Germany has different types of taxes, such as withholding tax Deutsch, trade tax, or VAT. These are the government’s most significant source of revenue, from which it finances spending for the benefit of the public—for example, social security, education, health care, or transport infrastructure. The German tax system is explained and based on productivity, transparency, and fairness.
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 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.
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| 1 | Self-employment |
| 2 | Income, dividends received from abroad |
| 3 | Divorce, provided that the taxpayer or his former spouse remarried in the same year |
| 4 | Received social benefits for pregnancy and childbirth, for a child, or for unemployment |
| 5 | To apply for tax Deutsch deductions |
| 6 | The tax office sent a letter asking to send a declaration |
Withholding tax in Germany, known as “Quellensteuer” or “Lohnsteuer,” is a form of tax deducted directly from income sources such as wages, interest, dividends, and rental payments. It ensures immediate tax collection by withholding a portion of income before it reaches the recipient.
Withholding tax rates in Germany are progressive, varying based on income levels. For instance, rates can range from 14% to 45% depending on total earnings. Additional factors like tax refund class and deductions for social benefits or church tax may also apply, affecting the final amount withheld.
The primary types of withholding taxes in Germany include income tax (Einkommensteuer), which applies to earnings, and social insurance contributions (Lohnsteuer), covering pension, health, and unemployment insurance.
Individuals in Germany must file a tax return under various circumstances, such as self-employment, receipt of income or dividends from abroad, marital status changes like divorce and remarriage, receiving social benefits, or when requested by the tax office.
In Germany, withholding tax exemptions may apply based on factors like marital status, number of children, and religious affiliation affecting church tax. Exemptions can lower the taxable income, reducing the amount subject to withholding tax.
To claim a withholding tax refund in Germany, individuals must submit a tax return detailing income sources, deductions, and applicable exemptions. The tax office processes the return to determine if any excess withholding can be refunded.
The solidarity surcharge (“Solidaritätszuschlag”) is an additional tax levied on withholding tax exemptions to fund costs associated with German reunification and other public expenditures. It typically amounts to 5.5% of the withholding tax exemptions
Dividends received in Germany are subject to withholding tax at a rate of 25%. Investors can often benefit from reduced rates or exemptions under double taxation treaties Germany has with many countries, minimizing the impact of double taxation.
Failure to file a tax return in Germany when required can result in penalties and fines imposed by the tax authorities. It’s crucial to comply with filing obligations to avoid legal consequences and ensure accurate tax assessment.
Yes, foreigners working in Germany can claim withholding tax refunds by filing a tax return. The process involves providing necessary documentation of income, deductions, and any applicable tax treaties to the German tax office for assessment.
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