Taxes in Germany

Written by Anastasiia Lushyna Moderated by Oleksandra Dosii

Anastasiia Lushyna

Anastasiia is a content creator, writer, and motorcycle traveler with experience living in 4 different countries. She has been exploring the world and its cultural diversity since 2010.

Oleksandra Dosii

Oleksandra is a dedicated marketer with a passion for growing HR-tech products. She believes content marketing is about delivering high-quality content that provides value—not just generating leads. Since 2016, Oleksandra has been involved in tech talent relocation.

Last update: July 25, 2024

Next update: Scheduled for February 1, 2025

German tax rates are high, ranging between 0% and 45%. Therefore, when searching for a job in Germany, you need to pay attention to the gross salary and negotiate it with the tax rate in mind. Additionally, keep the following points in mind:

• Progressive income tax: Germany employs a progressive income tax system where tax rates increase with higher income levels.
• Social security contributions: Employees and employers contribute to social security, covering health, pension, unemployment, and long-term care insurance.
• Tax treaties: Germany has numerous tax treaties with other countries to avoid double taxation and facilitate cross-border economic activities.
• Filing and payment: Annual tax returns are generally due by July 31st of the following year, but extensions are possible. Taxpayers may also need to make quarterly advance payments.

German income tax rates 2024

Germany has a progressive income tax system, which means that the tax rate increases as your income increases. Besides, the German tax system includes six tax classes (Lohnsteuerklassen) that determine the amount of income tax withheld from an employee's salary. These tax classes take into account various factors such as marital status, number of children, and whether both spouses are earning.

• Tax Class I applies to single individuals and those who are divorced or widowed.
• Tax Class II is for single parents.
• Tax Class III benefits married individuals if one spouse has significantly higher earnings.
• Tax Class IV is for married couples with similar earnings.
• Tax Class V is for the lower-earning spouse in a marriage when the other spouse is in Tax Class III.
• Tax Class VI applies to individuals with multiple jobs, ensuring that income from secondary employment is taxed appropriately.

Understanding and choosing the correct tax class is crucial for accurate tax withholding and overall tax liability management.

Solidarity surcharge

In addition to income tax, there is a solidarity surcharge (Solidaritätszuschlag), which is 5.5% of the income tax amount. The solidity surcharge is only paid by high-income taxpayers.

Social Security contributions

Social security contributions are mandatory in Germany and fund the country's social security system, which provides coverage for health, pension, unemployment, and long-term care insurance.

*In Saxony, employees pay 2.8%, and employers pay 1.2% for long-term care insurance.

Other German taxes

Value-added tax (VAT)

Germany’s VAT is known as Mehrwertsteuer (MwSt). It is a consumption tax applied to most goods and services.

Property tax

Property owners in Germany are subject to property tax (Grundsteuer). The amount is determined by the property value and the municipality's tax rate.

Church tax

If you are registered as a member of a religious community that collects church tax, you are required to pay this tax. It is approximately 8-9% of your income tax, depending on the federal state.

Inheritance and gift tax

Inheritance and gift tax rates vary depending on the relationship between the giver and receiver, as well as the value of the inheritance or gift.

Tax treaties with Germany

Germany has entered into numerous tax treaties with other countries to avoid double taxation and prevent fiscal evasion. These treaties are designed to allocate taxing rights between Germany and the treaty partner country, ensuring that individuals and businesses are not taxed twice on the same income.

Key objectives

• Avoidance of double taxation: ensures that income is only taxed once, either in the country of residence or the country where the income is generated.
• Tax exemptions and reductions: provides for exemptions or reductions in tax rates for certain types of income such as dividends, interest, and royalties.
• Exchange of information: facilitates the exchange of tax-related information between countries to prevent tax evasion and ensure compliance.
• Mutual agreement procedures: offers mechanisms for resolving tax disputes between treaty countries.

Types of income covered

Tax treaties generally cover various types of income, including but not limited to:

• Employment income: salaries and wages earned from employment.
• Business profits: income from business activities.
• Dividends: earnings distributed to shareholders.
• Interest: earnings from savings or investments.
• Royalties: payments for the use of intellectual property.
• Capital gains: profits from the sale of assets.
• Pensions and annuities: retirement benefits and other similar income.

Examples of tax treaty benefits

• U.S.-Germany Tax Treaty: reduces the withholding tax on dividends from 30% to 15% (or 5% for corporate shareholders owning at least 10% of the voting stock), and on interest and royalties from 30% to 0%.
• UK-Germany Tax Treaty: provides similar reductions in withholding taxes and clarifies the treatment of pensions and other income types, ensuring that UK residents working in Germany, and vice versa, are not taxed excessively.

Practical considerations

• Tax residency certificates: to benefit from the provisions of a tax treaty, individuals and businesses often need to obtain a tax residency certificate from their home country's tax authority.
• Double taxation relief: taxpayers who are residents of countries with which Germany has a tax treaty can usually claim relief from double taxation through exemptions, credits, or deductions.
• Mutual Agreement Procedure (MAP): This is a process to resolve disputes between countries regarding the application of tax treaties, ensuring that taxpayers are treated fairly and consistently.