Hang tight, it’s going to be a bumpy ride: the German tax system
It is not that it’s complicated, it’s mega complicated; because of that, this post will give you a small introduction on the German tax system, but our recommendation is to always consult a Steuerberater if you have any questions.
Einkommensteuer: taxes in your salary
Check your payslip!
This tax is paid by all workers with an annual income greater than €7,664 (for married couples, their income should be no greater than €15,329). The workings are easy to understand: “the more you earn, the more you pay”, simple. The percentage to be paid is between 15% and 45% and is a “withholding tax”, meaning that your employer will pay it directly to the Finanzamt, the feared German tax authority (which does not miss a single thing).
The important thing to point out, however, is that taxes in Germany are subject to different types of “classes”. And what does this mean? Well, it simply means that each worker has a different classification or “tax class” that varies according to personal and family circumstances. Depending on your annual income and your “tax class”, you will pay xxxxx %. Therefore, the very first thing you should do is find out your tax class. Let’s get to it!
Steuerklassen, tax classes in the German Tax System
My tax class? But…what is this?
Class 1: Single, divorced, and widowed people
This group contains all single people.
Residents in Germany belong to this class, single people and people with another marital status (single, divorced, or widowed people) that do not meet the requirements in other classes; or non-residents in Germany that have to pay taxes due to limited liability.
Class 2: Single, divorced, and widowed people with dependent children
If there are dependent children…
This class includes those who are in Class I and have dependent children that depend and/or live together with him/her
For those who have already tied the knot: Tax classes 3, 4, and 5
Applicable to residents in Germany with the following conditions:
- a) Married couples and registered partners that do not live separately, when both live in Germany and only one works, or when the other spouse has been included in the class V application of both spouses even though he/she works.
- b) Widows, unless they were separated until the tax year following that of the passing
- c) Separated couples in the year of separation or when they re-marry and live together with the new spouse in the same year of separation
This class includes married couples and registered partners when both spouses are residents in Germany and also when both are employed by others, unless they are included in classes III and V. As a matter of principle, it is recommended to be included in this class when both couples earn more or less the same salary, in which basically the same salary percentage as Steuerklasse I is paid.
In essence, when both spouses work, they are included in class IV, but both spouses can apply to have one classified in class III and the other in class V. It is recommended to be in this class when there is a great disproportion between what one spouse earns and what the other spouse earns. The spouse who earns the most belongs to Steuerklasse III and the spouse who earns less to Steuerklasse V.
Class 6: Persons with more than one job
People with additional income besides their main job are included in this class (two jobs or two salaries).
If I receive a gross salary, how do I calculate my net amount?
Brutto Netto Rechner is the tool that you need!
And now that you know your tax class…. accurately calculate the taxes that you would pay in your specific case
This tool is very useful for negotiating your annual gross salary in job interviews
The German Mwst…our VAT!
The VAT, or value-added tax, is called the “Mehrwertsteuer” in Germany, and it is currently 19%, although in the case of a lot of basic goods such as foodstuffs, newspapers, or transport, it is reduced to 7%.
Stromsteuer: tax on electricity
Turn off the light now and light some candles!
This is the most recent tax out of all the consumption taxes in German tax system. Anyone who uses electricity in one way or another is subject to paying this tax. One kilowatt of power costs the taxpayer €28.7 cents.
Do you know how energy is consumed?
Hundesteuer: the dog tax
Do you have a dog? Then it’s time to pay taxes!
In Germany, dogs must be registered at city hall (Rathaus) and pay an annual tax. The amount increases depending on the number of dogs you have and varies depending on the city and even the postal code. Greater amounts are paid for potentially more dangerous dogs, although the amount may also vary based on the breed and size. This tax is used to pay public employees tasked with cleaning the streets, administrating kennels, and animal adoption centres.
Kirchensteuer: the church tax
Religious denomination? Then it’s time to pay taxes!
This tax revolves around 9% of the income tax quota, and registered Catholic, Protestant, and Jewish believers pay it. It is used to finance the respective churches. If you do not wish to pay this tax, you must unregister from the church via a declaration of apostasy.
If you do not pay this religious tax to the German government, you won’t be able to enjoy sacraments such as baptism and marriage, unless you obtain special permission from a bishop. You also won’t be able to work in the church or associated industries, such as schools and hospitals, charity groups or choirs sponsored by the church, work as a catechist nor be a godfather/godmother for Catholic children.
Kraftfahrzeugsteuer or KFZ-Steuer
Do you have a car? Then it’s time to pay taxes!
This tax is paid by those who possess and use an automobile in accordance with regulations or those that simply have a vehicle registered. This tax is calculated depending on the cubic capacity or cylinders, emission of harmful substances, vehicle horsepower, and maximum permissible weight.
Do you have a radio or television or any mobile device? Then it’s time to pay taxes!
GEZ, the tax that finances public television and radio
… or plainly speaking: the radio tax
It’s difficult to cop out, because upon carrying out the Anmeldung, they have al of your information, and they won’t stop sending you letters and more letters until you answer them (quite stressful!). In any case, if you share a flat and your mate already pays for it, then you’re golden. Simply send them a letter explaining that you already pay it and you’ll be off the hook. This law has existed since 2013 and requires all citizens to pay the GEZ (Gebühreneinzugszentrale), a tax that finances public television and radio, currently known as the “Rundfunkbeitrag”. The bad news is that, as long as you live in Germany, you are required to pay a monthly fee of €17.98 PER RESIDENCE, whether or not you have a television, radio, computer, or internet-connected mobile device (smartphone, PDAs, iPhone or iPAD, etc…). The GEZ is like the debt collector…you get the picture.
I’m sure you know much more about the German tax system and we’ve cleared up a few of your questions, but remember that this is just the tip of the iceberg.