. For example, in Munich, the tax is €100 per year for one dog, and for so—called “dangerous” breeds – €800 per year. In Berlin, the tax for the first dog is € 120 per year, for each subsequent one — € 180. Guide dogs, service dogs, dogs from shelters (for a certain period of time) and shepherd dogs for the protection of herds do not fall under the tax.

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Inheritance tax in Germany (Erbschafts- und Schenkungssteuer) is levied on the recipients of an inheritance or gift and depends on the degree of kinship with the donor or testator, as well as on the value of the property received. Taxpayers are divided into three classes depending on the degree of kinship. The class determines the amount of inheritance and donation exempt from taxation:

• Class I:
  • Spouses and registered partners. The release of the amount up to €500,000.
  • Children (including foster children) and grandchildren, if their parents have already died. Exemption up to €400,000.
  • Parents and ancestors: Exemption up to €100,000.
• Class II:
  • Brothers and sisters, nephews and nieces, foster parents, relatives of a spouse. The exemption is up to €20,000.
• Class III:
  • All other persons: Exemption up to €20,000.

For the amount of donation/ inheritance exceeding these thresholds, the tax rate begins to apply, which directly depends on the amount and class of kinship:

• Class I:
  • Up to €75,000: 7%
  • From €75,000 to €300,000: 11%
  • From €300,000 to €600,000: 15%
  • From €600,000 to €6,000,000: 19%
  • From €6,000,000 to €13,000,000: 23%
  • From €13,000,000 to €26,000,000: 27%
  • Over €26,000,000: 30%
• Class II:
  • Up to €75,000: 15%
  • From €75,000 to €300,000: 20%
  • From €300,000 to €600,000: 25%
  • From €600,000 to €6,000,000: 30%
  • From €6,000,000 to €13,000,000: 35%
  • From €13,000,000 to €26,000 ,000: 40%
  • Over €26,000,000: 43%
• Class III:
  • Up to €6,000,000: 30%
  • From €6,000,000: 50%

Spouses and children can apply for tax exemption on inheritance of residential real estate if they continue to live in it after the death of the testator. 

Energy and environmental taxes

Germany prioritizes the creation of financial barriers to the use of non-ecological resources. This is due to the desire to increase the use of alternative energy sources and promote the abandonment of hydrocarbons in everyday life. Under this program, taxes, which are more often excise taxes, have fixed rates and do not apply to those who already use environmentally friendly resources, such as electric vehicles and “green” energy. The main taxes include:

• Energy tax (Energiesteuer). Excise duty on energy carriers (gasoline, diesel, fuel oil, natural gas) with differentiated rates depending on the type of fuel and its use. Fuel for motor vehicles is taxed at higher rates, while preferential tariffs are applied for social institutions. The tax directly affects the cost of fuel and is reflected in heating and electricity bills for end users.
• Electricity tax (Stromsteuer). The excise duty charged for electricity consumption in Germany. The rate is fixed and the end user is obliged to pay €1.5 per kilowatt-hour spent. However, for energy-intensive manufacturing enterprises, the rate was reduced to the minimum allowed in the EU level of €0.05 per kilowatt hour.
• Car tax (Kfz-Steuer). The car tax in Germany is a fee for the CO₂ emitted by transport into the atmosphere. The rate is about €2 for every 100 cc for gasoline engines and €9.5 for the same 100 cc for diesel engines. The tax on a car in Germany with CO₂ emissions above 95 g/km increases on a progressive scale from €2 to €4 for each gram of emissions. Benefits are provided for the disabled and for vehicles used in agriculture, and electric vehicles are exempt from collection until 2030.

Rain tax in Germany (Niederschlagswassergebühr) It is a municipal fee charged for the diversion of rainwater from private land plots to the public sewer system. The tax applies only to built-up or impenetrable areas (such as roofs, paved courtyards and parking spaces) from which water cannot be absorbed into the ground and, therefore, enters the drainage system.

The tax rate varies by region and depends on the area of the built-up area. On average, it ranges from €0.7 to €1.9 per square meter per year. For a typical plot, for example, for a private house, the tax can be about €150–€200 per year, depending on the level of development and surface coverage. 

Despite the apparent absurdity, the tax encourages owners to minimize the area of impervious surfaces and install systems for collecting rainwater. According to the authorities, this will reduce the load on the sewer system and reduce the cost of its maintenance. Rainwater charges are usually included in the total bill for water supply and sanitation. 

Specific taxes and fees

In addition to the main taxes, there are also specific taxes in the country. Their taxes are difficult to classify into generally accepted categories, but they also deserve to be mentioned. Let’s take a closer look at several such fees:

• Church tax in Germany (Kirchensteuer).This is a mandatory tax levied on registered members of certain religious communities in Germany, such as the Catholic, Evangelical and Jewish churches. The tax is 8% of the income tax in Bavaria and Baden-Wuerttemberg, and 9% in the rest of the federal states. In order not to pay church tax in Germany, you can officially leave the church through the Kirchenaustritt procedure, paying up to €35 depending on the region. 
• TV and Radio broadcasting fee (Rundfunkbeitrag). The tax rate on television in Germany In 2024 is €18.36 per month per household, regardless of how many people live in an apartment, how many devices are used and whether it is used at all. Those who receive social benefits, like Bürgergeld, and people with certain types of disabilities are exempt from paying TV tax in Germany. Also, the owners of the second home have the right to cancel the radio tax in Germany for the second object, provided that the main address is already registered and paid.
• The luxury tax (Vergnügungssteuer). The luxury Tax (Vergnügungssteuer) in Germany is a local levy levied on entertainment events and establishments. In most cities, the rate for gambling machines ranges from 10% to 20% of revenue. In Bonn, starting in 2024, the tax rate on cash-winning machines has been increased to 20% of profits. For other types of entertainment, such as discos and dance events, the rate may be fixed or depend on the number of participants.

