Tax is rarely simple — and if you're a foreigner working abroad, navigating an unfamiliar tax system can be an additional challenge. However, understanding your tax liabilities is essential — getting it wrong can prove a costly hassle.
This guide is a resource for you to get started, but it shouldn’t be taken as financial advice. Seek an accountant or financial advisor for a hassle-free tax filing.
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What income is taxable in Germany?
Let’s start with the basics — what is the income tax in Germany based on?
When it comes to German tax, income includes¹:
- Employment earnings
- Money from trade and business
- Rental income
- Money made from investments
- All sorts of other sources of income like annuities and royalties
Taxable income — in short — is the total income after deductions and eligible expenses, from each of the broad categories listed above.
The process of submitting your tax return can be a bit complicated, particularly if you have multiple income sources.
Many people use a tax consultant, called a Steuerberater, to help them sort their tax affairs. They can also submit the tax return on your behalf, making the process much simpler.
Who has to pay income tax in Germany?
How you’re taxed depends on your personal circumstances. To figure out what you'll owe, you first need to know your tax status — you’ll be classified as either:
A resident taxpayer
A non-resident taxpayer
(Video) German Tax classes and Income tax [Explained] - 2022
Resident income tax
In Germany, the tax year is the same as the calendar year — 1st of January through to 31st of December².
You're considered a resident taxpayer if you have a residence in Germany, or if you live in Germany for more than 6 months during the tax year.
As a resident taxpayer, you have to pay tax on any income you make anywhere in the world to German authorities³.
In which instances do German residents working abroad need to pay income tax?
You’ll pay German income tax on your worldwide income if you’re considered a tax resident in Germany — that is, if you are in the country for 6 months or more in a calendar year.
If you're out of Germany for more than half of the year then you might qualify for non-resident status.
If you split your time across 2 different countries during the tax year, you may need to rely on double taxation treaties to make sure you don’t end up paying too much. But we’ll get to this later.
Income tax in Germany for non-residents
If you live in Germany for under half of the tax year — so less than 183 days — you might be deemed to have non-resident tax status. This means you pay tax in Germany only on taxable income you’ve earned in Germany¹.
What’s the tax rate in Germany?
Germany has a progressive tax system, meaning the more you earn, the higher the tax bracket applied to your income.
Joint tax filings are also allowed for married couples — so if one partner earns significantly less than the other, this can bring down your overall tax bill.
A progressive surcharge on income tax is also applied — although as of January 2021, this has been reduced significantly so only the highest earners pay the original amount of 5.5%¹.
If you’re employed in Germany, your employer will deduct money from your wages every month under the pay as you earn (PAYE) tax system.
If that’s the only source of income you have then you probably don’t have to submit a tax declaration. However, if you have multiple income sources, or want to claim exemptions and deductions, you’ll probably need to prepare a tax declaration.
Germany tax brackets (steuerklassen)
If you’re paying tax through the PAYE system, you’ll need to know your tax class. The tax class is what determines how much tax your employer withholds from your wages.
There are 6 different classes, depending on whether you’re working in a main job or second job, whether you’re married and have children, and so on. This helps make sure that the amount of tax withheld from your wage is correct.
Here’s the German income tax rate for 2021.
Salary range (individual tax filing) | Tax (%)¹ |
|---|---|
9.744 EUR | 0% |
9.744 EUR - 57,918 EUR | Progressive tax rate from 14% - 42% |
57,918 EUR - 274,612 EUR | 42% |
274,612 EUR and above | 45% |
On top of these headline rates of tax, depending on your income, you may also pay a solidarity surcharge (Solidaritätszuschlag). As of January 2021, this tax is not paid by individuals with an average salary of around 62,000 EUR or below.
Over that amount, a sliding scale from 0% to 5.5% solidarity surcharge is applied, until the top bracket of about 96,850 EUR. If you earn above this level, you’ll need to pay the full 5.5%.
You might also have to pay a church tax (Kirchensteuer) if you’re affiliated to a church which is registered in Germany. This varies depending on where you live, but can be another 8% or 9%.
Germany tax rate vs US
In general terms, the German tax rate is considered to be lower than the tax burden in the US.
The US top federal tax rate in 2021 is 37%, compared to Germany’s 45%. In Germany, income tax brackets also look somewhat different to the US.
The top 45% rate in Germany kicks in at the equivalent of just under 300,000 USD income per year for a single individual — while the top US taxes aren’t paid until you’re earning well over half a million USD a year⁴.
German income tax exemptions and deductions
Taxable income is calculated by taking your entire income, and adjusting to reflect any relevant deductions, exemptions and allowances. However, as with all things related to tax, this can be quite complicated.
