Tax in Germany

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There are some fiscal responsibilities towards you even if you move abroad. The tax landscape in Germany is daunting because of the challenging and complicated procedures and regulations. You can efficiently complete the tax management process if you get all the information before moving to Germany. This article is all about taxes and various aspects of the German tax system in Germany, whether you are a German resident or a business person. Keep reading this article till the end.

Tax Categories

There are different categories of taxes in Germany, as given below;

  • Individual taxation
  • Business taxation
  • Social security and other contributions
  • Specialized taxation
  • Other forms of taxation

Here is an explanation of each aspect of taxation in Germany.

Individual Taxation

Every individual should pay the tax on his or her earnings in Germany. If you are a scientist or researcher and moving to Germany for some kind of research work, you are also responsible for paying your taxes in Germany. Here are a few aspects of individual taxation in Germany.

German Tax Classes

A tax class is essential to identify the amount of tax that needs to be deducted from an employee’s salary. Various German tax classes, starting from class I to class VI. each tax class assesses the worth of a range of social benefits to qualify the taxpayer. German authorities assign a tax class to an employee according to the family conditions and other factors.

Change The Tax Class

When you are in Germany and your family circumstances are changed, you must review your tax class. Changing your tax class is easy if you know the step-by-step process. You must change your tax class if you have different family scenarios like;

  • Get a divorce
  • Get married
  • Spouse is dead
  • Have childbirth

Tax Return Software

Are you looking to submit your tax return? Can you submit your tax return yourself? Yes! Now, there is no need to pay high fees to a tax advisor as you can do everything yourself. Online tax return software is available for expats in Germany, with which you can submit your tax return quickly and conveniently. You need to find the best tax return software among many online tax return software so you can start and finish the process efficiently. Choose a user-friendly tax return software developed by a reliable and trustworthy provider.

Tax ID and Tax Number

Both tax ID and tax number are different numbers with different purposes in Germany. Tax ID numbers were issued in 2007 to every resident of Germany, whether you are a Geman or not. Once your city registration is done, you get your tax ID from the German office. The tax number is not permanent, as the local tax authorities assign it to every individual. When you change your city, the tax number also changes, but it remains the same if you stay in the same city. Local tax offices in Germany use the tax number to identify individual tax records.

Business Taxation

Whether you are a German or a foreigner in Germany, whether you are a resident or not, if you are a business person, you are legally bound to pay the corporate or business tax in Germany. Here are a few essential factors you must understand before you initiate your business so you might not face any future complications in your business.

Commercial Register Number

Whether you plan to start a business in Germany or already have a business established there, you need a commercial register number. It is just like the public directory in which you get unique identification. Once you have your Handel Register Number, the value of your business will increase. Your business partners, clients, and customers may try to find you through your registered number.

Value Added Tax (VAT) in Germany

Tax laws are for everyone, even if you are not a German resident. To avoid future complexities in your business, do not forget to register for value-added tax before initiating your business in Germany. A value-added tax (VAT) is an indirect tax that is applied to the different products and services supplied and offered to customers in Germany. You can find the VAT laws in the Value Added Tax Act of 1980.

Corporate Taxes in Germany

Being a business owner in Germany, you must clearly understand the corporate taxes in Germany to deal with the business finances efficiently. Anyone operating a business or trading in Germany is legally bound to pay the corporate tax. Corporate tax in Germany is the combination of two forms of taxes as given below;

  1. Municipal business tax
  2. Federal business tax

Social Security and Other Contributions

The contribution to social security and welfare is equally divided between the employer and the employee in Germany. An employee can contribute to the German social security system up to 19.6% of the employee’s gross salary. To contribute to social security, an individual living in Germany must have a unique German Social Security Number (GSSN).

German Social Security Number

Germany is famous for many reasons globally, among which welfare activities are one reason. It became the first practical welfare state worldwide after adopting an old-age social insurance program in 1889. Germany is well known for its unique social security rules and a great social security system. A German social security number is assigned to every individual born in Germany when they register in the health insurance program for the first time. It is a 12-digit unique number given to all employees in Germany and gives the tracking record of your contribution to the social security system in Germany.

Specialized Taxation

Other than individual and business taxes paid by the people in Germany, there are a few special forms of taxes in Germany. Let us share some information about two other taxes as listed;

  1. Church taxes
  2. Cryptocurrency taxes

Church Taxes

Almost half of the population in Germany is either protestant or catholic, so the residents of Germany are encouraged to contribute. Germans have been paying the church taxes since 1919. The amount of the church tax is calculated based on monthly income and the state in which the taxpayer lives. According to the record on Statista in 2021, The Protestant churches received 6.63 billion euros from church tax.

Cryptocurrency Taxation

Germany is considered one of the world’s largest economically sound countries and plays a vital role in the worldwide cryptocurrency market. While playing your cards in the cryptocurrency market, consult a professional and experienced attorney to know what should be taxed. Cryptocurrency is a new technology, so cryptocurrency taxes differ in different scenarios.

Other Forms of Taxation

There are many other forms of direct or indirect taxes that you need to pay according to your personal scenarios. Being an expat in Germany, you must know about other forms of taxes in Germany as listed here;

  • Dog tax
  • License fee
  • Motor vehicle tax
  • Inheritance and gift tax
  • Capital and capital gain tax
  • Property sales tax
  • Real property tax

German Tax Penalties

Germany is a strict country when it comes to a tax system. Everyone must pay the taxes on time; otherwise, they will be asked to pay the penalties. Here are some scenarios in which you will be liable to pay the fines;

  • Fail to pay the tax
  • Paying the taxes late
  • Fail to declare your income
  • Fail to file your tax declaration

If you are one, you will pay a fine of up to 50.000 Euros and face a prison sentence. So be careful in declaring your income and pay the required taxes quickly.

Final Thoughts

This is it. Everyone must pay close attention to the German tax system to understand it clearly. To optimize your financial position, paying your taxes on time and complying with the tax rules and regulations implemented by the tax authorities in Germany is excellent. In this article, we have explained everything about German taxation. If you are looking for individual tax requirements, you are a business person, you are an employee contributing to the social security system in Germany, or you need to pay some special taxes, this guide is perfect for understanding the German tax system. Navigate your tax responsibilities with confidence. Stay safe, taxpayer!

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