Expatriate tax ebook - Germany

Basis of taxation

Charge to tax
Residence
Income from employment
Source of employment
Benefits (in kind)
Expatriate concessions
Relief for foreign taxes
Deductions against income

Charge to tax
German resident individuals are liable to income tax, gift tax, inheritance tax, sales tax and, in certain instances, church taxes. An individual is resident for tax purposes if he or she maintains a domicile or habitual place of abode in Germany.

Residence

• Domicile
  A domicile is a place where the individual maintains a residence under circumstances, which indicate that he will keep and use it on a more than temporary basis.
  
• Habitual place of abode
  The habitual place of abode of an individual will be established if the person is physically present on a long term basis in Germany. Persons are resident in Germany if their stay exceeds 183 days during a year. If the employee has his domicile or his habitual place of abode in Germany, then he is fully taxable in Germany. German resident taxpayers are subject to tax on their worldwide income. Please note, there is only one tax assessment in Germany within the calendar year. That means that if an employee has established a domicile or a habitual place of abode in Germany within the calendar year then he is treated as fully taxable in Germany for the whole calendar year. In this case the employee is subject to tax on his worldwide income for the whole calendar year in Germany. Double taxation will be avoided in accordance with the applicable tax treaties.
  
  Individual nonresident taxpayers are subject to tax in Germany on their German source income. Nonresidents from the European Union can apply to be treated as a resident if their German income is at least 90% of their total worldwide income or when the worldwide income, which is not subject to taxation in Germany, is less than € 6,136. For spouses of residents living in the European Union it is also possible to claim a classification as resident if the joint income contains income which arises almost entirely in Germany.
  

Income from employment
Salary consists of money and non-monetary remuneration. Most non-monetary remunerations are taxable in Germany. Individual taxpayers are allowed to claim all expenses directly incurred with their incomes from employment. There is a tax free lump sum for employees at an amount of € 920. Thereafter, various other deductions and allowances apply on taxable income from employment.

Source of employment
Remuneration for any work performed in Germany, regardless of who pays it and where or when it is paid, is taxable. In this regard the regulation of the double taxation agreements between Germany and other countries apply accordingly.

Benefits (in kind)
Most non-monetary remunerations are taxable in Germany.

Expatriate concessions
The German income tax law does not provide for special deductions or tax free expatriate premiums.

Relief for foreign taxes
Double taxation will be avoided in accordance with the applicable double taxation treaties.

Deductions against income
Deductions can include special and extraordinary expenses, which are either claimed in full or up to a certain limit. Special expenses are personal or family expenditures and include:

• employee contributions to the German social security system in a threshold amount
• for taxpayers with German domicile: personal and family allowances which depend on personal circumstances
• church tax
• expenses for professional education
• certain tax consultants' fees
• maintenance payments in the case of divorce
• charitable donations in a threshold amount
• contributions to certain non-profit activities
• 30 percent of contributions to private schools, which are governmental accepted
  

 

In addition to special expenses, resident taxpayers are entitled to tax relief with respect to extraordinary expenses. Every taxpayer has a personal allowance of € 7,664. This amount is reflected in the tax rate table mentioned below. There are special kinds of allowances for children whose parents are entitled to receive a child allowance or an allowance for dependent children. There is also an old age percentage reduction for employees who are older then 64 years. The maximum percentage is 36.8 percent depending on the date of commencement. The maximum annual amount is €1,748 (percentage rate and maximum amount to 2007).

Information about Germany:

introduction

facts and figures

basis of taxation

what taxes?

tax planning opportunities