Individuals who have a domicile or substancial presence in Germany are subject to unlimited income tax liability. A continuous stay in Germany of more than six months is deemed to be a substantial presence, unless the stay is for private purposes only and does not exceed one year. The unlimited income tax liability refers to all taxable income worldwide.
In case there is no tax residence in Germany, the income tax liability is limited to the domestic income.
The following are subject to income tax:
1. Income from agriculture and forestry,
2. Income from business operations,
3. Income from self-employment,
4. Income from employment,
5. Income from capital assets,
6. Income from renting and leasing,
7. Selected other income,
which the taxpayer earns during his unlimited income tax liability or as domestic income during his limited income tax liability.
Real estate capital gains are not taxed if the property was occupied by the owner and was held for more than 10 years.
Deductions from income include the EUR 1,000 standard deduction on employment income.
In Germany, there are two main types of withholding taxes, capital gains tax and payroll tax.
Wage tax is levied by the domestic employer by deduction from wages. The employee receives a wage tax certificate (Lohnsteuerbescheinigung) from the employer for the calendar year.
Capital gains tax is levied on domestic investment income as a withholding tax. In the case of foreign income from investments managed in Germany, the final withholding tax is deducted directly by the domestic credit institution. Capital investments managed abroad are assessed in the income tax return.
Federal Tax Rates for Germany
Taxation begins at EUR 9,984 (single individuals). For married couples, the filing threshold for joint returns increases to EUR 19,968.
|14% -42% progressive rate||EUR 9,985 – EUR 58,506|
|42%||EUR 58,597 – EUR 277,825|
|45%||EUR 277,826 & more|
A solidarity surcharge of 5.5% of the tax amount is levied on the income tax as a supplementary levy. As of 2021, the surcharge will no longer be levied on a single taxpayer if the taxable annual income does not exceed EUR 62,121 or EUR 124,242 for married couples assessed jointly.
Capital gains tax is payable on income from financial investments, e.g. bank deposits, shares, bonds, funds, ETFs or certificates. As a rule, this is a flat rate of 25% + solidarity surcharge + church tax, if applicable.
In Germany there are no regional taxes. Nevertheless, there is a church tax based on laws of the federal states for church members, which is calculated as a surcharge on the income tax.
Income Tax Schedule
Income tax is an annual tax. The basis for its assessment is determined for each calendar year.
The deadline for filing the income tax return prepared by the taxpayer himself/herself is July 31 of the following year. Due to the Corona pandemic, the deadlines for 2021 have been extended to September 2022 and for 2022 to August 2023*. Tax advisors may submit the income tax return by the end of February of the year after next. For 2021 it is the end of June 2023 and for 2022 it is the end of April 2024*.
*Draft of the Fourth Corona Tax Relief Act
Tax payments are due 1 month following the income tax notice. The late payment surcharge is 1% of the tax amount per month.
Late filing penalties are 0.25 % of taxes per month, and is limited to no more than EUR 25,000. Starting 15 month after the end of the calendar year in which the tax arose, interest is assessed at 0.5 % per month. Due to the Corona pandemic, the interest period begins after 19 months in 2021 and after 17 months in 2022.
German Social Security Systems
There are five branches of social insurance in Germany:
Long-term care insurance
In the case of statutory social insurance, insurance is compulsory. It also includes people who would otherwise not be able to obtain protection elsewhere, for example through private insurance, due to their low income or high risks. Contributions are usually calculated according to gross salaries. Insurance is financed by employer and employee contributions in different proportions depending on the line of business. The employer pays the insurance contributions to the health insurance fund for both sides.