Foreigners in Germany may be obliged to pay taxes in case of obtaining any kind of income. As a rule, the whole process looks the following way: a monthly amount is taken away from your salary (with employer transferring the necessary sums from your account). Amendments are made in the end of each year, so that the payments are rechecked – whether there are over- or underpayments.
The income tax
The German tax system is based on progressive tax rates. It means that the bigger your income is, the more you have to pay. For example, a single person with income less than €8,130 and a couple with income €16,260 is not subject to paying taxes. In turn, €52,881 income for a single person and €105,762 income for a couple is taxed at the rate progressively rising from 14% to 42%. Incomes, fluctuating between €52,882 (€105,764 for the couple) and €250,730 (€501,460 for the couple), are taxed at the rate of 42%. Incomes, exceeding these amounts, are taxed at 45%.
There is a variety of circumstances, which allow paying taxes at a reduced rate. Among them there are having underage children; performing charitable activities with German charities; ailments, etc.
Also, participating in four social programs may result in paying reduced taxes. Such programs include situations when person is unemployed; retired; uses long-term nursing care; uses health insurance. As a rule, the tax payments are made in equal shares by the person and his/her employer. It would be reasonable to contact a tax adviser in order to find out more about all details and peculiarities, a number of which is quite large.
The wage tax
The wage tax forms nearly 35% of state revenues. Income tax includes rent, revenues from investments and self-employment. The difference between these two taxes is that the first one paid to the local tax authorities by employer, while the second one is paid directly by the taxpayer.
The size of a tax payment of the current year depends upon the tax paid previous year. By declaring all kinds of incomes the overall tax liability is defined. You will have to make four pre-payments during the year: on March 10, June 10, September 10 and December 10. You have the right to not pay tax until you receive an official confirmation of how the amount of tax was calculated. All procedures of assessing taxes are strictly controlled. Also, you fill in the blank of tax return before May 31. If you are using the services of the tax adviser the period is extended till September 30. Postponing filling the return forms means fines.
Some exceptions are cases when you have to pay taxes even if you have incomes from abroad. The tax rates for these incomes are different and it would be wise to consult with the tax adviser.
Value added tax in German
Apart from income taxes there are taxes to which businesses are subject. The most important of them is VAT (value added tax), which provides 25% of state incomes. VAT means that the tax is paid on every stage of production of goods and services. The rate of VAT in Germany is 19%. For food there is a decreased tax rate – 7%. Exported goods and services, medical and insurance services are not subject to VAT.
Products like tea, coffee, alcohol and tobacco are often due to sales taxes additionally. In Germany there is a church tax, but you are not paying it unless you are officially registered as a member of a certain church. The rate of church tax is 8-9%.
Other taxes in Germany include taxes on vehicles, heritage, estates, etc. Their number accounts for more than thirty. It’s really quite complicated to deal with all procedures, so the best solution is to use the services of tax adviser or consult with the tax office (the advice there is free of charge).
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