This page provides a brief overview of German taxes
Income tax and social security
Germany is certainly not a low-tax jurisdiction. But it is also not as bad as a lot of people think. Everybody seems to be talking about the tax rate being in the area of 50% or so. But how can it then be, that the tax bill for a single individual with an annual salary of €50k is around €12k (24%) and for a married couple with a joint annual income of €80k it is around €16k (20%)? These are figures for 2011 income tax, including surcharge - Solidaritätszuschlag.
The answer in many cases is – social security (Sozialversicherung)!
Social security is not classed as tax, but rather as "public insurance" – you pay into this insurance system and you get something directly in return. Not like taxes where your money is gone and you will never see anything directly returned to you. So, what is it then that you get in return.
- health insurance
- old age care
- unemployment benefits
What are the contributions:
- Health insurance: 7.75 % out of your salary (capped at 44,550 € pa)
- Old age care: 0.975 % out of your salary (capped at 44,550 € pa)
- Unemployment benefits: 1.5 % out of your salary (capped at 66,000 € pa)
- Pension: 9.95 % out of your salary (capped at 66,000 € pa)
Adding all these elements up, you can see that this gets expensive. The good news is, that you will have a pretty comprehensive medical cover (by international standards) to pay for all trips to hospitals, doctors and basic dental care as well as prescribed drugs from the pharmacy. Depending on various factors you will also get quite significant unemployment benefits (two thirds of your last net wages in many cases – with a cap) for a certain period after you have lost your job.
The state pension system is the element in social security which requires the biggest junk of contributions and will unfortunately not really give you a very attractive return at retirement age. Having said that, quite a number of expats are actually in a position to get their German pension contributions refunded after leaving the European Union (main requirement is, that they have made less than 60 months of contributions to the German pension system).
The German system of income tax applies to employees and self employed individuals alike. Same amounts, rates, thresholds. However, there is a significant difference when it comes to social security. Social security contributions as described above is only mandatory for employees. Self employed individuals only have to have health insurance. They are free to decide how they arrange their pension and how they cover potential periods of unemployment.
The German system of income tax is also known for endless exceptions and potential deductions. You need to make sure that you do make a claim for all those things that are allowable and reduce your taxable income as much as possible. High nominal tax rates don’t hurt as much if the amount of taxable income is low.
Kirchensteuer - Church tax
If you belong to one of the main religions and you put this down when you register as resident at your arrival in Germany you will have to pay church tax. Take 8% of your income tax due in a year, and it is ON TOP. Only consolation is that you can deduct it from your gross income in your income tax statement (Einkommensteuer). You can formally deregister from your religious organisation and this will also terminate your church tax exposure. See: kirchenaustritt.de
As well as taxes, don't forget that there are various compulsory insurances to be paid. See: German insurances
Please keep in mind that the above is a very general overview. A number of specific questions for expats are dealt with in the FAQ section “About German Taxes” at expattax.de
. You will also find a whole list of useful tax related links.
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