MBA Germany

Taxes in Germany


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In Germany the taxation system is similar to others in Europe western countries. You pay income taxes throughout the year, generally with an employer deducting tax from each paycheck. Adjustments are then made at the end of the year for possible under or overpayments. Expatriates living in Germany can be subject to German taxes, especially if they have German-source income.

Income tax: Each person in Germany is obliged to pay taxes on his income as an employee and on income as a self-employed person. An individual who meets the test of a "permanent resident" in Germany will have the tax calculated on his income in this country and from overseas. The income tax for those on the lowest rung now stands at 15 percent and the top rate is 42 percent. The main thing to remember is that anyone taking up residence in Germany or who has their customary place of abode in the country will subject to an unlimited tax liability on their worldwide income. While you can be resident in more than one country, for the purposes of paying tax in Germany, your customary place of abode means living at an address for more than six months.

Solidarity Tax: Another special tax of the German taxation system is the solidarity surcharge "Solidaritaetszuschlag". This surcharge is levied on every resident to contribute with the enormous costs of rebuilding the former communist eastern part of the country. This surcharge has a rate of 5.5 percent of the amount of the personal income or of company tax.

Husband and wife: Married taxpayers may choose between two alternatives, filing jointly or separately. In general, it is more advantageous to file jointly. The splitting tariff for married couples is, however, granted only if both husband and wife are resident in Germany. (An exception is available for EU nationals under certain conditions.) Income earned by dependent children is not included in the joint tax return. They are liable to file their own tax return if their income exceeds certain amounts.

Taxing the self employed: The person who is working on a self-employed basis such as in a profession or in a trade faces a rather more complicated system. This generally means that his/her earnings in Germany will be subject to "Mehrwertsteuer" or "MwSt" (value added tax). The "MwSt" scale will largely depend on his/her profession or income earning activities.

Church Tax: The Church Tax "Kirchensteuer" is a special tax imposed by the German taxation system. Church tax is a tax imposed on members of some religious congregations in Germany and other countries. About 70% of church revenues do come from church taxes. The origins of the "Kirchensteuer" date back to the early part of the 19th century when the churches were granted the right to levy taxes by Prussia partly as a way of compensating them for property which had been sequestered to help pay for the Napoleonic wars.

If you donīt belong to any religious congregation, you donīt have to pay this tax . But you should know that the tax office members can at some moment follow you and ask you to prove that you are not religious. This is relatively easy for Germans. They normally follow a formal process to step out of their church and have documents to prove it.

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Money and Finance in Germany
MBA Germany