One of the strongest economies in Europe is Germany and one that sets it apart is its intricate tax system. In Germany, whether you are a citizen or someone who holds German residency, the law requires you to pay taxes if you earn money while working or living in the country.
Generally, taxes are levied by the federal government, federal states and municipalities; while tax administration is shared between two authorities; namely, the Federal Central tax office and the Regional tax offices.
The Tax revenue, derived from income tax, VAT, corporation tax, and others are distributed between the federal government, states, and municipalities.
Here is a list of some of the common taxes in Germany.
Income Tax
German Tax income is progressive, which means the rate increases along with the increase in income. For most employees, the tax is deducted directly from their salaries. If an individual has multiple jobs, owns a business or is self-employed in the country, an annual tax return is required to be submitted.
Withholding Tax
Also called payroll tax, this is the income tax and other contributions that are withheld by an employer from an individual’s salary. This is common for most expats holding German citizenship- this means that an individual’s income tax has been paid by the employer.
Solidarity Surcharge
This is a 5.5 percent tax supplement that’s payable on all income tax above 972 euros. This kind of tax was introduced in the 90s to cover the costs of German reunification. This tax is also payable on corporation taxes and capital gains
Church Tax
Part of the process of getting a German residency is declaring one’s religion. You are required to pay church tax if you are Jewish, a protestant or a Catholic. This is collected on behalf of the German religious institutions. Currently, it is 9% in all other federal states and 8% in Bavaria and Baden-Württemberg. Additionally, if you have not declared a religion, you are not liable to church tax.
Dog Tax
For dog owners in Germany, the law requires them to register their dogs at their local tax office. The pet then receives a tag which is a confirmation of a paid license. Usually, this costs about 150 euros per year for the first dog. If an individual has more dogs, the tax will be higher. However, guide and service dogs are exempt as are other pets.
Motor Vehicle Tax
If you own a vehicle in Germany you are required to pay this tax. The rate varies depending on the vehicle’s engine and fuel type. On June 30, 2009. Vehicles are taxed based on their emission class. Vehicles that are registered after the mentioned date are taxed depending on its carbon dioxide emissions.
Penalties are available for anyone who has failed to pay the tax on time or failed to declare their income. An individual can face a fine of up to 50, 000 euros or imprisonment.
Although there are a lot of other taxes in the country, these are the common taxes that one has to be aware of when moving to Germany. These taxes play a vital role in sustaining the economy of Germany which ultimately benefits both its citizens and expats.
If moving to Germany is one of your goals, you can always consult us for an entrepreneurial residency program that could fast-track your way to Germany and secure your German residency.
