At Work in Berlin


Tax system in Berlin


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The tax system in Germany is quite complicated. The revenue gained from tax collection is used for government spending and can be broken down into the areas of welfare (almost 50 percent), existing debts (approx. 15 percent), defense (approx. 9 percent), transport (approx. 9 percent), federal employees (3 percent) and sciences (3 percent).

Anyone living in Germany as an employee and receiving an income has to pay taxes and be registered with the local Tax Office (Finanzamt). You will be issued with a tax number (Steuernummer) which you will need to declare when claiming payment. Individual living conditions are taken into account in calculating taxable income. The taxation criteria are set out on the wage tax card issued by the municipality on the basis of its documentation (e.g. index of residents) for each calendar year.

Individual Tax

Income tax (Einkommensteuer) is any source tax which is due on monies earned whether self-employed or not. Personal or individual taxation varies and increases progressively depending on the employee's salary and status.

    There are six different forms of tax brackets in Germany:
  • Single or separated workers with no children and no recent divorce/separation/widowing
  • Single or separated workers with a child (additional child allowance may also be received)
  • Married workers where only one partner is working (or widowed within the first year of wife's/husband's death)
  • Married employees both in jobs
  • A mixture of the above two (such as married professional couple, one of whom has lost a spouse within the last year)
  • Double income employees (with income received in more than one tax bracket)
The minimum tax rate is 14 percent and the maximum tax is 45 percent. However, single people earning less than 8,004 euro per year are exempt from income tax. Couples earning less than 16,008 euro per year are also exempt. Use this calculator to find out your tax percentage.

Wage tax (Lohnsteuer)

Wage tax is a type of direct income tax which is levied from non-self-employed work. The quantity of wage tax depends on the wage tax bracket the employee is in. Employers are responsible for filling out the wage tax form (Lohnsteuerkarte) and sending it to the respective tax office (Finanzamt).

Salary tax card (Lohnsteuerkarte)

Employees require an income tax card (Lohnsteuerkarte) to work in a German company. This card documents tax payments and insurance contributions over the year and must be sent to the tax office along with completed tax return forms. The card can be obtained from the local registration office (Einwohnermeldeamt) and is available for all registered residents.

VAT

Value-added tax (Mehrwertsteuer) is usually included in the price. The standard rate is 19 percent, but some items (food and agricultural products) are charged a reduced rate of 7 percent.

Value added tax is imposed on assets and services in Germany as well as on imports into Germany. Overseas exports are exempt from value added tax. There are some special provisions for small businesses.

Church Tax

Also known as Kirchensteuer, there is a 8-9 percent tax if you are officially affiliated with one of Germany's established churches; usually Catholic or Protestant (Evangelisch).

Reporting

At the end of the year, every taxpayer must submit a tax return to the tax office. The tax year runs from 1 January to 31 December. The deadline for filing a tax return in Germany is always 31 May of the following year. This can be extended until the end of September if a tax advisor is filing the tax return, or on written confirmation from the tax office.

Couples may file tax returns on the same form. Married couples are eligible for deductions in line with their lower progressive tax rates and therefore pay less tax than single persons or married persons filing separate tax return forms.

    There are several exceptions:
  • Students (receiving formal education)
  • Unemployed people receiving social security who have not worked at all during the tax year in question
  • Retired people without any investment income

Tax forms can be obtained from the local tax office (Finanzamt) or can be sent directly to the workplace. Tax returns may also be made online using the electronic filing system, Elster.

The paper version has an attachment "N" (Anlage N). This is used to document all deductions, from receipts to bills, invoices etc. All residents may make deductions totalling up to 2,100 euro, or over this amount, as long as the appropriate invoices and receipts can be presented. Originals of the relevant documentation must be sent along with the tax returns form, Anlage N and the tax card (Lohnsteuerkarte).

After submission, the tax office determines if there is a refund owed, or additional payments should be made. Depending on the time of year and detail of the tax return, the tax office replies within the next few months with a final tax calculation. This is called the Bescheid ueber Einkommensteuer (notification of income tax).

Please note that only tax advisors are qualified to give advice. This section is to give a general overview and provide resources. It is in your best interest to employ an advisor as an expat. To find out more about how to file for a return, consult this thorough description of Elster.

Reciprocal Tax Agreements

Double tax treaties exist that may provide tax relief where a tax resident also pays income tax in another country.

Residents for taxation purposes- Once an employee has resided or worked in Germany for more than six months, they are considered a resident for tax purposes. Other factors obviously include residence permits (depending on the country they come from) or job relevance for the country, for example.
Non-residents for taxation purposes- This is complicated. Non-residents working in the country may also be required to pay tax in Germany. For example, if a freelance contractor is sent to Germany to work for a British company local taxes may also be due, depending on the time spent in the country, the amount earned, the field of work and the nationality of the contractor. For more information on individual cases, it is often best to consult a tax advisor in Germany, or a European tax advisor to provide a clear overview on what earnings can and cannot be taxed.

Many countries have reciprocal agreements with Germany to avoid double taxation. To check if your country has an agreement, go to Double Taxation Agreements.


Update 6/06/2011

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