Table of Contents
Work / Study equipment (Arbeitsmittel)
Flight tickets to India
Language courses (Sprachkurse)
Understanding German tax laws can get very complicated as compared to tax laws from India, when adding the language barrier in the equation. There are a lot of websites that provide a ton of information in English and this document intends to offer in as simplistic form as possible the material on German income taxes.
Being a professional, it is obviously very important for you to understand the German taxation system. But even as a student it's important to file for ITR since you would be able to get your taxes in return considerably by the time you actually start to work full time. It is not mandatory as being a student to file for ITR while studying but it is very important that you maintain all your documents/ receipts/ proofs of your expenses, if and when you plan to claim the taxes paid by you either as a student or when you start working full time.
An individual, on an average receives a tax refund of €1000 upon filing their tax returns every year. So, it is very beneficial for any individual to understand the concepts of taxes in Germany and file their income tax returns and plan for a nice summer holiday every year.
FIRST THINGS TO HAVE/ GET
Einkommensteuer or Einkommen, remember this word. As you start working either as a student or as a professional, it is nothing but your income tax. Before we even begin to understand the German taxes, there are a few things one needs to apply for, Steuernummer and SteuerIdentifikationsnummer. It is a bit confusing with the naming, but it will be cleared in a short while.
What is the Tax Number (Steuernummer)?
The tax number is a 10-13 digit number that is assigned by your Finanzamt (Tax office). Once this number is assigned to you the tax office can easily assign your tax returns to you. It isn’t a unique number per se, it's the number of the tax office closest to you from where you live. So, if you decide to change your place of living either within the same city or a different city altogether, the tax number also changes. You do not need to apply for it. While filing your tax returns for the first time or while filing subsequent returns, you just leave the “tax number” field blank and the authorities will assign the respective tax number to you.
If you want to know what your tax number is, you can see it on the left top corner of your tax return document.
Image source: ELSTER
What is the Tax Identification number (SteuerIdentifikationsnummer)?
Unlike the tax number, the identification number is a unique 11 digit number for an individual for life. Even your passport ID may change, but this is “FOREVER”. Once assigned this does not change and cannot be changed. This number is also useful for identifying the person while applying for tax returns but also useful when applying for child benefits, your health insurance, pension or unemployment insurance, etc. all these institutions use your tax ID to determine how much to tax you associated with your gross income and share your information with the tax authorities for tax calculation purposes.
How to get the tax ID?
Upon your arrival anywhere in Germany, once you are completed with your city registration (Anmeldung - Please go through the City registration part of the document, the finanzamt automatically will send you by post your Tax ID within 2 weeks of your registration.
If you haven’t received your tax ID, you can directly go to any of the Finanzamt with your passport and anmeldung document and they will provide you with the tax ID immediately. You don't even need to make an appointment.
You can also find your tax ID on the payslip (Gehaltsabrechnung) and also on your income tax return document (Einkommensteuerbescheid - see above image)
What if you lose or forgot your tax ID?
You can directly go to the Tax office (Finanzamt) without an appointment and they will provide it to you.
You can fill this form and you will receive it in 4 weeks by post.
TAX CLASSES
An individual can belong to one of the 6 German tax classifications as given below:
Tax class 1: Single, widowed, separated/ divorced
Tax class 2: Single parents, living separately
Tax class 3: Married (partner with higher income or Sole earner)
Tax class 4: Married (both partners earning almost equal)
Tax class 5: Married (Partner with lower income)
Tax class 6: Second or many more side jobs/ part time jobs
TAX TERMINOLOGIES
Financial year
Unlike India, in Germany the financial year follows the calendar year, that is from January to December.
Gross income (Bruttogehalt)
The total monthly or annual income you receive from your employer before any deductions.
Net income (Nettogehalt)
The amount you receive in your bank account after all the taxes, social security and any other allowances deducted from your gross income.
Taxable income
Taxable income covers income from the following categories:
Agriculture and forestry.
Trade or business.
Independent professions.
Employment.
Capital investment.
Rents and royalties.
