Expatriate tax - Germany

Non-European Union (EU) nationals usually need to apply for a visa at the German embassy or consulate in their home country before travelling to Germany. The documents required can often be found on the homepages of the German embassy or consulate websites.

EU nationals do not usually need a visa.

Having arrived in Germany, non-EU nationals are required to apply for a work permit at the aliens department of the local municipality. Grant Thornton Germany and their service partner can help with these legal formalities.

EU nationals do usually not need a work permit.

The German tax year runs from 1 January to 31 December.

The deadline for tax returns is 31 July, however, this deadline can be extended. Tax returns prepared by professional tax advisors, certified auditors or lawyers are automatically extended to the last day of February after the next following the tax year, eg for 2021 the filing deadline would be 28 February 2024.

Due to the COVID pandemic the 2022 tax return deadlines have been extended to 2 October 2023 (tax returns prepared without a professional tax advisors) and 31 July 2024 (tax returns prepared by professional tax advisors).

Generally, there is a basic tax free amount of €9,408 (9,744 for 2021). For higher incomes there is a proportionally progressive tax rate. There is a special tax rate for married persons with a joint assessment.

The employee is not married and has no children. Earnings of dependent employment. Further the employee uses a non-electronic company car, which can also be used privately.

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

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 any case in Germany if they stay longer than six months in Germany, where short interruptions of the presence in Germany will not be taken into account. If the employee has his domicile or habitual place of abode in Germany, then he is fully taxable in Germany. German resident taxpayers are subject to tax on their worldwide income. Double taxation will be avoided in accordance with the applicable tax treaties.

Individual nonresident taxpayers are subject to tax in Germany on their German sourced income. Nonresidents 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 €9,408 (€9,744 in 2021) (adjustments for foreign tax basis calculations are necessary for several countries). For spouses of residents living in the EU/EEA it is also possible to claim a classification as resident if the joint income contains income which arises almost entirely in Germany.

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 lump sum for employment expenses at an amount of €1,200 (2022 and € 1,230 for 2023). Thereafter, various other deductions and allowances apply on taxable income from 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 and can restrict German taxation rights.

Most non-monetary remunerations are taxable in Germany (eg a company car).

The German income tax law does not provide for special deductions or tax-free expatriate premiums. However, lump sums for moving expenses are granted. In addition, tax free per diems can be granted for business trips. Double housing costs can be claimed up to certain amounts, if certain criteria are fulfilled.

Double taxation will be avoided in accordance with the applicable double taxation treaties. Double taxation is usually avoided through tax exemption (exempted income will be considered when calculating the applicable income tax rate).

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
• maintenance payments in the case of divorce
• charitable donations in a threshold amount
• contributions to certain non-profit activities
• 30% of contributions to private schools (only school fees), which are governmental accepted, limitation to a maximum amount of €5,000/each child (also schools abroad in EU/EEA– area).

In addition to special expenses, resident taxpayers are entitled to tax relief with respect to extraordinary expenses. 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 than 64 years.

There is a withholding tax of 25% plus a 5.5% solidarity surcharge plus church tax (if applicable) on investment income and capital gains (flat tax).

A liability to German inheritance and gift tax depends on whether the individual or the deceased or donor maintains a domicile or habitual place of abode in Germany. Furthermore, certain assets located in Germany could be taxable. If the individual and the deceased or donors are close relatives, there are tax free amounts depending on the relationship.

No local taxes apply to individuals in Germany.

Real estate tax is applicable in Germany. The amount of real estate tax depends on the value of the real estate and the Federal State.

Social security contributions include pension insurance, unemployment insurance, nursing insurance and compulsory health insurance.

Social security contributions are salary dependent. There is an income limit up to which contributions are payable.

Income thresholds for 2022

Income thresholds for 2023

Stock options are treated as income from employment and subject to the individual progressive tax rates. The stock options are principally taxable at the time of exercise. According to the model treaty stock options, derived from an activity exercise in the other contracting state, are taxable in that state on a working day basis.

There is no wealth tax in Germany.

There are no other specific taxes in Germany in relation to expatriates.