The German tax system is quite complex and each year various new laws become effective. Consequently, it is not easy to find out whether there is an obligation to file a German tax return or not. And… after all, we are sitting in the middle of tax season (as we post this) and it might be time to start figuring it all out!
We have Christian Schmidt (Founder, Tax Advisor and Lawyer at Rechts- und Steuerberatung Schmidt in Düsseldorf) back again to share with us some general rules in regards to German tax liability, including some typical work examples.
The straight answer
Generally, when having a residence or habitual abode in Germany, everybody is tax liable in Germany with the worldwide income so that it is always necessary to disclose all information on ones worldwide income. Provided that foreign income exists, in a second step it has to be checked whether this income is tax free in Germany due to a special agreement (e.g. Double Tax Treaty).
How can you easily file your taxes as an expat?
If you’re self-employed and need to submit monthly VAT tax in addition to your annual return, using an online program like Accountable.de can be a great solution. You can read more about it here.
If you’re employed OR self-employed there are also a number of online tax programs (some also in English) which are often your cheapest option. Here, you will simply go through a number of questions and click submit at the end.
Of course, the easiest method for you may also be hiring a tax advisor/accountant in Düsseldorf especially if you have multiple sources of income, own a house, etc.
What kind of income do you have to report?
- Income from agriculture and forestry
- Trade and business income
- Freelance income
- Employment income
- Capital income
- Rental income
- Further income e.g. pension income, income from private sales
What is tax liability in Germany? Am I obliged to file a tax return?
In the following cases there is an obligation to file a tax return:
Additional income
- You receive additional income e.g. rental income, income from self-employment, pension income
- You have capital earnings (worldwide) exceeding the tax-free amount of 801,00 € for singles and 1.602,00 € for spouses or registered partners
- You receive a severance payment from your employer and your employer has applied the favorable so-called “1/5 rule”
Tax classes
- Tax class combination III/V (for spouses/registered partners) and both are receiving income
- You receive employment income from various employers and the second employment is taxed with tax class VI
Wage-replacement benefits
- In case you receive one of the following wage-replacement benefits there is an obligation to file a tax return:
- Unemployment benefit
- Parental benefit
- Maternity benefit
- Sick benefit
- Insolvency payments
- These wage-replacement benefits are tax-free, but they increase the individual tax rate.
Foreign Income
- In case you receive foreign income there is an obligation to file a tax return:
- Foreign pension income
- Foreign rental income from Non-EU countries or from Spain or Finland
- Foreign dividend payments
- Foreign employment income
- Further foreign income
Other
- You have applied for a tax-free amount which is considered by your employer in the monthly payroll
What is no tax liability in Germany?
You do not have to file a German tax return in the following cases:
- Single and only receive employment income
- You receive only low employment income or pension income: the tax-exempt amount in 2018 is 9.000 € for singles and 18.000 € for spouses or registered partners. Below those amounts, there is no obligation to file a tax return.
- Spouses or registered partners with tax class IV/IV and only employment income
Can I benefit from filing a tax return?
Although there is no obligation to file a tax return in Germany, we recommend checking whether you can benefit from submitting a tax return and whether you will get a tax refund.
Possible reasons for tax refund:
- You have child expenses that are tax-deductible
- You have fixed assets that are tax-deductible
- You receive a severance payment from your employer
- You got married during the year
- You are married and you have tax class IV (your spouse does not have any income or is earning significantly less than you)
- You pay „Riester“ or „Rürup“ pension contributions
- Your expenses are exceeding 1.000 €
- You pay a large sum of extraordinary expenses e.g. medical expenses which have not been reimbursed by your health insurance company, costs with regard to disability, costs for needed for care
- You pay costs for household-related services or craftsmen
What happens if I’ve relocated to/from Germany within the middle of a year?
Expats relocating to Germany during the year are obliged to file a German tax return.
The income you made before moving to Germany is tax-free, but it has an influence on the personal tax rate and has to be considered in the German tax return.
The same applies when an expat is leaving Germany during the year. The income after leaving Germany has to be considered in the German tax return as well.
Nevertheless, in many cases, the expat will receive a tax refund provided that the German income is higher than the income from abroad.