Tax refund in Germany

In Germany, many citizens and residents can receive a refund of part of the taxes paid by submitting a tax return (Steuererklärung). Thanks to the system of deductions and benefits, most people, especially working people, can offset some of the costs and reduce the tax base. The refund is made through a tax return. Its submission is mandatory for those who:

• Has additional income, for example, from rent or investments.
• During the year, he changed his employer or received unemployment benefits.
• He received payments for parental leave (Elterngeld) or sick leave (Krankengeld).

However, many who are not required to file a return do so anyway in order to receive a tax refund. As a rule, the average refund for those who have filed a tax return is from €1,000 to €1,200. The main categories of expenses that can be taken into account when applying for a refund include:

• Work expenses. Transportation costs (for example, travel to work), work materials and training costs.
• Expenses for medical and insurance services.The cost of treatment, medicines and insurance premiums.
• Housing costs. Rental housing, especially if you need a double home due to work in another city.
• Educational expenses. The cost of training, advanced training courses.
• Charitable donations. Certain donations and charitable contributions are also refundable.

After processing the declaration, the tax service sends a Steuerbescheid, which is a document confirming tax calculations and tax refunds in Germany. This document is the final confirmation, which indicates the exact amount that will be refunded to your account.

Frequently Asked questions about taxation in Germany

What is a taxpayer identification number?

The German taxpayer Identification number (German: Steueridentifikationsnummer, or IdNr for short) is a unique number that is assigned to each resident of Germany to simplify tax accounting. The number is required for most tax transactions and is provided by the German Federal Central Tax Office (Bundeszentralamt für Steuern, BZSt). The number is automatically sent by mail to every German resident after registration at the place of residence, so you do not need to receive it separately. If the number is lost, you can make a request to BZSt, and the tax office will send a new number to the taxpayer’s home address.

What advantages do married couples have in paying taxes?

The most important advantage of married couples is the summation of the minimum tax-free amount. Thus, for two people, the total tax-free base is €23,208. Married couples can use the Ehegattensplitting mechanism, which allows them to divide the total family income into two equal parts and pay income taxes from them. This method allows the spouse receiving a higher income to reduce the progressive income tax rate. For example, if the total income of a couple is €10,000 per month, of which one of the spouses receives €7,000, then after calculating using this method, he will pay income tax as if he received €5,000. Also, married couples can choose combinations of tax classes to optimize their taxes. For example, a spouse with a higher income chooses Class 3 (with a lower tax rate), and a spouse with a lower income chooses Class 5 (with a higher rate), reducing the total tax for the couple. That is, to pay an increased tax on a lower salary and a reduced one on a high one. If a couple owns a property and decides to sell it, then taxation in Germany of capital gains (capital gains tax) can be reduced or eliminated due to family benefits.

What does the tax class in Germany affect?

The tax class in Germany (German: Steuerklasse) determines exactly how payroll taxes are calculated in Germany. It directly affects the percentage of tax withheld from monthly wages. The higher the tax class, the more tax deductions. For example, the first class with the lowest percentage of income deductions applies to unmarried and unmarried persons, divorced or widows without children. Class 6 is also applied if a person has more than one place of work. An increased tax rate is applied to income from the second and subsequent works.

How do I change the tax class in Germany?

Married couples can change the tax class, but the choice is limited to Class 3/5 or Class 4/4 schemes. In case of divorce or death of one of the spouses, the tax class is automatically changed to the appropriate situation (for example, Class 1 or Class 2 for a single parent). A single parent can apply for Tax Class 2 if they live alone with their child and bear the basic costs of their upkeep. Also, the class is automatically upgraded to sixth if the payer has an additional job.

Is it possible to avoid double taxation in Germany?

It is possible to avoid double taxation in Germany thanks to a network of international agreements on the avoidance of double taxation (it. Doppelbesteuerungsabkommen, or DBA), which Germany has concluded with more than 90 countries. If there is such an agreement, there are two methods of tax accounting in Germany for foreigners: the exemption method (Freistellungsmethode) and the tax offset method (Anrechnungsmethode). In the first case, income earned in another country is exempt from taxation in Germany, but its amount is taken into account when calculating the tax rate paid in Germany. The second method assumes that the tax paid in another country is offset against the tax payable in Germany. As a result, the taxpayer pays in Germany only the difference between the taxation of the countries. For example, in another country the tax is set at 10%, and in Germany the rate is 20%, the payer will have to pay in Germany another 10% of income outside the country. If there is no double taxation agreement with another country, you can refer to German tax legislation, which sometimes allows you to take into account foreign taxes within the framework of your domestic regulations. But the question is extremely individual.

When should I file a tax return in Germany?

The standard deadline for filing a tax return in Germany is July 31 of the year following the reporting year (for example, for income in 2023, the declaration must be submitted by July 31, 2024). If a taxpayer uses the services of a tax consultant or a member of a tax union (Lohnsteuerhilfeverein), the filing deadline is extended until the end of February of the second year after the reporting one. For example, when filing a declaration for 2023 with a tax consultant, the deadline for filing is extended until February 29, 2025. If the payer has no obligation to file a declaration, he can do so voluntarily. In this case, he has 4 years to file a declaration. For example, a voluntary declaration for 2023 can be submitted before the end of 2027.

Author

Mikhail Konon is a copywriter

I write informative articles about real estate, investments, job search and taxes.

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