German Tax for expats living in Germany (2023 and 2024)

While taxes for expats can be complex due to having to understand the tax regimes in multiple jurisdictions, the German tax system is a little more complex than you may be used to than, for example, the UK, US or Australia.

Key elements to understand are that the income tax rates are progressive for most earners. There may also be an additional “Solidarity Surcharge” applied, along with Church tax, taxes on benefits in kind and relatively high social security payments.

Unfortunately, it’s relatively simple to accidentally become tax resident in Germany – which is likely to mean your worldwide income could become subject to German tax rules.

It is therefore important to understand exactly what taxes you are required to pay and, while this article will provide you with an excellent overview, it must not be relied upon in isolation to work out how much tax you may owe in Germany.

We offer a free introduction to German tax specialists who will offer a short (maximum 15 minutes) initial consultation to answer general questions.

The consultation is strictly limited and will not provide you with definitive answers to your personal circumstances, but it will introduce you to a German tax specialist who you will be able to engage on a formal, paid basis to get assistance with your German tax matters.

Important: at this time, we are only making introductions for people in part or full-time employment and self-employed professionals, not students or retirees.

Request free introduction to a German tax specialist >

German tax residence status

Anybody who is considered a German tax resident will be subject to tax on their worldwide income, as opposed to only German sourced income if you are not considered a German tax resident.

It’s therefore vital to understand if you could be considered a tax resident in Germany, and what circumstances might lead you to becoming a German tax resident.

You will be considered a German tax resident if you:

• Have a permanently accessible place to live in Germany which is available to you at any given time. This could a property you own or rent out, or could even include a room in a friend or family member’s house.
• If you are physically present in Germany for six months in the calendar year, or physically spend six consecutive months in Germany. If either of these circumstances are met, you will be considered to an “habitual abode” in Germany and therefore be considered to be a tax resident of Germany.

If you are working in Germany and also in another jurisdiction, German tax treaties will generally determine the country where you have most of your personal and economic interests (for example family, property, financial interests).

German tax residence status

Anybody who is considered a German tax resident will be subject to tax on their worldwide income, as opposed to only German sourced income if you are not considered a German tax resident.

It’s therefore vital to understand if you could be considered a tax resident in Germany, and what circumstances might lead you to becoming a German tax resident.

You will be considered a German tax resident if you:

• Have a permanently accessible place to live in Germany which is available to you at any given time. This could a property you own or rent out, or could even include a room in a friend or family member’s house.
• If you are physically present in Germany for six months in the calendar year, or physically spend six consecutive months in Germany. If either of these circumstances are met, you will be considered to an “habitual abode” in Germany and therefore be considered to be a tax resident of Germany.

If you are working in Germany and also in another jurisdiction, double taxation agreements will generally determine the country where you have most of your personal and economic interests (for example family, property, financial interests). The purpose of such agreements is to avoid you having to pay taxes twice on the same matter.

German tax year, tax deadlines and tax payments

The German tax year begins on January 1^st and ends on December 31^st.

You need to determine yourself whether you are required to file a tax return and the deadline for self-filers is October 31^st in the following tax year.

If your tax returns are filed by a tax professional, your tax return deadline will be extended to the year thereafter. Currently, the extension period goes to as far as July 31^st 2024 for the tax year 2022.

For employment income, taxes are deducted from your paycheck and your employer is responsible for passing these funds on to the German tax administration. For other sources of income , your tax payments will be payable in quarterly instalments and the amount due in each payment will be determined by your overall tax liability based on the most recent tax assessment.

If you are late with any payments, you may be subject to a significant additional penalty (up to €50,000) and the German tax administration is very quick with charging interest on any late payment amounts – although in some circumstances you can apply for an extension. Avoiding paying tax can also be considered a criminal act and in some cases can lead to imprisonment.

Tax on personal income in Germany, including German income tax rates

In Germany, income which is subject to income tax rules would typically include income which is derived from employment, agriculture, investments, rent, royalties. There may also be other types of income which are taxable, but a specialist will be able to help you establish this if you are unsure.

The tax due will be calculated by totalling all income in the calendar/tax year with any income related expenditure deducted.

You may also be able to deduct capital losses from your income to reduce your income tax liability.

Income tax rates in Germany in 2022 and 2023

One key element to the German tax system is that if you are married, your combined income will determine your tax band, rather than it being based on two individuals.