Other income (as defined by tax law)
The total income after all the deductions in the above respective/ applicable categories, and any other expenses covered as per the tax law, constitutes the taxable income.
Wage tax (Lohnsteuer)
It is the income tax and other contributions that your employer withholds from your salary.
Wage Tax Certificate (Lohnsteuerbescheinigung)
As you have Form 16 in India, in Germany this is the same document that is provided by the employer either at the end of the year or the beginning of the next year (Dec or Jan or Feb) showing all your income, taxes, social security contributions as being an employee and also from the employer.
Social Security (Sozialversicherung)
Statutory Health Insurance (gesetzliche Krankenversicherung - KV) 15.8% : 7.9% (Employee) + 7.9% (Employer)
Pension insurance (Rentenversicherung - RV) 18.6% : 9.3% (Employee) + 9.3% (Employer)
Long-term care insurance (Pflegeversicherung - PV) 3.4% or 4.0% if single/ do not have a child: 1.7%+ 0.6% (Employee) + 1.7% (Employer)
Unemployment insurance (Arbeitslosenversicherung - AV) 2.4% : 1.2% (Employee) + 1.2% (Employer)
You can go through the following social security contributions in Germany.
Basic tax allowance (Grundfreibetrag)
This allowance is applicable for each and every individual who is filing taxes. The table below is applicable specifically for Singles. For a married couple, tte allowance is doubled, even if his/her spouse is not working.
Year | Basic tax allowance | Increase in value (€) | Increase in % |
2024 | € 11,604 | € 696 | 6.4% |
2023 | € 10,908 | € 561 | 5.4% |
2022 | € 10,347 | € 603 | 6.2% |
2021 | € 9,744 | € 336 | 3.6% |
2020 | € 9,408 | € 240 | 2.6% |
2019 | € 9,168 | € 168 | 1.9% |
2018 | € 9,000 | € 180 | 2.0% |
TAX BRACKETS
Based on the taxable income of an individual, the tax is calculated based on the following categories:
§ 32a Einkommensteuertarif 2022
(0) until 10,347 € (basic allowance) : 0;
(1) from 10,348 € to 14,926 € : (1,088.67 * y + 1,400) * y;
(2) from 14,927 € to 58,596 € : (206.43 * z + 2,397) * z + 869.32;
(3) from 58,597 € to 277,825 € : 0.42 * x – 9,336.45;
(4) from 277,826 € and above : 0.45 * x – 17,671.20;
§ 32a Einkommensteuertarif 2023
(0) until 10,908 € (basic allowance) : 0;
(1) from 10,909 € to 15,999 € : (979.18 * y + 1,400) * y;
(2) from 16,000 € to 62,809 € : (192.59 * z + 2,397) * z + 966.53;
(3) from 62,810 € to 277,825 € : 0.42 * x – 9,972.98;
(4) from 277,826 € and above : 0.45 * x – 18,307.73;
§ 32a Einkommensteuertarif 2024
(0) until 11,604 € (basic allowance) : 0;
(1) from 11,605 € to 17,005 € : (922.98 * y + 1,400) * y;
(2) from 17,006 € to 66,760 € : (181.19 * z + 2,397) * z + 1,025.38;
(3) from 66,761 € to 277,825 € : 0.42 * x – 10,602.13;
(4) from 277,826 € and above : 0.45 * x – 18,936.88;
Each year the formula for calculation of income tax changes and it can be found here.
To find the tax brackets for different years, one only has to search for “§ 32a Einkommensteuertarif” followed by the assessment year (as shown above), which basically means “Clause 32a income tax rate/ tariff”.
TAX CALCULATORS
TAX FORMS
These 3 are the important forms that one has to fill, in general.
