Tax System in Germany

Understanding the tax system is vital when moving to a new country. Below is an account of Germany’s income tax system accurate as of 2019. This account was taken straight from our “Berlin Relocation Guide” which can be downloaded here: https://www.sigmarrecruitment.eu/relocating-to-germany/berlin

If you are a resident of Germany, you have full income tax liability. All income earned in Germany and abroad is subject to German income tax and a solidarity surcharge. Germany’s income tax system is progressive, meaning that the rate of tax increases as income increases ranging from 0–45%. For married couples, rates are more favorable when tax is filed jointly. The tax year runs from January 1st to December 31st. If you do have to file your own taxes, the cutoff date is May 31st for the preceding year.

The rates for 2019 are;

0 – 9,169 0%

9,169 - 14,255 14-24%

14-256 - 55,960 24-42%

55,691 – 265,236 42%

265,327+ 45%

Solidarity Surcharge

The solidarity surcharge (Solidaritaetszuschlag) is an additional fee on income tax, capital gains tax and corporate tax in Germany. This means that the solidarity surcharge is to be paid by every natural and legal person that owes one of the above-mentioned taxes in Germany. This surcharge is levied at 5.5% of the income tax for higher incomes.

Withholding/Pay as you Earn Tax

Income from employed work and capital income are taxed at the source, meaning you as a tax payer will not need to file your own taxes come year end. The tax owed will be deducted and retained at the source by the employer or by the bank before the earnings are payed out. If the employer is a German company or a foreign enterprise with a permanent establishment or a representative in Germany, the employer is legally obliged to withhold taxes from an employee’s salary and to remit the taxes to the tax office monthly.

Paying Income Tax

When you are taxed at the source, your tax will be based on your personal status. You will fall into a certain class that will directly affect how much tax you pay. Below are the six types of tax classes:

Class 1: Single

Class 2: Single parent (living alone with the child/children)

Class 3: Married and spouse (when spouse does not have an income)

Class 4: Married and similar income to spouse

Class 5: Opposite of class 3, i.e this is the class the second earner chooses if the spouse opts for class 3

Class 6: For a second job or for deduction without proper employee information

The taxation at source for capital income will be done with a flat tax rate of 25% (add solidarity surcharge of 5.5% of the amount of tax).

Start-up vs Large Corporation

Join a start-up or a large corporation? This polarizing question has no clear-cut answer but is consistently debated in the software development world. Both start-ups and established corporations come with their own individual set of advantages and disadvantages. There is no black and white answer, it all depends on what you value most. Method vs Madness This is one of the most distinctive differences between the two. In a large corporation, there are clear and well-established processes in place that dictate everything. All tasks are divided into work items and Gantt charts and then equally spread across the team. Everyone fulfils their specialised job role with changes to the process only occurring with pre-emptive planning. Start-ups on the other hand operate on an ad-hoc, needs must basis. Whatever is needed at that time or in the very near future is prioritised. Tasks are not divided equally among the team, nor are they debated over numerous meetings. Work processes and tasks can change very quickly as the start-up moves into a different direction or it loses investment or something else entirely. Corporations’ organised and clearly defined processes remove a lot of ambiguity and ensure that developers are not overworked. However, it often stifles work productivity as time is lost through constant meetings and ‘going through the motions’ of bureaucracy. In a start-up, developers are afforded full responsibility of their work which is very attractive to many. You are likely to be your own manager removing the time-consuming meetings and bureaucratic processes. However, this does come at a cost. If something goes wrong, it is on you to fix it. It doesn’t matter if its 5pm on a Friday or if you already have an unmanageable to-do list, it is up to you to fix it. Professional Development & Career Advancement This is a grey area as both start-ups and large corporations offer great paths to professional development and career advancement but in very different ways. In a large corporation, you will learn valuable skills such as navigating large-scale projects, how to effectively integrate teams, how to work with mature code and the inner workings of large organisations. In addition, you will have a lot of support from developers within the organisation and from extensive training usually paid for and provided by your company. There are clear paths to career advancement on a merit-basis. Those who have clearly demonstrated that they are the best for the job or promotion, tend to get it. On the flip side, start-ups give you the chance to gain working experience in many, often cutting-edge technologies. You will likely have the opportunity to make important architecture yourself while working in different roles on different parts of projects. The support system will however naturally be lower. You will likely work with a select few very smart individuals, but Google will be your best friend for solving issues. Career advancement can be very quick as you will grow as the start-up grows. The earlier you get in, the higher you will advance all going to plan. If you excel in an autonomous role where you dictate how and what work is done, a start-up will work for you. If you excel in a position with clear direction and a solid support system, a large corporation is for you. Pay & Compensation This tends to be the deal breaker for many. Naturally, large corporations can offer a lot in terms of salary and overall remuneration packages. Heavy hitters such as Google, Facebook and Amazon often offer above market salaries with incredible benefit packages to lure in the best talent in the market. Start-ups cannot afford to match the big corporate outfits. You are likely to do the job of three people for the price of less than one in the early days. You will have to acclimatise to a lower standard of living, however there is always the chance that it could pay off in the future if the start-up is a success. Only you will know which one is for you. Start-ups are risky and require a lot of hard-work but they can pay off in a big way. Large corporations are safe, slow moving but can also offer a lot. It all comes down to what you value most and your career aspirations.