Once again, it’s important to highlight that if you are considered a tax resident of Germany, it is your worldwide income that may be subject to income tax in Germany, unless it is excluded from taxation based on a double taxation agreement.

Solidarity Surcharge Tax

The Solidarity Surcharge Tax has been used in Germany to develop and improve the infrastructure of areas of Germany in particular need, specifically areas in the “East Germany”. Until the end of 2020, this surcharge was a flat rate of 5.5% on all income.

However, since January 2021 the people required to pay the surcharge has been limited to  individuals earning around €65,000 per year or married couples earning around €131,000 per year. The rate is also no longer a flat rate 5.5% but will be increased to 5.5% as your income reaches certain thresholds.

Filing your taxes in Germany

As with most countries, you are able to file your taxes electronically or via traditional post. The Finanzamt (German tax office) will issue the forms that need to be completed, and if you work with a German tax specialist, they will typically complete these forms electronically for you.

You may also be required to liaise with Finanzamt when filing your tax return, so as an expat it is recommended that you work with someone to avoid any mistakes made due to unfamiliarity with the German tax system and elements which are lost in translation.

Other taxes in Germany expats need to be aware of

Social security payments

All employment income is subject to additional social security payments which contribute to state pensions, health insurance, unemployment insurance among others and could be as high as an additional 22% on top of your income tax payments.

Capital gains tax

Capital gains tax is payable on non-standard income, such as dividends, savings interest, investment funds and the sale of any shares or other investments. In Germany, capital gains tax is charged at a flat rate of 25%.

Property taxes

There are two main property-related taxes in Germany, Property Sales Tax (Grunderwerbssteuer) and Real Property Tax (Grundsteuer).

Property Sales Tax is payable when you buy a property in Germany and the rate will vary between 3.5% and 6.5% of the property’s value. The rate will be determined by the state the property is located in.

Real property tax is an annual tax which is payable to the local tax office and will be between 0.26% and 1% of your property’s value, depending on the city, the property is located in.

Inheritance tax

Tax residents in Germany will have to pay inheritance tax if you are a beneficiary of someone who has recently died. You may also be subject to inheritance tax if you do not live in Germany, but you are the beneficiary of a recently deceased German resident. The rate of inheritance tax due will depend on the size of the amount received and will vary from 7% to 50%.

Other taxes

As with other countries, you may also have to pay a TV licence fee, dog tax and motor vehicle tax.

Wealth tax

There is no wealth tax in Germany at this time.

Double tax treaties with Germany

Expats are likely to have financial affairs in multiple jurisdictions and it’s important to understand that while you may be a tax resident in Germany, this may not exclude you from being required to pay tax in other jurisdictions if you have income arising there or other financial associations.

However, it is possible to unnecessarily avoid being taxed twice by correctly applying any double taxation agreements which the German tax authorities have agreed with other countries.

It is recommended that if you are uncertain about your tax liability you speak to an expat tax specialist in Germany and also someone who understands the tax in the other relevant countries to ensure that any tax treaties are being correctly applied.

This will ensure you don’t be tax twice and also avoid any penalties.

For example, US citizens living in Germany are required to continue to report their tax affairs to the IRS in the US, even if they no longer have any financial associations in America.

Speak to a German tax specialist for expats

Getting your taxes in Germany wrong can be nerve-racking and costly. Penalties for inappropriate tax filing can be significant and could result in a prison sentence. It’s therefore vital that you seek help with any tax returns which you are requested to complete.

Experts for Expats offer a free introduction to a trusted German tax partner who specialises in assisting expats living in Germany. They will be able to complete any tax returns on your behalf as well as understand how to minimise your overall tax liability through deductions and also the correct application of any double tax treaties which may apply.

Our German tax partner will also work with our partners in other jurisdictions to ensure all of your tax and financial needs can be expertly handled.

As part of our free introduction service, our partner will offer a free 15-minute introductory consultation during which you can have your general questions answered. Once you have completed your initial consultation, you can decide whether you wish to proceed with any proposed formal services, such as filing your tax return, establishing your German tax residence status or having a more in-depth consultation if your situation is more complex.

Any proposed services will be fully explained and include all associated costs.

Request your free introduction to a German tax specialist >

Please note: At this time, we are only able to provide introductions for employed people and self-employed professionals in Germany and are unable to offer introductions for retirees or students.