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Overview of Tax Issues for Expats in Germany

Submitted: January 2014

The German tax year runs from the 1 January to the 31 December.

 

Tax Residence

If you are working in Germany for less than six months you will be considered non-resident and taxed on German sourced income only. If you stay longer than six months but retain a domicile in another country you will be considered resident but not domiciled and you will become liable for tax on your worldwide earnings. For more details see: Taxation - Employment Taxation for Expats in Germany.

 

Employment/Business Taxes

Income tax is deducted by your employer the same way as it is in a country with a Pay As You Earn system. The marginal (highest) tax rate is 45%. In addition they will also deduct a solidarity surcharge of 5.5% of the tax payable. You will have to fill in a tax return after the end of the year to calculate the final amount of tax payable. If you are self-employed you will pay income tax based on the profits of your business after deduction of costs. For certain trades, a withholding tax will be deducted by your contractees prior to making payment. For more details see: Taxation - Employment Taxation for Expats in Germany.

If you come to Germany to set up in business and start a company, you will be liable to corporation income tax on the profits from your trade or business. The general rate of corporation income tax is 15%, with an additional trade tax, generally of between 14% and 17%. Companies must complete a registration process via a notary. They must also register with the tax authority. Companies must pay advance corporate and trade tax four times a year. After the end of the year a tax return must be produced by 31 May, though an extension is possible. For more details see: Taxation - Business Taxation for Expats in Germany.

 

Other taxes

For residents and non-residents in Germany, investment income in the form of interest, dividends and capital gains (other than speculative profits) is taxed at a rate of 25% plus the solidarity surcharge. For residents, royalty and rental income is taxed as ordinary income. For non-residents, royalty income is taxed at a rate of 15% plus the solidarity surcharge, while rental income is taxed as is taxed at 25% plus the solidarity surcharge. For more details see: Taxation - Investment Taxation for Expats in Germany.

 

Tax treaties

Germany has signed tax treaties with over 90 countries worldwide. Any withholding taxes payable in Germany on dividends, interest or royalties paid to persons in other countries with tax treaties in place (or non-residents in Germany) can be significantly reduced. The treaties also mean that the amount of withholding tax charged by the originating country on money flowing into Germany is reduced. The amount that can be charged under a treaty is often reduced to between 10% and 15%; in the case of interest it is reduced to 0%. For more details see: Taxation – Tax Treaty Considerations for Expats in Germany.

 

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