For employees - Income tax in Germany
The German tax system is complicated and subject to regular changes. Therefore it is good to know some major facts about the German tax system to get an overview about obligations and possibilities to avoid any negative consequences.
What’s the difference between unlimited and limited tax liability in Germany?
An employee is unlimited tax liable in Germany when
- having a residence or habitual abode in Germany.
The consequence is that the employee is tax liable with his worldwide income in Germany.
An employee is limited tax liable in Germany when he has
- neither a residence
- nor a habitual abode but
- German sourced income (e.g. employment income, rental income etc).
The consequence is that the employee is tax liable only with his German sourced income.
Which income is taxable income in Germany?
- Income from agriculture and forestry
- Income from a trade or business
- Income from self-employment
- Income from employment
- Income from capital investment
- Income from renting and leasing
- Other income (gains from private transactions, pensions, etc.).
When do I have to file a German income tax return?
Relocating to Germany during the year
When you relocate to Germany during the year there is an obligation to file a German income tax return. Your income from before moving to Germany also has to be considered in the German tax return. This income is tax free but it has an influence on your tax rate.
The same applies when you leave Germany during the year. Then your income after leaving Germany has to be considered in your German tax return as tax free income.
Additional income besides employment income
When you have further worldwide income besides your employment income e.g. rental income, capital income, income from trade and business etc., there is an obligation to file a German income tax return.
When you are married and your spouse is also working and you have tax class III/V there is an obligation to file a German income tax return. When having tax class IV/IV there is no obligation to file an income tax return in Germany.
When receiving unemployment benefit, parental benefit or maternity benefit there is always an obligation to file an income tax return in Germany. Please note that when you receive foreign benefits, this will also lead to a German tax obligation.
When having only employment income during the whole tax year, there is no need to file a tax return in Germany. Nevertheless it is recommendable to check whether you can benefit from filing a tax return in Germany when having a high amount of expenses.
The annual tax return
When being obliged to file an income tax return in Germany you have to submit it annually. In Germany the tax year is the calendar year. The filing deadline is 31 May of the following year. When a tax advisor represents you the deadline is extended to 31 December of the following year
Example: The 2016 income tax return has to be submitted until 31 May 2017 or 31 December 2017 when a tax advisor represents you.
The income tax return can be submitted to the tax authorities electronically. The tax authorities then need between 2-3 months for reviewing the tax return. Once the review is completed the tax authorities will send out an income tax assessment notice.
Please note that it is always important to check the assessment notice because often the tax authorities make mistakes to the disadvantage of the taxable person. In this case it is possible to file an appeal within a period of one month.
Overview general tax procedure in Germany