Planning on living and working in Germany? Find out how the local tax system works with our expert guide on how to file your income taxes in Germany.
Both foreigners and natives must pay income taxes in Germany on their domestic and worldwide income and assets.
Non-residents are subject to German income tax on any German income, but note that expats may also be liable for taxes in their home country.
The tax office uses your tax return to see if you are paying enough income tax.
It’s balanced out against your spouse’s income, any additional income you might receive, and tax deductions for things like statutory insurance contributions, childcare expenses and charitable donations.
This comprehensive guide covers the following topics on German income tax:
- Income tax in Germany
- Earnings subject to income tax in Germany
- How to file your tax return in Germany
- Income tax rates in Germany
- Income tax in Germany for foreigners
- Tax refunds in Germany
- Tax fines in Germany
- Income tax advice in Germany
H&R Block is a tax advisory service specializing in expats taxes. Their team of experts can help Americans living in Germany with their US tax return. If you need to file your US tax return, make the process easier by getting in touch with the professionals at H&R Block.
Income tax in Germany
The income tax system in Germany
Employed workers in Germany will be subject to a payroll tax, and therefore don’t need to submit a tax return – but many people still do in the hope of receiving a refund.
It’s compulsory to submit a tax declaration if:
- you are self-employed;
- you have more than one source of income;
- some income was received from abroad;
- you’ve got divorced and you or your ex-partner remarried in the same year;
- you received welfare benefits such as child benefit, sickness benefit, maternity pay or unemployment benefit;
- you want to apply for tax deductions;
- the tax office has sent you a letter requesting you to submit a tax return.
Everyone subject to German income tax must file an annual income tax return. You must submit this to your local tax office.
The municipality you register with will be able to give additional information on which local tax office you need to report your taxes to.
The Federal Central Tax Office (link in German) has a search facility to help you find your local tax office.
In addition to income tax, Germany has a compulsory social insurance scheme – and income tax takes this into account.
As of 1 January 2020, there is now a tax filing obligation for non-resident taxpayers who benefited from the so-called One-Fifth-Rule in payroll on multi-year income or on severance payments.
Before this change, foreign taxpayers with income subject to withholding tax would have settled through the withholding system and didn’t have to submit any returns or assessments.
Who pays income tax in Germany?
If you’re a resident in Germany, you must pay income tax on your German and worldwide income – regardless of whether or not you’re an expat.
The rules are only different if you’re not a German resident; in this case, you’ll still need to pay income tax, but only on the income you earn in Germany.
Who is exempt from income tax in Germany?
No one is exempt from paying tax in Germany if their income exceeds the tax-free personal allowance, but some people can get additional allowances and tax rebates.
For instance, some disabled people can get things like car tax reduction, state care allowances and special protection against dismissal – this will all work to help reduce their tax bill.
Earnings subject to income tax in Germany
Taxes on income and salary in Germany
Any income from the following categories counts as taxable income:
- employed income, as well as compensation from past employment;
- capital investment;
- self-employed income;
- business income;
- immovable property and certain tangible movable property;
- gains from private transactions, alimony or annuities.
Some types of income are tax-exempt but are used to determine the tax rate – such as unemployment benefits, maternity leave payments and certain income that’s been taxed in another country due to a double tax treaty.
Taxes on employment benefits
As a general rule, all types of benefits and remuneration you receive as an employee are considered taxable income.
These include things like:
- payments of school tuition fees;
- cost of living allowances;
- expat premiums;
- housing allowances/ housing provided by an employer;
Taxes on savings and investments
Savings and investments are subject to tax in Germany. Worldwide investment income is subject to German income tax at 25%.
This is in addition to the 5.5% solidarity charge, and church tax if applicable.
There’s a standard annual deduction that can be offset against worldwide investment income; for single taxpayers that’s €801, and for couples it’s €1,602.
Taxes on rental income
Income from renting out a property is subject to German income tax unless it’s exempt under a double tax treaty.
Landlords must submit a tax return detailing how much rent they received during the year. In addition to rental income tax, there’s a solidarity surcharge of 5.5% on rental income.
You can deduct expenses such as mortgage income, maintenance, improvements and repairs from the rental income you receive.
If you come to sell a buy-to-let property, you may have to pay capital gains tax on any profit you make from the sale if you’ve owned the property for 10 years or less.
How to file your tax return in Germany
Employed workers don’t have to submit a tax return unless they receive income from sources other than their main form of employment.
Payroll tax is taken out of employed workers’ salaries, which means their income is taxed automatically – the same goes for social contributions for various types of mandatory insurance.
Self-employed workers, however, must submit a tax return each year.
Income tax deadlines in Germany
German income tax returns are due after the end of the tax year – which is the same as the calendar year.
Your tax return will be due after the tax year has ended; the normal deadline is 31 July. So, you must submit your 2019 return by 31 July 2020.
If your tax return is prepared by a tax professional, it will be due on 31 December.
