Welcome in Germany.
New country, new job, and also a challenging language. In order to make your start in Germany easier we would like to provide you with an brief overview about the main aspects of individual taxation in Germany.
- Registration process
- Tax residency status and tax return filing process
- Our professional services for expats
Registration process
You have to register at the town hall of their place of residence. The registration will also trigger that you receive a tax identification number (TIN). This TIN is necessary to be indicated when filing the income tax return with the German tax authorities. The tax authorities will issue automatically a tax number upon the filing of the tax return, thus, no special registration with the tax authorities is required.
Tax residency status and tax return filing process
Individuals are considered as tax residents if they meet either of the following conditions:
- They have a domicile in Germany for their personal use
- They have a “customary place of abode” in Germany
The citizenship is not a consideration for German tax purposes.
Tax residents are subject to tax on their worldwide income.
Some foreign source income will be exempt from German tax but considered as progression income according to a double tax treaty. This income is not directly taxed but increases the applicable tax rate.
Non-residents are only subject to tax on certain categories of income from German sources.
The German taxation scheme for individuals is composed of an income tax, a solidarity surcharge and church tax (if applicable).
Germany has a progressive tax rate currently ranging from 14 % to 45 % plus a solidarity surcharge of 5.5 % of the income tax the income tax liability. In addition, the individual may be liable to pay church tax at 8 or 9 % of the income tax if the individual is registered with a German church. The solidarity surcharge will be partly abolished as of the year 2021.
Married taxpayers may choose a joint or separate filing. If they choose to file jointly, a special tax rate will apply (splitting tariff). However, the splitting tariff will only be granted if both spouses are German residents (exceptions for EU nationals).
In a transfer year, the taxable income of the resident and non-resident period has to be added together. Therefore, only one tax return is filed for both periods. In the event that an employee moves to Germany within a calendar year, the foreign income earned prior to becoming a German resident will have to be considered for progression clause purposes. Such foreign income is not directly taxed in Germany but increases the applicable tax rate.
The tax returns are a declaration indicating gross income, deductions, and the amount of income tax withheld during the year. An assessment is sent to the taxpayer or the tax advisor for any refund or balance due.
The tax year is the calendar year. In general, a German tax resident must file an annual tax return with the local tax office by July 31 of the year following the tax year. In case the tax return is prepared by a professional tax advisor, the deadline is usually extended until the end of February of the second year following the respective tax year.
Example for tax year 2020:
- General filing Deadline 31 July 2021.
- If prepared by a professional tax advisor: 28 February 2022.
If the tax return is not filed within the deadline the tax authorities automatically assess penalties amounting to 0.25 % of the assessed tax, at a minimum of € 25 for each started month of delay.
Our profesionel services for expats
We can support you through your entire expat lifecycle. Your actual place of residence doesn’t matter. We can provide our services 100 % remote to our clients all over the world.
Arrival tax briefing
We recommend to contact us before you move to Germany or within the first weeks of your arrival in Germany to discuss your personal tax situation (meeting, call or video call). We are sure that we can help you to sort all of your questions in terms of taxation. We can also examine your assignment/employment contract from an tax perspective.
Preparation of German income tax returns
We will prepare your German income tax returns within the legal deadlines and will ensure that you get the best possible tax result. In order to geht the best tax result we will ensure that you collect relevant documents already during the year by using our online portal (https://my-taxcloud.online).