Dear Friends,
Please advice me on this situation:
Suppose my yearly (2007) gross-salary in germany is 24000 euro and if only Income Tax (Einkommensteuer) is 2880 euro (approx. 12%).
Now my question is:
How can i reduce my Income tax liable gross salary by investing in saving schemes?
Is there any saving schemes exist in germany where i can invest 4000 Euro (suppose) and then my tax liable salary will be 20000 and I will pay only 2400 euro as income tax?
Please advice!
Regards,
Ramsam
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Income tax saving schemes
Investing to reduce taxes paid
To be frank, your gross salary is way too low for you to be that worried about tax deductions because your marginal rate of income tax is not that high. If you want to consider saving or investing, I suggest sending a PM to Starshollow.
Agree with Conquistador.
One detail ,however: If your average tax rate is 12 %, then your marginal tax rate is not 12 % as you imply above, but higher, i.e. your rough calculation underestimates the tax savings of reducing your taxable income.
One detail ,however: If your average tax rate is 12 %, then your marginal tax rate is not 12 % as you imply above, but higher, i.e. your rough calculation underestimates the tax savings of reducing your taxable income.
And a constructive comment: There are certain pension savings schemes which allow you to defer taxation until retirement, if this is what you are looking for.
Dear Friends,
Thanks for your comments.
This salary and tax figure ist just an example.
I just wanted to know about different tax saving schemes.
Tom_a! would you please tell me more about this scheme with company names etc.
Regards,
ramsam
Thanks for your comments.
This salary and tax figure ist just an example.
I just wanted to know about different tax saving schemes.
Tom_a! would you please tell me more about this scheme with company names etc.
Regards,
ramsam
Out of the hat there are only four possible options for anyone to reduce income tax burden left in Germany by now, three are with pension plans and 1 with other investments. Here is a short overview:
1. betriebliche Altersvorsorge (bAV) or company pension plan: available ony to employees, since 2001 every employee in Germany has a claim to be admitted to such a plan. The employer can allow different ways/schemes or rule that only one scheme is allowed in his enterprise (take it or leave it). Many companies allow "Entgeltumwandlung" which means you can deduct up to 210.- EUR per month from your gross salary and invest this amount into a pension plan. Since the money comes from your gross salary it carries with it all deductions for taxes, health insurance, public pension, unemployment insurance etc which is why usually the net payment into such a plan for employees is only 50-60% of the total amount. detailed answer to ramsam is of course only possible with knowledge of salary, tax bracket (Steuerklasse) and other tax relevant details. If you are an employee, ask your employer about this bAV and what he offers. Just make sure that you don't sign up on a plan that fills mainly the pockets of the insurance agent in the first years...
2. RIESTER pension plan: again only available to employees or spouses of employees (i.e. you can be self employed/freelancing, if your spouse is even only a 401-EUR employee you can both sign up). This year you can invest up to 1575.- EUR which include the direct subsidy from the governement of 114.- EUR, hence your net investment would be 1.461.- EUR which you can write of against your taxes. Next year the direct subsidy will raise to 154.- EUR per person and the total investment possible to 2.100.- EUR max. IN most I have seen for employees with average income the total benefit from subsdies and tax relief comes to a subsidy of 30+ %, for people with higher incomes more than 40% benefit are possible. PLease make definetly sure that as an ExPat who might leave Germany in a couple of years you only take on a Riester plan without "Zillmerung" because otherwise you will loose too much money through costs deductions within the first couple of years which will cancel out the benefits from the subsidies.
3. Basis-Rente or Rürup-Rente: a pension plan streamline for self-employed and freelancers, but also open to employees. Positive: you can write off a max of 20.000.- EUR per year with currently 64% against your taxable income and the rate for writing off will increase every year over the next years until you write off finally 100%. You can pay in a lump sum at the end of the year, thus saving taxes whenever you see that there is enough liquidity there or need to reduce taxes at the end of the year. Downside: money invested there can not be retaken by you or any other person and can only be paid out as a monthly pension beginning at the earliest at age 60 (if you die before reaching pension age, your family will get a downpayment, though).
The fact that is can not be touched by any third person is a good thing from my professional experience because it makes sure that people don't loose savings for old age in time of crisis (even if you go bankcrupt, this money is off limits for creditors). But if you would rather decide if you get a pension or take the capital some place else when you reach pension age, here you don't have the choice. There are some special plans which include a clever construction of occupational disability insurance/dread disease insurance and where I have computed that with payments of say 250.- EUR per month over 30 years the net payment after having received all tax benefits for the whole duration for both pension and insurance comes to a total of a couple of hundred EUR only (this is because in some years you will receive more than 100% tax reimbursments through the combination on the money paid in because of the clever tax-optimizing construction of the plan). But this is only an option for someone who plans to stay in Germany for the long run or would be willing to receive pension payments later from Germany to foreign accounts.