Main form (Hauptvordruck ESt 1 A)
Investment pension expenses (Anlage Vorsorgeaufwand)
Income from employment (Anlage N)
Additional forms (that may be required)
Special expenses (Anlage Sonderausgaben)
Extraordinary Income (Anlage Außergewöhnliche Belastungen)
Income from Household-related expenses (Anlage Haushaltsnahe Aufwendungen)
Child expenses (Anlage Kind)
Dependent parent expenses (Anlage Unterhalt)
Maintenance payments to the divorced or separated spouse (Anlage U)
Rental income (Anlage V)
Salary income from outside Germany (Anlage N-AUS)
Income from outside Germany except salary (Anlage AUS)
Income from Financial assets/ investments (Anlage KAP)
Pensioner submitting his Tax returns (Anlage R)
Foreign pensions and other benefits from foreign insurances (Anlage R-AUS)
Income from agriculture / forestry (Anlage L)
Reister - Pension Scheme (Anlage AV)
Other Income (Anlage SO)
Capital-forming benefits (Anlage VL{Vermögenswirksame Leistungen})
Promotion of Home-ownership(Anlage FW{Förderung des Wohneigentums})
Annex Corona aid (Anlage Corona-Hilfen)
TAX FILING DEADLINES
If you as an individual are filing your taxes, one has to file before 31st July of the following year. If you are taking the help of a tax agent/consultant the deadline gets extended by the Finanzamt. There is no standard deadline in this case. But usually it will be 31st Dec of the following year at minimum.
E.g. For filing the ITR for 2021, the deadline for the individual is 31st July 2022 and if done with the help of tax agent, it may be 31st Dec 2022 or even further.
If you are supposed to pay additional taxes on your income, you must strictly adhere to these deadlines or else the Finanzamt will charge penalties at 0.25% of the income tax to be paid.
In general, as an employee in Germany, you would be paying your taxes in advance, directly deducted from your monthly payslip. If you are supposed to get a refund from your taxes, theoretically you have the flexibility to file your taxes within the next 4 years.
For Freelancers/ Self-employed people, this flexibility is not available. They have to file the ITR before the 31st July of the following year mandatorily. The same is for married couples.
For a student, retrospectively gets an additional 3 years to file their taxes.
For eg. If you were a student from 2014 to 2016 and you want to file your taxes, you have the flexibility to file the ITR 2014, 2015, 2016 until 31st July 2021, 2022, 2023 respectively. But for 2017, 2018, 2019 and so on, the normal deadline kicks in, i.e. 31st July 2021, 2022, 2023 and so on respectively.
TAX DEDUCTIONS
Tax Deductions | Flat Rate |
Work/ Study equipment (Arbeitsmittel) | €110 Flat rate or the actual whole amount in one go |
Flight tickets to India | |
Transportation to university or work | €0.35 per kilometer (Applicable from FY 2020) |
Employee lump sum (Arbeitnehmer Pauschbetrag) | €1230 |
Liability insurance | |
Job applications | Post €9, Online €2.50 |
Double household | |
Literature/ Learning materials | |
Account management fees | €16 |
Semester fees (Semesterbeiträge) | |
Tuition fees (Studienbeiträge) | |
Exam Fees (Prüfungskosten) | |
Language courses (Sprachkurse) | |
Office space for home office | |
Income in India | |
Home office Lump Sum | €6 per day with a maximum limit of €1260 per year (210 days) |
Membership fees (Mitgliedsbeiträge) | |
Interest from education loan (Zinsen aus Bildungskrediten) | |
Telephone and internet | €20 per month (max.) |
Tax consultant charges (Steuerberatergebühren) | |
Support for dependent persons (Unterhalt) | |
Additional costs (Nebenkosten) from rent | 20% of the Nebenkosten |
Household-related services (Haushaltsnahe Dienstleistungen) | 20% of the total services cost |
Moving costs/ Relocation (Umzugskosten) | €886 (Singles), €1,476 (married couples) and €590 (each additional person in the household) |
Visa Fees | |
Church Tax | 8% of IT in Bavaria & Baden-Württemberg, 9% rest of Germany |
Deduction for Parents: | |
Child education expenses | 30% of actual or max €5,000/ year/ child |
Child Allowance | €8,952 / year/ child |
Child Benefits | €250 /child/month |
Childcare services | €4,000/year |
College education | €924/year |
Parental Allowance | min. of €300 to max. €1800/ month |
German Pension System | |
Capital Gains (Kapitalerträge) | for singles €1000 and for couples €2000 |
Cryptocurrency | Upto €600 |
Donations | Max. 20% of your gross annual income |
IMPORTANT NOTICE:
The tax deductions mentioned in this site may be valid for every year but the figures/ percentages mentioned in these deductions may change year on year basis. Kindly check for the current applicable figures/ percentages for the associated tax filing year respectively.