Here are some of the exemptions, deductions and credits that you might need to know about.
Deductions
Various deductions might be taken into account when calculating the amount of tax owed. These are then knocked off the total amount of income you earn before tax is worked out. Here are a few of them:
Deductions for parents of children, including an amount to support their education
(Video) Do You Have To File Your Taxes In Germany?Deductions for people aged over 64
Single parent deductions
Deductions for parents of disabled children
Deductions of maintenance or support payments paid to divorced or separated spouses
Carer deductions, for taxpayers caring for a relative at home
Expenses
| You can deduct payments made for certain things such as⁵ |
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However, some categories have limits and strict rules. For example, although charity donations could be tax deductible, there’s a cap of 20% of adjustable gross income applied to the total amount you can write off.
Get advice from a tax consultant (Steuerberater), or make sure you understand the rules properly if you decide to complete your own tax return.
Is there a US-Germany income tax treaty?
Double taxation treaties can have a major influence on the overall costs of income tax in Germany for foreigners.
A double taxation treaty matters if you might have tax obligations in more than one country — Germany and the US, for example.
The good news is that Germany and the US have a double taxation treaty in place which should mean you don’t have to pay tax twice on the same income⁶.
Exactly how this works will depend on the type of income, and the exact agreement that’s in place. But generally, any tax paid under one jurisdiction can be offset against what’s owed in the other, meaning you’re not paying twice.
How to pay your income tax in Germany
You can submit your tax declaration yourself either in paper form or using a smartphone app or online service. Alternatively, you’re able to choose having a tax consultant help you with the whole thing.
Completing a tax return may be mandatory — if you have more than one source of income for example. If you have income from only one employer you might not be required to complete a return at all.
However, it’s worth noting that by completing your tax return at the end of the year, the authorities will review what you’ve paid against your actual annual income, taking into account expenses and deductions. This may result in you getting money back — making this a worthwhile step⁷.
Paying income taxes online
You can pay your tax return online, which is usually quicker and easier than if you were using the paper forms.
Once you‘ve filed your return, you’ll have to actually pay any outstanding taxes. If you’re an expat, you might need to do so using a bank account held in a different country or currency.
Bear in mind that any charges which are added to your transfer will increase the costs significantly — reflecting in your tax bill overall.
Pay for your tax return from abroad with Wise
When sending money to pay for your taxes in Germany, avoid paying extra fees on exchange rate, try Wise.
Wise uses the mid-market rate — the one you see on Google or Reuters — and shows you upfront how much transferring your money overseas will cost.
No surprises, no hidden charges — and you can save up to 6x compared to sending money with your bank.
With Wise you can make a fast, cheap and secure transfer to Germany and get your money where you need in just a few clicks.
Send moneyto Germany 🌎
Taxes might not be fun, but they’re inevitable. It’s your responsibility to understand what you owe, and where — even though this can be complicated if you’re an expatriate working abroad, or if you juggle life between different countries. Get professional advice to make sure you’re paying the right amount.
Sources:
- Tax Summaries - Income tax in Germany
- Tax Summaries - Tax administration
- Tax Summaries - Residence
- Tax Summaries - Income tax in the US
- Tax Summaries - Tax deductions
- Tax Summaries - Tax relief and treaties
- Make it in Germany - Salary, taxes and social security
Sources checked on 05.03.2022
This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.
FAQs
How much income tax in Germany for foreigners? ›
For 2023, the first tax bracket states than an income of €10,908 or less is tax-free for a single person (2024: €11,604). In the second tax bracket, incomes up to €62,810are taxed with a rate that progresses incrementally from 14 per cent to 42 per cent.
How much income tax do I need to pay in Germany? ›...
Income tax rates 2020.
| Income | Tax Rate |
|---|---|
| Less than 9.408 euros | 0% |
| 9.408 - 57.051 euros | 14% to 42% |
| 57.051 - 270.500 euros | 42% |
| More than 270.500 euros | 45% |
Both foreigners and natives must pay income taxes in Germany on their domestic and worldwide income and assets. Non-residents of Germany are subject to income tax on any German income but note that, depending on their home country, expats may also be liable for taxes in their home country.
Do I have to pay taxes in the US if I work in Germany? ›Virtually all US citizens are required to file a US Federal Tax Return regardless of where they live. Most expats living and working in Germany will also need to file a German tax return.
Do foreigners pay higher taxes? ›Filing Requirements for Nonresident Aliens
It is taxed for a nonresident at the same graduated rates as for a U.S. person.
- Childcare. If you've got young children, you're able to claim their childcare costs as a deductible on your tax return. ...