Two to six months after submitting your return, you will receive a tax assessment from the tax office.
This is a document detailing whether you should expect a refund – if you are owed money back, it will be paid directly into your bank.
If you owe tax, you’ll be given four weeks to pay it.
Income tax forms in Germany
You can complete your German tax declaration on paper or online using the Federal Central Tax Office’s software.
Everyone submitting a tax return will need to fill out a general tax form (Mantelbogen). There are a number of additional forms that you might have to fill out, depending on your individual circumstances.
To file online, you can go to the Mein ELSTER website (link in German) for submissions in 2020.
If you need some extra help, there are also some online explanatory forms (link in German) for online filing and printer.
Income tax rates in Germany
Income tax in Germany is progressive. Rates start at 14% and incrementally rise to 42%. The top 42% rate applies to income above €55,961.
Very high-income levels above €265,327 are taxed at 45%.
In addition to this, everyone has to pay solidarity tax which is capped at 5.5% of your income tax.
And if you are a member of a registered church in Germany, you’ll also have to pay a church tax of 8% – 9% of your income, depending on which federal state you live in.
Your tax class in Germany is largely determined by your marital status.
- Class 1: single, widowed, divorced, long-term separated
- Tax class 2: single parent
- Class 3: married with a higher income than a partner in class 5
- Tax class 4: married with an equal income
- Class 5: married with a lower income than a partner in class 3
- Tax class 6: second job or tax deduction.
Married couples with unequal salaries in class 3 or class 5 can save money on their overall tax bill.
A very simple example would work like this:
- Spouse A: owes annual German income tax of €17,028
- Spouse B: owes annual German income tax of €2,701
- Overall tax for the couple when paying tax separately: €19,729
- Joint couple’s tax using class 3 and 5: €18,014 – a saving of €1,715 per year.
To calculate the German income tax you owe on your wages, you can use the SteuerGo tax calculator.
Personal tax allowance and deductions in Germany
Making the most of the tax allowances and deductions available increases the chances of getting a tax refund.
The first €9,169 (or €18,338 for married couples submitting a combined tax return) earned each year is tax-free. Any amount over that is subject to income tax.
Charitable donations to German charities are deductible up to 20% of gross income.
If you make alimony payments to an ex-partner, up to €13,805 can also be deducted.
Taxpayers with children can claim education expenses if the child attends a private school in Germany equivalent to 30% of tuition fees, along with child allowance and childcare costs for children under the age of 14.
If you’re employed, you can deduct certain income-related expenses that are documented and haven’t already been reimbursed by your employer.
These are usually capped at €1,000 a year, and can include:
- your job causing you to move house;
- traveling or commuting;
- further training expenses;
- professional equipment;
- costs if you need to run two households as a result of work.
You can also make insurance contributions, including:
- health insurance: 100% deductible for statutory health insurance and private health insurance for primary healthcare;
- long-term care insurance contributions: 100% deductible;
- unemployment insurance contributions: up to €2,800 per year;
- pension scheme contributions: up to €25,046.
Self-employed income tax allowances in Germany
In Germany, self-employed workers are subject to the same €9,169 allowance as other workers, but they also get a €2,800 allowance for health insurance.
Another way self-employed workers can reduce their tax bill is to offset work-related outgoings against their overall tax bill.
Depending on your business, this can include things like work-related travel, stationery and the services of an accountant.
Some people, such as journalists, can write off expenses in a lump sum without the need for separate receipts up to 30% of their revenue, or €2,455 – whichever amount is lower.
Income tax in Germany for foreigners
There aren’t any notable deductions for expats when it comes to income tax in Germany.
The main thing expats need to consider is whether they’re at risk of paying tax twice – both in Germany and in their home country.
As of January 2020, Germany has 96 bilateral tax agreements, with countries including Ireland, New Zealand, Australia, the USA, and the UK.
Tax refunds in Germany
On average, nine out of 10 people who submit a tax return in Germany receive a refund – that’s according to data from the Federal German Statistics Office.
As taxpayers have to pay their income tax throughout the year, it may be that, once they submit a tax return, they’ve already paid too much.
If you are submitting a tax return voluntarily, you can apply for refunds for up four previous tax years.
It generally takes two to six months to find out if you’ve been successful in getting a refund.
Tax fines in Germany
Anyone who fails to file their German income tax return on time will be subject to late filing fees.
For each month your return is late, you’ll be fined 0.25% of the total assessed tax. So, if your tax total is €10,000, you’ll be charged €25 a month in late fees.
If you’re late paying the tax you owe, you’ll be fined 1% of the unpaid each month that you fail to pay it.
Income tax advice in Germany
Income taxes for expats can be tricky – you’ll need to make sure you’re fully up to speed on the country’s tax rules to avoid any nasty fines for getting your returns wrong, as well as finding out about any double tax treaties in place.
Websites such as the International Federation of Accountants can help you find member organizations.
You can also get expert advice on tax issues from organizations specializing in offering expat financial support and advice, such as: