Who works in Germany, must pay taxes from a certain income level. This also applies to ex-pats, but they do not have to pay a special expat tax Germany, but are taxed in the same way as German citizens. Retirees also have to pay taxes above a certain pension amount, but the taxes in retirement are much lower. This article provides an overview of which taxes have to be paid in Germany.
- Wage tax are already deducted when salaries are paid.
- Income tax refers to all income – for example, from capital investments or rentals.
- Estate tax in Germany is regulated by the Inheritance Tax and Gift Tax Act.
- There is no special expat tax in Germany.
Taxes in Germany
There are various types of tax in Germany, which are explained in more detail below. These include, for example, German salary tax for permanent employees, the Germany estate tax or the taxes in retirement.
Germany salary tax
German tax law distinguishes between salary tax and income tax.
Wage tax refers to taxes that are already deducted when salaries are paid from non-self-employed activities. Income tax, on the other hand, refers to all income – for example, from capital investments or rentals.
The Germany salary tax is withheld directly by the employer and paid to the tax office. If too much salary tax has been withheld, an employee can claim a refund from the tax office.
The tax burden varies depending on the individual tax class.
However, a basic allowance applies to all income tax classes. In addition, all employees with children in all tax classes are entitled to a so-called child allowance (Kinderfreibetrag). Single parents in tax class II are additionally entitled to a tax-free allowance for single parents (Freibetrag für Alleinerziehende).
Salary after tax Germany
Once the taxes have been deducted from the gross salary, the result is the salary after tax Germany. However, employees in Germany still have to accept other deductions, the so-called social security contributions. These include the state pension insurance, compulsory nursing care insurance and unemployment insurance.
Retirement and taxes
Pensioners also have to pay taxes in Germany if their pension exceeds the basic tax-free amount of 10,347 euros per year for single persons or, 20,694 euros for married persons (2022). In this case, you must also file a tax return as a pensioner.
You also have to file a tax return if the tax office asks you to do so. In this case, you should react quickly. Otherwise, the office will estimate your taxes in retirement – and this can lead to substantial higher taxes.
Property tax Germany
Property tax is currently not levied in the Federal Republic of Germany. In 1997, the Federal Constitutional Court suspended the tax, finding that real estate was treated unequally compared to other types of assets.
However, German tax law continues to include the property tax. The reinstatement of the property tax in Germany for the rich is discussed again and again over the years.
Tax on sale of investment property
Accordingly, taxes are due on the sale of a house if more than three properties are sold within five years (3-property limit) or if the property was not owner-occupied and is sold again less than ten years after acquisition.
If the tax office classifies a real estate sale as commercial or if the speculation period is not met, the proceeds of the sale are taxable. The amount of tax on the sale of real estate is always based on the profit made and depends on the personal tax rate.
Germany estate tax
Estate tax in Germany is regulated by the Inheritance Tax and Gift Tax Act.
The amount of tax due depends on the respective tax allowance and the amount of the inheritance. The law divides into three tax classes. Spouses and civil partners fall into tax class 1 with an allowance (Freibetrag) of 500,000 euros, while natural children and adopted children fall into class 2 with an allowance of 400,000 euros. The lowest tax-free amount applies to siblings, nephews and nieces – here the tax-free amount in tax class 3 is only 20,000 euros.
Inheritance tax ranges from 7% to 50% depending on the value of the inheritance and the tax class of the inheritor.
Heirs are obliged to report the inheritance to the relevant tax office. If the tax office does not claim the inheritance tax within four years, hen you don’t have to pay it.
Inheritance tax for real estate
Inheritance tax is also due for inherited real estate if the exemption amounts (Freibeträge) are exceeded. However, real estate transfer tax or income tax is not due. The amount of the tax depends on the determined market value of the house and the degree of relationship. In order to avoid inheritance tax on the house or real estate, it can make sense to make a gift during one’s lifetime. In this case, gift tax is normally due, but in some cases it can be avoided completely. This applies, for example, if the property is occupied by the donated spouse for a period of ten years.
Expat tax Germany
There is no special expat tax in Germany. However, when you move to Germany, you become liable to tax on your entire worldwide income. Because in both cases an unlimited tax liability is established in Germany.
But even without a German residence, you can become liable to tax in Germany. This so-called limited tax liability applies if one receives income from German sources, for example from real estate, rental income or from companies.
In both cases, a tax return must also be filed in Germany. However, there are exceptions, for example if the paying office already withholds the tax or the income is below the tax-free amount.
The total world income of a person within an assessment period must be declared in the tax return. In Germany, the assessment period is the calendar year from January 1 to December 31.