- Home office. ...
- Job education and training. ...
- Professional memberships. ...
- School fees. ...
- Workroom. ...
- The simple, fast tax solution.
In Germany, the average single worker faced a net average tax rate of 37.7% in 2021, compared with the OECD average of 24.6%. In other words, in Germany the take-home pay of an average single worker, after tax and benefits, was 62.3% of their gross wage, compared with the OECD average of 75.4%.
Do expats pay less tax in Germany? ›Germany has signed a tax agreement with over 90 countries to avoid double taxation. So, if you are an expat in Germany and have already paid your income tax in another country, you won't be required to pay taxes for the same income in Germany.
Does Germany tax US Social Security benefits? ›Social Security – The benefits provided in the United States – Germany Tax treaty will also provide relief once you begin receiving social security payments. The treaty provides that the distributions are taxed only in your country of residence.
Does Germany tax dual citizens? ›b. Depending on the laws in effect, level of income, source of income, etc., and an American-German dual national may owe taxes in both countries. All dual nationals must report all worldwide income by filing an annual U.S. income tax return, regardless of whether they owe taxes to the U.S. or pay taxes elsewhere.
What will be taxable for a non resident? ›
In case of resident taxpayer all his income would be taxable in India, irrespective of the fact that income is earned or has accrued to taxpayer outside India. However, in case of non-resident all income which accrues or arises outside India would not be taxable in India.
Do non citizens get taxed differently? ›These are the same rates that apply to U.S. citizens and residents. Effectively Connected Income should be reported on page one of Form 1040-NR, U.S. Nonresident Alien Income Tax Return. FDAP income is taxed at a flat 30 percent (or lower treaty rate, if qualify) and no deductions are allowed against such income.
Who pays more taxes Germany or US? ›As shown in the figure, the overall tax burden on wages is roughly 17% higher in Germany than in the U.S. While social security contributions (employer and employee) account for less than half of the U.S. wage tax burden, they account for more than two-thirds in Germany.
Can you have dual citizenship USA and Germany? ›Retention Permit to keep German citizenship when naturalizing in the US / “Dual citizenship” German citizens who wish to naturalize in the US require a so called Retention Permit to keep German citizenship (“Beibehaltungsgenehmigung”) in order not to lose their German citizenship through naturalization abroad (Sect.
How can I avoid double taxation in Germany? ›If a double tax treaty (DTT) exists, double taxation is usually avoided by exempting the foreign income with progression. Foreign income taxes can only be credited against German income tax if a tax credit is provided in the applicable DTT or a DTT does not exist.
Which country pays the highest tax in Europe? ›...
Top Personal Income Tax Rates in Europe.
| European OECD Country | Top Statutory Personal Income Tax Rate |
|---|---|
| Finland (FI) | 51.2% |
| France (FR) | 55.4% |
| Germany (DE) | 47.5% |
| Greece (GR) | 54.0% |
- With a flat rate of just 10%, Bulgaria's income tax is one of the lowest in Europe. ...
- Malta has a progressive income tax system, with rates ranging from 0% to 35%. ...
- Estonia's flat rate of 20% places it among the countries with low income tax rates in Europe.
If you are in the country for 183 days or more in any calendar year, or for an average of 90 days in any four-year period, you are deemed to be a tax resident.
Is rent tax deductible in Germany? ›According to the law, all rental income must be reported on your German income tax return, and in most cases, the associated expenses can be deducted. Thousands of German landlords pay more taxes on their rental revenue than they should every year.
What is the lowest tax class in Germany? ›Tax class III has the lowest taxation and double the allowance. The minimum monthly wage required to belong is again €450.
What is the cost of living in Germany compared to us? ›
On average, to cover your living expenses in Germany you will need around 934 euros per month (around $906 US dollars) or 11,208 euros per year (around $10,876 US dollars). The prices for food, accommodation, bills, clothes and entertainment are basically in line with the EU average.
Is Health Care Free in Germany? ›Yes, all Germans and legal residents of Germany are entitled to free “medically necessary” public healthcare, which is funded by social security contributions. However, citizens must still have either state or private health insurance, covering at least hospital and outpatient medical treatment and pregnancy.
Which country pays highest tax? ›1. IVORY COAST. The country with beach resorts, rainforests, and a French-colonial legacy taxes its citizens has a 60% on income tax – the highest in the world.
What is a good salary of expat in Germany? ›A good salary in Germany not only depends on your lifestyle but also on where you live as the cost of living differs from city to city. A good annual gross salary in Germany is between €64,000 to €81,000. But most Germans who earn a yearly gross salary of €60,000 and above are happy with their salary.