Work / Study equipment (Arbeitsmittel)
For students -
Mobile phones are not part of tax deduction as it has nothing to do with studies.
For students and employees -
hard hat, gloves, apron, work shoes.
bags, briefcases.
laptop, smartphone, tablet, gps, headphones.
Softwares and licenses
office chair, ergonomic mouse, keyboard, lamp.
training or technical literature
any item that might be associated primarily to your work/ studies
Until the end of 2017, For devices or furnitures that cross the limit of €400 in costs, you would have to claim it in 3 consecutive years for devices and 13 years for furnitures limiting to 1/13 of the total amount every year.
For e.g. If you bought a laptop for €1400 in July 2020, you can claim only €200 (6/12*400) for 2020, and then another €400 in 2021, another €400 in 2022 and the remaining €400 in 2023.
From 2018, the deductable limit was raised to €952 EUR (net €800 EUR + 19% VAT). Any equipment/furniture that costs less than €952 EUR, one could fully deduct the entire amount in the same year. Any amount above that would have to be depreciated and claimed in the next consecutive years as the above example.
In 2021, the rules were changed. The entire amount of the device can be claimed in the same year that it was bought.
If one bought a laptop for private and prosessional use purposes, they could claim the professional part of the usage as an income related expense. Upto 50% of estimated usage can be claimed as professional use for which the FA will not question. But anything beyond that they will ask for proof.
For mobile phones, only 50% of the expense can be claimed as professional use.
If you don't have any expenses as such, still you can claim a flat expense of €110 as equipment costs.
Flight tickets to India
For a student or an employee, if you are single and your family (parents/ spouse) is in India, then one time to and fro flight ticket per year can be claimed in your tax returns. Be sure to keep your boarding passes as proof, if asked by Finanzamt.
Transportation allowance
If you are a student, then as part of your semester fees you would have paid for the transportation costs. This is part of tax deduction unless you have already considered the entire semester fees as a deductible expense.
For an employee, whether you have received the transportation card from your employer or you bought it at your own expense, you can directly deduct €0.30 / km for the shortest distance traveled from your home to your work ONE WAY.
From 2021, this has been increased to €0.35/km from the 21st km onwards.
Depending on which tends to be higher (either the yearly pass or the €0.35/km), you can include that amount for tax deduction. But while filling the tax form, it asks to deduct the days that you were sick, holidays/ on vacation, etc. in a year to calculate the actual equivalent amount.
Employee lump sum (Arbeitnehmer Pauschbetrag)
In general, you can deduct all the expenses due to your work as Werbungskosten (Income-related expenses) in your ITR. But even if you do not have any expenses, by default the Finanzamt considers a flat rate amount of €1,000 as Employee lump sum.
For 2022, this deduction has been raised to €1200.
For 2023, this deduction has been raised to €1230
It’s always better to claim transportation allowance wrt to the distance between your home and workplace.
For e.g. if the distance is 16 km, and considering 230 working days per year and 10 unfortunate sick days
220 x 0.30 x 16 = €1,056, which would be more beneficial to claim than the yearly pass of ~€800 that you pay for your commute.
Liability insurance
As the name suggests, anything and everything that can cause you a financial loss with another person and you have taken insurance against it, can be claimed as part of a tax deduction.
Some examples -
For the apartment where you live as a tenant, you are supposed to get liability insurance.
You could get legal insurance for scenarios wherein you may end up using legal help from lawyers and you would have to pay the fees to them or for the damages caused by you to another person.
If you are an investment advisor, and one of your clients demands compensation for the financial loss caused by your advice.
