You must pay the tax required by German law, whether you are a German citizen or a foreigner. It applies to each one who is living and working in Germany. In the previous article, we have discussed the taxation system, different types of taxes, and tax classes. Here in this article, we’ll cover the next part of the taxation in Germany. You’ll briefly know the mandatory and optional taxes, along with the tax percentage.
Table of Content
If you are earning in Germany, you must pay the tax on your income. The German tax system works in a way that the tax rate increases along with the taxable income. The Federal Central Tax Office takes care of the tax system on the national level in Germany. Most citizens pay income tax through payroll deductions from their employers. In case you have multiple jobs and run a business or are self-employed in Germany. In that case, you need to submit an annual tax return to work out your income tax amount.
Below is the table to introduce the income tax brackets and the tax rates.
|Up to €9,984||0%|
|€9,985 – €58,596||14 – 42%|
|€58,597 – €277,825||42%|
|€277,826 and above||45%|
Withholding or payroll tax is income tax and other contributions your employer withholds from your salary. This method is for the majority of expats in Germany. It is an easy process for newcomers, and your income tax rate has already been calculated and paid for you by your employer. If your one job is the only source of income, then you are not obliged to submit the tax declaration. This tax has been taken each month from your income. When discussing salary and employment contract terms for a new job, it is essential to know about the withholding tax deduction. Because there is a big difference between your gross and your net salary after paying the taxes. The withholding tax levy comprises a tax on your wage, national insurance contributions, taxes on “benefit in kind,” a solidarity surcharge, and a church tax.
Social Security Payments
An employee earning income in Germany has to pay compulsory social security contributions, which cover the payment of health insurance, pension insurance, long-term care insurance, and unemployment insurance. These payments are generally shared between you and your employer. Your employer typically contributes 50% of these payments. The share of the contributions will be withheld from your salary and paid to the relevant organizations. The total contribution to social security is around 20 – 22% of your paycheck, which is up to the specified maximum limit.
You might be paying the tax on anything utilized on “benefit in kind.” These are the perks and benefits you receive from your employer—for example, the usage of a company car. The tax amount is 1% of the car’s list price, including VAT on company-owned vehicles. Taxes are also applicable on the employer’s shares as perks and bonuses.
The solidarity surcharge is a 5.5% tax payable on income tax, capital gains, and corporation taxes. It was introduced in 1991 to cover the costs of German reunification. This tax covers the costs of paying pensions and debts. From January 2021, the solidarity surcharge for income tax has been increased. It is essentially abolishing the taxation for 90 percent of taxpayers. Single persons will only pay this tax if their gross annual income is 61,700 euros.
The church tax comes under the optional tax payment. When you register in Germany, you need to declare a religion. If you declare yourself Protestant, Catholic, or Jewish, you must pay the church tax. The tax office collected the church tax on behalf of religious organizations in Germany. The tax percentage is 8% in Bavaria and Baden-Wurttemberg. In all other federal states of Germany, it is 9%. If you have not declared your religion, then you will not pay the church tax.
VAT tax is a value-added tax in Germany. It is one of the compulsory taxes. The German government applies this tax on the sales of goods and services. In Germany, the standard VAT rate is 19% which applies to most goods and services. The reduced VAT tax rate is 7%, which applies to foodstuffs, books, cultural services, hotel stays, and medical and dental care. German zero-rated goods and services, which include intra-community and international transport. The sale of items in this category must still be reported on your VAT return even though no VAT tax is charged.
Since 2013, every household in Germany has to pay the TV and radio tax regardless of whether you own a TV or a radio. As soon as you register your address in Germany, you will receive a letter from the Beitragsservice for payment of radio tax. The monthly tax amount is 18.36 euros per household. It doesn’t matter how many people are living in one house. Disable, and students may be eligible for reduced radio tax payments or exempt.
Motor Vehicle Tax
If you own a car, the motor vehicle tax will apply to you. The tax amount depends on the fuel type and engine type. Vehicles registered before June 30, 2009, are taxed according to their emission class. Cars registered after that date are taxed based on their carbon dioxide emissions.
If you own a dog in Germany, it is legally essential to register the dog at your local tax office. Then your dog will receive a tag confirming that you have paid for the license. The dog tax for the first dog is between 90 to 150 euros per year. The tax amount is higher for keeping any additional dogs. It is to deter owners from having too many pets.
Property Sales Tax
You will be liable to pay a property sales tax if you purchase a house in Germany. This tax applies on a property valued at more than 2,500 euros. The tax rate varies between federal states from 3.5 to 6.5% of the property’s value.
Inheritance and Gift Tax
Suppose you are a taxpayer in Germany and the beneficiary of a German taxpayer. In that case, you will pay the tax for any gifts or assets you may receive. The tax rate varies from 7% to 50%, depending on the value of the inheritance.
Real Property Tax
Municipalities implement this tax on properties in Germany. The payable tax amount depends on the value of the property and the local tax rate. It varies from 0.26% to 1%.
This article will be helpful for you to understand all types of taxes in Germany. Some of them are mandatory and are necessary to pay. Others depend on the services’ usage and the assets you own in Germany. The income slab is available with the tax percentage to calculate the payable tax amount. By following this information, you’ll get a deep understanding of taxes in Germany.