How To Improve Productivity at Work

Throughout history, one of the most basic goals of any business is to increase efficiency and productivity. The more efficient a person or process is, the less time is required to complete a project. The natural by-product of increased productivity is an increase in the bottom line. Within software development, there is always more work to do; new features to implement, bugs to fix, tests to run, the list can feel endless. Here are a few tips to help increase your productivity at work to get more from your workday. Work Fewer Hours This may sound counter intuitive, but significant research has shown that working fewer hours promotes smarter solutions while improving your ability to focus. The very nature of coding presents developers with complex issues on a daily basis that require incredible focus and smart solutions. In reality, working shorter hours may not always be possible if your employer is yet to understand the significant benefits shorter hours offers, if you are very new to a job/inexperienced or if your workload is simply too much. If this is the case, we recommend taking more short breaks throughout the day. Coding is a huge mental drain requiring consistent focus. It is important to give your brain time to refresh and recharge by leaving your desk at intervals throughout the day. Scrolling through your phone or browsing the web is not a mental break, it is just another point of focus. Try going for a walk, chatting with a colleague or getting some fresh air to reenergise your brain. Avoid Distractions According to a survey conducted by Udemy Research — aptly named "2018 Workplace Distraction Report" nearly 3 out of 4 workers (70 percent) say they feel distracted at work. The impact this has is compounded when coding due to the complex nature of the activity. You’re in the zone, ten different variables shooting through your mind and bang your phone rings or your work friend taps you on the shoulder. Instantly you are dragged out of the zone hampering productivity. Research has shown it takes up to fifteen minutes to fully get back in the zone. Similar to when you’re just about to nod off to sleep and something disturbs you, it takes around fifteen minutes to shake off the disturbance. Practical tips to combat this include; Wearing noise cancelling headphones if this is allowed in your workplace Having a clear and open conversation with your colleagues that you can only work effectively when left undisturbed for a period of time Pre-set times to chat with your colleagues or organise set meetings to avoid disturbances Turn notifications off on your phone Have a sign on your desk stating that you are working on a complex issue removing any ambiguity in the situation – open communication about the sign prior to putting it up is key. Automate Writing scripts to automate the laborious time-consuming elements of your job can improve productivity for an entire team significantly. Streamlining your workday enables you to work smarter, not harder. When you face a laborious task, always err on the side of automation but make sure you consider the cost-benefit of automating the task. You don’t want to spend more time on debugging the script than the actual task at hand. Don’t Multitask Despite your self-assessment that you are an expert multi-tasker, the reality is that research from the American Psychological Association among other sources shows that you are not. When your to-do list is overwhelmingly long, it can be tempting to hop from task to task, generating an illusion of control for your own benefit. In reality, you are wasting time as you jump between headspaces, losing the clarity that comes with continuous focus. When working on a task, choose to work on that task until completion. Of course, in the real world, this is not always possible. A solution is simply setting a time-frame or deadline for the task. Allow yourself a certain amount of time to work on the task, then move on to the next. It is important that your full focus is on one task at a time. In the working world, you will always encounter distractions and obstacles to productivity. The key is to implement simple measures when possible to mitigate distractions and to always be mindful of burnout. Our brains work better when they are afforded adequate time to refresh and when they are focused on one task at a time.

Tax System in Germany