Can a US citizen live permanently in Germany? ›A residence visa is required if you intend to stay in Germany for more than 90 days for work or study or if you intend to move to Germany permanently.
How do expats avoid taxes? ›You Can Reduce or Eliminate US Taxes for Expats with the Foreign Earned Income Exclusion. For the 2022 tax year, you may be able to exclude up to $112,000 of foreign-earned income from US taxation with the Foreign Earned Income Exclusion! This is the most common way expats reduce or eliminate their US tax liability.
What happens to my Social Security if I move to Germany? ›If you have Social Security credits in both the United States and Germany, you may be eligible for benefits from one or both countries. If you meet all the basic requirements under one country's system, you will get a regular benefit from that country.
Can a retired American move to Germany? ›Who is eligible to retire in Germany? Germans happily welcome international individuals to retire in their country since they will not be relying on a salary to make a living. In addition, they will be content to welcome you into their country if you have sufficient financial means and health insurance.
Can an American citizen retire to Germany? ›Can Americans Retire in Germany? Yes. Retiring in Germany as an American is quite simple. To stay longer than the 90 days permitted without a visa, you must apply for a temporary resident permit (Aufenthaltserlaubnis).
Can you lose German citizenship? ›German citizenship can be lost automatically by law or by renouncing citizenship. The most common reason for losing German citizenship is by applying for and receiving a foreign citizenship. Acquiring another citizenship automatically at birth on the other hand does not impact German citizenship.
What is the new citizenship law in Germany 2023? ›
Under the newly drafted law, those born to foreign parents will be eligible for citizenship if one their parents has been legally resident in Germany for five years rather than eight.
Which countries tax non resident citizens? ›- Mexico. In Mexico, the rules are simple – if you're not living in the country, you're not paying taxes. ...
- Romania. ...
- Bulgaria. ...
- Vietnam. ...
- The Philippines. ...
- Myanmar.
income tax in India. The foreign income i.e. income accruing or arising outside India in any financial year is liable to income-tax in that year even if it is not received or brought into India. There is no escape from liability to income-tax even if the remittance of income is restricted by the foreign country.
How do you calculate gross income for a non resident? ›The first step in computation of the total income is under each head of income separately after making the specified deductions and taking into account allowances allowed in computing income under such head of income. The total of the income under different heads of income is known as the gross total income.
What is the fairest way to tax citizens? ›In the United States, the historical favorite is the progressive tax. Progressive tax systems have tiered tax rates that charge higher income individuals higher percentages of their income and offer the lowest rates to those with the lowest incomes.
Do green card holders pay more taxes than citizens? ›A green card holder generally must report and pay tax in the same manner as a United States citizen, which means that they report and pay tax on their world-wide income and file a Form 1040.
Is Germany a high tax country? ›There is much more to a country's tax code than the rate at which the government taxes a corporation. For example, Germany has the fifth highest combined corporate income tax rate among OECD countries, at 29.9 percent. Italy has a much lower rate, at 24 percent.
What is a good salary in Germany after tax? ›60.000 euros a year in Germany is considered a good gross salary as it is well above the average salary of 47.700 euros a year for the whole country. Most Germans who earn 60.000 euros or more are very happy with their salary.
Who pays more taxes Germany or us? ›As shown in the figure, the overall tax burden on wages is roughly 17% higher in Germany than in the U.S. While social security contributions (employer and employee) account for less than half of the U.S. wage tax burden, they account for more than two-thirds in Germany.
Who pays more in taxes Germans or Americans? ›In Germany the top tax rate is 50.5% (which starts at $283,326 USD for a single person ). In the United States the top rate is 43.4% (starting at $406,750 USD for a single person) and would be as high as 56.7% if the income was earned in California.
How much salary is enough to live in Germany? ›
A good salary in Germany not only depends on your lifestyle but also on where you live as the cost of living differs from city to city. A good annual gross salary in Germany is between €64,000 to €81,000. But most Germans who earn a yearly gross salary of €60,000 and above are happy with their salary.
How much does it cost to live in Germany per month? ›Family of four estimated monthly costs are 3,099.0$ (2,899.4€) without rent. A single person estimated monthly costs are 903.6$ (845.4€) without rent. Cost of living in Germany is, on average, 12.9% lower than in United States. Rent in Germany is, on average, 44.9% lower than in United States.
How much is German cost of living? ›The cost of living: average values for Germany in 2022
According to Destatis, it adds up to €2,507 a month, with 37% of this going towards housing and energy costs and 15% on food, alcohol, and tobacco (as of September 2022). If you calculate this on an annual basis, the average cost of living in Germany is €30,084.