Germany is a beautiful country located in central Europe. The country has a taxation system that is governed by the Federal Ministry of Finance. In this article, we will discuss how the taxation system works in Germany, double taxation agreements, the main taxes expats need to be aware of, special tax breaks that could apply to expats, how and when to file a tax return as an expat, and tax exit procedures for anyone leaving Germany to move abroad.
The Taxation System in Germany
The taxation system in Germany is a progressive system, meaning that the more you earn, the higher your tax rate will be. The tax year in Germany runs from January 1st to December 31st, and taxes must be filed by May 31st of the following year.
There are several taxes that individuals and businesses in Germany are required to pay. These include income tax, value-added tax (VAT), solidarity surcharge, and church tax (for members of recognized religious groups).
Double Taxation Agreements
Germany has signed double taxation agreements with several countries, including the United States, Canada, and the United Kingdom. These agreements are designed to prevent individuals and companies from being taxed twice on the same income.
If you are an expat living in Germany and your home country has signed a double taxation agreement with Germany, you may be able to avoid being taxed twice on your income. However, it is important to check the terms of the specific agreement as they can vary between countries.
Main Taxes in Germany
Income tax
All residents in Germany are required to pay income tax on their worldwide income. The income tax rate varies depending on income levels and ranges from 0% to 45%.
Value-added tax (VAT)
The VAT rate in Germany is currently 19%. This tax is applied to most goods and services, including imports.
Solidarity surcharge
The solidarity surcharge is an additional tax that is levied to help fund the reunification of Germany. The tax rate is currently 5.5% of the income tax payable.
Church tax
Members of recognized religious groups in Germany are required to pay church tax. The tax rate is 8% or 9% of the income tax payable, depending on the state.
Special Tax Breaks
There are several special tax breaks that could apply to expats living in Germany. These include:
Foreign tax credit
Expats who pay taxes in their home country may be eligible for a foreign tax credit in Germany. This credit is designed to prevent double taxation.
Tax deductions
Expats may be eligible for tax deductions for certain expenses, including moving expenses and travel expenses related to work.
Filing a Tax Return in Germany
If you are an expat living in Germany, you are required to file a tax return if you meet certain criteria. If you are a resident in Germany, you are required to file a tax return if your income exceeds €9,408 per year. If you are a non-resident and earn income within Germany, you must also file a tax return.
The tax return must be filed annually by May 31st of the following year. The German tax authority provides an online platform where you can file your tax return, and it is recommended that you seek the assistance of a tax professional to ensure that you file correctly and take advantage of any applicable tax breaks.
Tax Exit Procedures for Germany
If you are leaving Germany to move abroad, you must complete a tax exit procedure with the German tax authority. This procedure involves filing a tax return for the year in which you leave, paying any outstanding taxes, and obtaining a certificate of tax compliance.
The certificate of tax compliance is required to obtain a residence permit or visa in another country. Failure to complete the tax exit procedure can result in a fine and other legal consequences.
Germany has a progressive taxation system, and individuals and businesses are required to pay several taxes, including income tax, value-added tax, solidarity surcharge, and church tax. Expats living in Germany may be eligible for special tax breaks, and it is important to file a tax return correctly and complete the tax exit procedure if leaving the country. It is recommended that you seek the assistance of a tax professional to ensure that you comply with all tax regulations in Germany.