- Taxes and social security have to be expected.
- As a German employee, you are subject to social security.
- Unlike other countries, there is no special tax for Ex-pats working and living in Germany.
- All contributions and payments are the same as native Germans.
- You are liable for tax on your worldly income when you move or reside here.
- For your income tax return, various private and professional expenses can be claimed.
- Germany has double taxation agreements with most countries.
If you work in Germany as an Expat, contributions to German taxes and social security are expected. The amount of money from tax returns is dependent on a few factors.
The exception is the 183-day rule. If your foreign employer sends you to work in Germany for less than 183 days, you pay taxes in your home country.
The Ex-pat Social Security Tax
As a German employee, you are subject to social security contributions, no matter the time frame. These contributions are deducted from your salary and go towards pension and unemployment insurance.
Is There An Ex-pat Tax In Germany?
Unlike other countries, there is no special tax for Ex-pats working and living in Germany. All contributions and payments are the same as native Germans. However, ex-pats may benefit from how taxation and social security are handled. Both tax avoidance schemes and financial products with tax benefits are widespread, and using them can reduce the impact taxes have on disposable income.
When Are Ex-pats Liable For Income Tax In Germany?
Germany has an unlimited tax liability, and you are liable for tax on your worldly income when you move or reside here. Those without German residence can still be subjected to limited tax liability from German income sources. You need to file a tax return for any German income. The only exceptions are if the income is already subjected to withholding tax by the paying agency or is under the tax threshold. However, you are still obliged to declare your worldly income to the bureau of finance. The assessment period in Germany runs each year from January 1 to December 31.
Any foreign income you receive before or after moving to Germany must also be declared within your annual German tax return. Although, this income is not included based on taxation, only to determine the tax rate.
Can Expats Fail The Tax In Germany?
To avoid tax evasion, you must fulfil your tax obligations on time or in full. Tax evasion, in Germany, is a criminal offence punishable by fines or up to 10 years imprisonment, depending on the severity of the case.
Ways Of Tax Reduction
For your income tax return, various private and professional expenses can be claimed, reducing your tax and various structuring methods. Early reconciliation and coordination of tax circumstances can significantly impact cash flow and the overall tax burden. With these opportunities to save tax, you may also be eligible to claim tax allowances, such as child benefits.
Tax Reduction And Investing
You may also be able to save tax through investing, especially if these investments are to fund your retirement. Two components influence the taxation of investments: the frame contract and the investment itself.
Government-supported frame contract schemes motivate people to prepare for retirement and generate additional income revenue besides the statutory pension. This would be the case for the Riester-Rente, the Rürup-Rente and the company pension scheme (BAV) in Germany, allowing you to deduct the invested money from your taxes.
With any investment, broad assumptions do not always apply in all countries. For example, accumulating EFTs (ACC EFT) in other countries are not taxed until sold, so reinvested dividends or interest payments are tax-free. In Germany, all payments are taxable, regardless of whether they are given to the investor or used to buy more assets, so this ACC EFT benefit is gone. The best investment to save taxes in Germany is real estate, with repairs and upkeep used as expenses, and if you rent the property, your mortgage interest is also deductible.
Do I Also Pay Taxes In My Home Country?
Germany has double taxation agreements with most countries to not impose an additional burden on foreign employees. However, typical employee expenses in your home country may still apply. For example, US ex-pats in Germany must also transfer an ex-pat tax to their home country and other abroad incomes. Agreements such as the US-Germany Social Security Agreement or agreements on double taxation can be found on your foreign mission or Germany’s office of finance.