What does it mean?
Tax residency status in Germany means that foreigners must pay taxes on all types of withholding, including wages, interest, dividends, rental payments, and other income. The German tax system is based on omnidirectional taxation, which means understanding that income earned in Germany and abroad is subject to taxation.
The central taxes you must pay in Germany are:
- withholding tax treaty (Einkommensteuer);
- social insurance (Lohnsteuer).
Withholding tax Germany is explained and calculation is set according to rates that depend on the overall level of income. Social insurance includes pension insurance, health insurance, and unemployment insurance.
The percentage rate of income tax treaty rates in Germany is not fixed. It varies depending on the amount of your withholding and can range from 14% to 45% of your salary. For example, according to the law with an annual salary of up to 40,000 euros, you will need to pay about 20% tax, and with 60,000 it is already 28%. Not the entire amount is covered by this interest rate. A certain portion of the salary, which depends on the employee’s tax refund class, is not taxed.
For a non-family person, this amount for 2018 is 9,000 euros. Also, a “solidarity contribution” is withheld from your salary – 5.5% of the annual withholding tax exemptions (as the law says if your monthly salary is less than 1,400 euros, this tax Deutsch is not charged) and church tax refund, depending on your religion (therefore, it is better to keep silent about this to save money formally).
For example, such a calculation, your gross salary is 1500 euros, you are over 23 years old and have no children, you do not pay church tax exemptions, and you work in the Baden-Württemberg region. After understanding the deduction of all taxes, the net salary for 2023 will be approximately 1,097 euros.