Travelling to a New Country is always an exciting moment but as soon you start working and earning in Germany the most commonly heard word is TAX. The terms “Taxation” and “Tax Returns” bring so much fear and confusion to expats, especially when the system is not very straightforward and filled with complicated German words.
Vanakkam Germany & SHORTAX Team provides you all the necessary knowledge and information about the types of taxes in Germany, who should pay taxes, how to get maximum tax returns and much more. Keep reading to find out more about the topic of taxes and learn about the system of tax returns!
Tax refers to the compulsory monetary contribution made to the revenue of a country that is levied on the residents – it comes from income of the workers, business profits, cost of goods, services and transactions.
In Germany, whether you are a citizen or resident, the law requires you to pay taxes. The Federal Government “Bundersregierung” is in charge of the tax collection, which is done locally by the tax offices called “Finanzamt”. If you are an expat, employed in Germany, you would have noticed the term “Lohnsteuer” on your paycheck. This deduction is the monthly tax on your income. However, if you have your business, second job or a freelancer, then you need to submit the annual tax return, so the government calculates the income tax that you need to pay.
The tax system in Germany is progressive, which means higher the income, higher the taxation. The taxable income is calculated by subtracting the deductions and special expenses that are determined by the Finanzamt
The tax-free income limit for single persons is €9,744 and married couples is €18,816. If your income exceeds this limit, then you are liable to pay tax between 14% and 42%.
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