Germany - Tax Guide for Freelance Contractors

Tax residents in Germany:         are liable to pay German tax on their worldwide income.
Non tax residents in Germany:  are liable to pay tax on German-source income.

Individuals will be regarded as tax residents:

•  if their domicile is in Germany,
•  if their habitual abode is in Germany, i.e. if they stay for an uninterrupted period of 6 months, which may fall across two years.

Married persons are usually assessed jointly, but can opt to be assessed separately.

Taxable income includes:

• income from employment, self-employment, business and real-estate. Employment income includes any amount in cash or in kind received by the employee for their work. The employer has to withhold income tax at source together with a solidarity surcharge of 5.5% on the tax amount due.

Certain deductions are permissible for 2009 including:

• expenses incurred to create or maintain income,
• employee lump sum deduction of EUR 920 without receipts,
• cost of travel between home and workplace,
• expenses connected with maintaining two households, professional books and periodicals and membership fees paid to professional organisations or trade unions,
• there are complicated rules for the deduction of insurance contributions. 68% of up to EUR 20’000 (i.e. up to a maximum of EUR 13’600 or double for jointly assessed spouses) to the obligatory State pension scheme and to certain private pension schemes are deductible in 2009 if the scheme provides monthly payments or a lifelong annuity not before the age of 60,
• contributions to health, accident, unemployment and liability insurance and to the insurance for nursing care may also be deducted up to a limit of EUR 2’400 if the taxpayer pays the total of these insurances himself. For taxpayers who do not pay the total themselves, the limit is EUR 1’500,
• school fees for children up to a maximum of EUR 5’000.- per year under certain conditions.

Tax free allowances for 2009 include:

• basic allowance of EUR 7’834,
• first child and second child allowance of EUR 1’968,
• third child allowance of EUR 2’040,
• fourth child allowance of EUR 2’340,
• allowance for child care of EUR 1’080 (each are doubled for jointly assessed spouses).

 
Income tax rates for 2009:

Income tax is imposed at progressive rates using complex tables. The lowest rate in 2009 is 14%. It goes up to 42% for income over EUR 52’551. Since 2007 a special rate for the “rich” (“Reichensteuer”) of 45% for income over EUR 250’401 for single persons (double for jointly assessed spouses) is applied.

Filing date:

Tax returns are due by 31 May the following year.