4. Investment in historic buildings: this is the last bit of tax saving investments where you can write off the total investemnts for rebuilding for a protected historic building in relatively short time against all other income. However this requires of course a hefty lump sum investment into such a property and may not be what ramsam is looking for.
And thats it, I am affraid, all the rest of the tax saving investment from the future have been legally erased since spring of this year. oh the good times lost... well, not so good from my point of view because many people were tricked into unsound investments just with the lure of saving taxes. Basically when- and whereever you invest: tax saving should be a cherry on top, the investment itself should be profitable in itself, otherwise chances are you buying sh.. for gold.
Cheerio
1. betriebliche Altersvorsorge (bAV) or company pension plan: available ony to employees, since 2001 every employee in Germany has a claim to be admitted to such a plan. The employer can allow different ways/schemes or rule that only one scheme is allowed in his enterprise (take it or leave it). Many companies allow "Entgeltumwandlung" which means you can deduct up to 210.- EUR per month from your gross salary and invest this amount into a pension plan. Since the money comes from your gross salary it carries with it all deductions for taxes, health insurance, public pension, unemployment insurance etc which is why usually the net payment into such a plan for employees is only 50-60% of the total amount. detailed answer to ramsam is of course only possible with knowledge of salary, tax bracket (Steuerklasse) and other tax relevant details. If you are an employee, ask your employer about this bAV and what he offers. Just make sure that you don't sign up on a plan that fills mainly the pockets of the insurance agent in the first years...
2. RIESTER pension plan: again only available to employees or spouses of employees (i.e. you can be self employed/freelancing, if your spouse is even only a 401-EUR employee you can both sign up). This year you can invest up to 1575.- EUR which include the direct subsidy from the governement of 114.- EUR, hence your net investment would be 1.461.- EUR which you can write of against your taxes. Next year the direct subsidy will raise to 154.- EUR per person and the total investment possible to 2.100.- EUR max. IN most I have seen for employees with average income the total benefit from subsdies and tax relief comes to a subsidy of 30+ %, for people with higher incomes more than 40% benefit are possible. PLease make definetly sure that as an ExPat who might leave Germany in a couple of years you only take on a Riester plan without "Zillmerung" because otherwise you will loose too much money through costs deductions within the first couple of years which will cancel out the benefits from the subsidies.
3. Basis-Rente or Rürup-Rente: a pension plan streamline for self-employed and freelancers, but also open to employees. Positive: you can write off a max of 20.000.- EUR per year with currently 64% against your taxable income and the rate for writing off will increase every year over the next years until you write off finally 100%. You can pay in a lump sum at the end of the year, thus saving taxes whenever you see that there is enough liquidity there or need to reduce taxes at the end of the year. Downside: money invested there can not be retaken by you or any other person and can only be paid out as a monthly pension beginning at the earliest at age 60 (if you die before reaching pension age, your family will get a downpayment, though).
The fact that is can not be touched by any third person is a good thing from my professional experience because it makes sure that people don't loose savings for old age in time of crisis (even if you go bankcrupt, this money is off limits for creditors). But if you would rather decide if you get a pension or take the capital some place else when you reach pension age, here you don't have the choice. There are some special plans which include a clever construction of occupational disability insurance/dread disease insurance and where I have computed that with payments of say 250.- EUR per month over 30 years the net payment after having received all tax benefits for the whole duration for both pension and insurance comes to a total of a couple of hundred EUR only (this is because in some years you will receive more than 100% tax reimbursments through the combination on the money paid in because of the clever tax-optimizing construction of the plan). But this is only an option for someone who plans to stay in Germany for the long run or would be willing to receive pension payments later from Germany to foreign accounts.
4. Investment in historic buildings: this is the last bit of tax saving investments where you can write off the total investemnts for rebuilding for a protected historic building in relatively short time against all other income. However this requires of course a hefty lump sum investment into such a property and may not be what ramsam is looking for.
And thats it, I am affraid, all the rest of the tax saving investment from the future have been legally erased since spring of this year. oh the good times lost... well, not so good from my point of view because many people were tricked into unsound investments just with the lure of saving taxes. Basically when- and whereever you invest: tax saving should be a cherry on top, the investment itself should be profitable in itself, otherwise chances are you buying sh.. for gold.
Cheerio
Dear Starshollow,
Thankyou very much for your kind response and very helpful info.
Best Regards,
Ramsam
Thankyou very much for your kind response and very helpful info.
Best Regards,
Ramsam
on 12% income tax ...I think a few people would like to sign up for that...(provided it didnt include the 24k a year salery)
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