Taxes in Germany
Income tax in Germany for foreigners
In Germany, every citizen’s earnings are subject to a basic tax allowance, including researchers and scientists coming from abroad. To give you an insight before you arrive, here’s how German income tax works and how to pay it.
Who has to pay income tax in Germany?
In Germany, income tax is known as Einkommensteuer. Income taxes are paid throughout the year in the form of ‘wage tax’ (Lohnsteuer). In most circumstances, if you live in Germany continuously for more than 6 months you must file a tax declaration (Steuererklärung) with your local tax office (Finanzamt).
The tax year in Germany is the calendar year. You can file a tax declaration on your own or seek professional tax advice. As of 2019, people who declare their tax via the electronic tax declaration system (Elektronische Steuererklärung, ELSTER, see below) have until 31 July. In certain circumstances, such as if you are ill or if documents are missing, you can ask for an extension of the deadline to 30 September. If you choose to take professional tax advice, you have until 31 March the following year. There may be penalties if your tax declaration is filed late.
By submitting your income tax declaration (Einkommensteuererklärung) to the tax office, you will find out if you have made over-payments and are entitled to a refund.
How may double taxation be mitigated?
If you transfer to work in Germany within the calendar year, you must take into account income earned before becoming a German resident when determining the rate on your taxable German income.
To prevent foreigners from paying taxes in Germany and in their home country, Germany has entered into tax treaties with many countries, including the UK and US. These establish which country your taxes must be paid in and which income may be exempt from tax in Germany.
For example, Article 20 of the Germany-US treaty, and Article 19 of the Germany-UK treaty, permit individuals who come to Germany for a maximum of two years in order to work at a public research facility to pay their taxes in their home country.
Which tax brackets exist in Germany?
In Germany, your tax bracket (Lohnsteuerklasse) determines the value of your income tax (Einkommensteuer), ‘solidarity surcharge‘ (Solidaritätszuschlag), church tax (Kirchensteuer). Your tax bracket also affects the value of many social benefits, including social security and maternity leave.
Germany has six tax brackets. Your tax bracket depends primarily on your family status, but also on how many jobs you have. If your personal circumstances change, your tax bracket will too.
Tax brackets in Germany
Those single or separated, but not falling into either tax bracket II or III
Married couples and civil partners Conditions: Tax bracket III is reserved for the spouse/partner with the higher income. The other spouse/partner is assigned to tax bracket V.
Married couples and civil partners Conditions: Both spouses can be assigned to tax bracket IV if they earn about the same amount.
Married couples and civil partners Conditions: Tax bracket V is reserved for the spouse/partner with the lower income. The other spouse/partner is assigned tax bracket III.
Germany has four tax brackets. For 2018, the first tax bracket states than an income of €9,000 or less is tax-free for a single person. In the second tax bracket, incomes up to €54,949 are taxed with a rate that progresses incrementally from 14 per cent to 42 per cent. The third and fourth tax brackets deal with incomes between €54,950-€260,532, and those over €260,533, which are taxed at 42 and 45 per cent, respectively.
The Federal Central Tax Office (Bundeszentralamt für Steuern, BZSt) offers an income tax calculator, which estimates the percentage of income tax you have to pay.
If your income falls within the second tax bracket, and you earn a gross salary of €25,000, you are likely to be taxed at a rate of 29 per cent. The income tax rate for a foreigner with gross salary of €40,000, on the other hand, is estimated to be 36 per cent.
The additional ‘solidarity surcharge’ is the Solidaritätszuschlag that helps finance the costs related to German unification and amounts to 5.5 per cent of your income tax. You may also be required to pay the church tax (Kirchensteuer) if you are affiliated to a religious community, which amounts to 8 or 9 per cent of your income tax, depending on where you live.
Who needs a tax identification number and how do you get one?
All individuals resident in Germany receive a tax identification number (Steueridentifikationsnummer) to ensure their unique identification within the tax system.
A tax ID is an 11-digit number that is required to process your income tax. It must be included on all applications, declarations and communications you submit to the German tax authorities.
You do not have to submit a separate application for a tax ID as a foreigner. You will receive your tax ID automatically by post between two-to-four weeks after you register your address.
There are three main ways to find your tax ID:
in your income tax assessment (Einkommensteuerbescheid)
on your payroll tax certificate (Lohnsteuerbescheinigung)
in the information letter from the tax office (Finanzamt)
If you lose or forget your tax ID number as a foreigner, you can request a new statement from the BZSt.
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How do I pay income tax in Germany?
Employers deduct income tax from your gross wage and transfer it to the tax office on your behalf. Your pension, health, nursing care and unemployment insurance are also deducted from your gross wage and transferred by your employer.
You can submit your income tax declaration either using forms collected from your local tax office, or you can print them from the BZSt website and post them.
If you prefer, you can submit your tax declaration online. The German government provides citizens with a free encrypted official tool called ELSTER, which stands for ‘Elektronische Steuererklärung’ (electronic tax declaration). You can download the program here.
What conditions apply to working professors and researchers?
Foreign professors and researchers are subject to the same domestic tax rules as all other citizens who pay tax in Germany. If you are on a research visit based on an employment contract at a university or research institution that will last more than six months, then your globally-earned income will be subject to taxation in Germany.
Visiting professors, students and researchers may be entitled to relief from German tax under the double tax treaty between Germany and their country of residence. If your research visit is based on a fellowship, you may be exempt from taxation under German income tax law, under certain circumstances.
You should discuss this matter with the organisation that has awarded your fellowship, and enquire whether the fellowship paid in Germany is subject to taxation in your own country.
Finally, under domestic tax law, professors and researchers may deduct certain expenses from their taxable income such as books and travel costs.
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