Tax in Germany

Tax In Germany

A Contractor’s Guide to Taxes in Germany

One of the most consistently challenging aspects of contracting in Germany is complying with the country’s tax system. As well as paying tax in Germany, you might also still be eligible to pay some tax in your home country, and understanding the legislation behind this can be a challenge.

How do I calculate my taxable income in Germany?

If you’re working in Germany under a permanent contract, many employers will handle your tax under the PAYE (pay-as-you-earn) system. This means that they calculate and process your taxes in Germany for you and then send you a net wage. Your income tax, public health insurance, social security and other deductions will all be covered by this payment. This is the easiest way to handle your income tax in Germany, but contractors may not be offered this service because of their short stay with each employer.

Anybody who can’t pay their tax in Germany through PAYE is left with the prospect of doing everything themselves.

Do you know much about German Tax Law? Does Germany have a tax treaty with your home country? You will need to find out or find someone who can help! Income tax in Germany, above the tax-free threshold, can range from 0 to 45 per cent, and you need to be sure you are placed in the correct tax brackets.

Tax Calculator Germany

If you are a contractor and want a calculation on your tax and net retention in Germany, we can supply it to you free of charge.

Using an Umbrella Company for Income Tax

Contractors in Germany are faced with masses of paperwork and numerous wasted hours filing a tax return unless they find an alternative option. A German umbrella company can act as your employer during your stay in the country whilst still allowing you the freedom of a contractor. The only difference is that you submit your timesheets to them; they’ll calculate and pay your taxes as you earn, and then you receive a net wage (as well as documentation for your records).

The companies are experts in German taxation, and they’ll ensure that you keep the largest proportion of your earnings whilst complying with local laws. They can deal with any issues with the German tax office or tax department directly including processing your tax refund if you are eligible.

How We Can Help You with Tax in Germany

We work with numerous umbrella companies in Germany, many of whom are experts in tax and immigration laws. If you have any questions about tax in Germany, we’ll get the answers from them directly so you can rest assured you’ll be getting accurate information. We have comprehensive knowledge of the different services they provide and can help you find the right company to handle your income tax. We help oil and gas workers, software developers, IT project managers, testers, business analysts and telecommunications contractors get tax efficient payments and sponsorship for their German work permits.

Our advice is 100 per cent free and comes with no obligations. You will be paying taxes in Germany but without the overhead of directly dealing with the German tax authorities. Get in touch with us today for some reliable advice on tax in Germany!

When Do You Need to Lodge Your Tax Return?:
After the end of the Calendar year (31 December).
Tax Filing Deadline :
31 May
Can you file it online? :
Yes, https://www.elster.de/eportal/start
Currency:
Euro (EUR)
Tax-free Threshold in:
8,820 EUR
Grossed Income:
Between 8,821 and 54,057
Tax Rate:
14-42%*
Grossed Income:
Between 54,058 and 256,303
Tax Rate:
42%
Grossed Income:
Above 256,304
Tax Rate:
45%
How long does it take to set up:
11 days
How much does it cost:
681 EUR + 13 EUR for each additional shareholder

Starting a business rank: 113. Relatively hard to set up a limited company in Germany.

How to File Taxes in Germany

The process for filing taxes in person involves:

Step 1: The employer automatically deducts the contributions to social security and the income tax from an employee’s monthly gross income.

Step 2: At the end of the financial year, the employee collects the required documents for filing a tax return. This includes:

  • Annual income statement from the employer.
  • ID number
  • Bank account details.
  • Proof of income outside Germany.
  • Details of any child benefits

Step 3: Print out the relevant forms from the official website. As an employee, generally, the following forms are required:

  • Est 1 V (a form that details general personal information)
  • Anlage N (details your income as an employee)
  • Anlage vorsorgeaufwand (details your insurances)

Step 4: After filling out these forms, mail them to the Finanzamt (Taxation Office). The files will usually be processed by the Finanzamt and the tax refund received within 8-12 weeks.

Alternatively, you can lodge online through ELSTER

Step 1: Download the software from the website.

Step 2: Fill in the relevant forms and submit them online.

Step 3: Print out the submitted tax return and attach any documents of proof.

Step 4: Submit the files by post to the Finanzamt.

Notes:

*Geometrically progressive rates start at 14% and rise to 42%.

The above table of tax rates applies to single taxpayers filing individually. In Germany, married taxpayers can file a joint return and in this case, the grossed income will be double that shown in the above table.

 

Does the 183-day rule apply in Germany?

Yes, the duration of stay must be continuous for at least 6 months to be a tax resident.

When do you become a tax resident in Germany?

  • You have a domicile in Germany for personal use.
  • You have a ‘customary place of abode in Germany and do not only stay temporarily in the area. This is established when an individual spends a continuous period of 6 months in Germany.
  • Nationality is not, in itself, a criterion for determining residence or tax liability.
  • Where an international assignee has a residence in 2 or more countries, the employee is deemed to be a resident of the contracting state in which the employee has a centre of vital (personal and economic) interests.

Am I taxed on my global income in Germany?

Yes, if they are a resident. Non-residents are only subject to tax on income derived from German sources.