Individual Income Tax in Germany
Subject to individual income tax is every individual (also a partner of a partnership) in Germany either with its world-wide income (unlimited tax liability) or only with its German income (limited tax liability). The limited tax liability applies to foreigner with no permanent residence in Germany.
System of individual income tax in Germany:
Wages and salaries for employees are subject to payroll withholding taxes by the employer on a monthly basis. The employer has the duty to pay the withholding tax directly to the fiscal authorities.
The system of withholding taxes is also applied to capital gains whereas banks are obligated to deduct and remit the taxes. Taxes on other types of income have to be declared by the taxpayer and often involves quarterly tax pre-payments. The tax authorities calculate the pre-payments based on the prior year’s tax or on estimates of income not subject to withholding tax.
In general taxpayers have to file an annual return by 31 May of the following year. Married couples can file tax returns jointly or as separate individuals. Income related expenses as well as special expenses are deductable from the income. Due to a change in German tax law capital gains are subject to a 25 % settlement tax. With introduction of the settlement tax on capital gains in 2009 no income related expenses are deductable on this kind of income. However the is still a tax free amount of EUR 801.00 (and married couples for filing a jointly return of EUR 1.602,00) for capital gains.
Taxes owed have to be paid within one month after the tax authorities issued the corresponding tax assessment.
Non-residents are subject to tax on certain categories of income from German sources. If the income from employment is subject to wage tax withholding, the tax obligations are fulfilled and no German income tax return needs to be filed.
Tax calculation and tax rate
The following scheme provides an overview of the tax calculation:
|Gross income (e.g. wages/salaries, alimony received, business income, farm income, rental real estate)|
|less:||Income related expenses (e.g. commuting expenses, moving expenses, business expenses) respectively standard deduction (e.g. lump sum of EUR 920.00 on wages/salaries income)|
|less:||Loss carried forward|
|less:||Special expenses (e.g. provident expenses, school fees, expenses for additional retirement savings, donations)|
|equals:||Taxable income (basis for applying the respective tax rate)|
The standard tax rates are as follows:
|0%||up to 8.354 EUR|
|14%||8.355 – 13.470 EUR|
|24%||13.471 – 52.881 EUR|
|42%||52.882 – 250.730 EUR|
|45%||250.731 EUR and over|
For married taxpayers who file their income tax return jointly the amounts of income have to be doubled.