Tax System in Germany

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).