Germany - Tax Guide for Freelance Contractors
Welcome to our guide to German Taxation. You will find a wealth of information which will be useful if you plan to work in, or place consultants in, Germany.
Our tax guides give a general overview of the actual taxation rates and rules at the time of writing. There are of course many ways to legally reduce tax or social security burdens in Germany. Please contact us for more information or an actual breakdown of your situation, and to find out more about our range of payroll and contact management services in Germany.
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German Income Tax
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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 2012 including:
- expenses incurred to create or maintain income,
- employee lump sum deduction (limited amount) without receipts,
- there are complicated rules for the deduction of insurance contributions. 74% of up to EUR 14'800 to the obligatory State pension scheme and to certain private pension schemes are deductible if the scheme provides monthly payments or a lifelon annuity not before the age of 60. This figure will be increased by 2% each year up to the year 2025,
- contributions to health, accident, unemployment and liability insurance and to the insurance for nursing care may also be deducted,
- school fees for children under certain conditions,
Tax free allowances for 2012 include:
- basic allowance of EUR 8’004,
- child allowances of EUR 2'184 per child per year + certain allowances for childcare and upbringing.
Income tax rates for 2012:
Income tax is imposed at progressive rates using complex tables. The lowest rate in 2012 is 14%. It goes up to 42% for income over EUR 52’882. Since 2007 a special rate for the “rich” (“Reichensteuer”) of 45% for income over EUR 250’730 for single persons (double for jointly assessed spouses) is applied.
Tax returns are due by 31 May the following year.