Job applications
You are either looking for a change of job or have lost your current job due to whatever reason and are applying for another job. For all the applications that you do, you can claim €9 per application done via post and €2.5 done via email/ online.
As proof, please keep pdf copies of your sent application emails or the emails of received confirmations of application from the company.
Note: This is not applicable for recent graduates who are seeking jobs.
Double Household (DH) (Doppelte Haushaltsführung)
A double household means having a second home close to your place of work, while maintaining a primary household (either with your parents/ wife & children) in one city and due to work you had to travel to another city either for short term or long term. Through this deduction one can claim up to €1,000 / month from your income associated with your second accommodation (rent+utilities). One of the most important criteria is that the primary household should be your “Center of Life”. One would have to prove this to the Finanzamt, if asked.
Criteria for having DH:
The second household should be close to the place of work.
The distance to the place of work should take less than 1 hour by public transport from your second household as compared to the primary residence.
The primary residence is the center of your life.
The primary household should either belong to you or you should be paying for more than 10% of the maintenance expenses of the primary household
Costs that can be deducted as part of DH
Rent + Utilities including electricity, gas and water upto a maximum of €1000/ month or €12,000 per year.
Any new furniture’s bought for the second household – a single furniture costing upto €800 without sales tax can be completely claimed in full, while if the cost of the furniture is expensive than that, then one has to depreciate the value and claim it in the next consecutive years (upto 13 years) but only €410 every year without sales tax.
Broadcasting Fee (ARD) for the second household can be fully claimed.
Second household tax and insurance premiums, if any.
Weekly trips to home if the primary household is within Germany either at actual or at €0.30/ km and €0.35/km from the 21st km onwards.
Flights can also be claimed
If the primary household is abroad, then atleast one trip in a year.
Additional expenses for meals for 3 months with a flat rate of €28/ day.
Moving cost at actual
Any other costs associated with searching, advertising and travel for viewing the apartment at the place of work.
Telephone and internet flat-rate of €20/ month can be claimed if you are not travelling every week to your primary household.
This deduction provides a good chunk of paid taxes as refund if proved true. Due to which, this deduction is scrutinized heavily by the Finanzamt until they are 100% convinced of the need for second household.
Literature/ Learning materials
As a student you may need or will definitely be needing books either in hard or digital copy, all these expenses can be claimed as part of your studies. Including printing documents/ reports, thesis submission reports, etc. Over the years, these expenses get piled up and you can claim all these in your tax returns.
Account management fees
Some banks charge for having a bank account in Germany and you pay about €7 EUR/month as account management fees to the bank. But the Finanzamt recognises only €16 EUR/ year of that as an expense.
Semester fees (Semesterbeiträge)
As a student, you would be paying anywhere between €200 to €400 per semester as semester fees, which is inclusive of the local public transportation. The entire amount can be claimed in your tax returns.
Tuition fees (Studienbeiträge)
Although most study programs in Germany are free (only basic semester fees) but if your study program has tuition fees, you can claim this amount as well.
Exam Fees (Prüfungskosten)
If in the year of joining your studies, either Bachelor’s or Master’s you had given IELTS/ GRE/ TOEFL exams then these can be claimed in your tax returns. Even if during your semester you had to write certain exams for which you had to pay certain fees, these can further reduce your taxes.
Language courses (Sprachkurse)
Once you are in Germany or even when you were in India, you undertook some German courses either as a student or a non-student, you can claim all those fees paid for your course as an expense in your tax returns. It doesn't matter how many times and for how long you pursued the German language classes, everything can be claimed as part of your tax deduction.
Office space for Home office
If you are doing Home Office, you can claim operational expenses for producing work. For this purpose, there must be enough rooms in your house to claim an office room. The living room and bedrooms cannot be claimed as an office room. Minimum number of bedrooms = number of occupants/2. For example, if three family members are living, then you would need at least 4 rooms in the house to claim an office room (2 bedrooms for 3 occupants + 1 living room + 1 office room). Operational costs considered will be proportional to the ratio of the office room area to the total home area. For example, if your home area is 100 sqm and the office room is 15 sqm, then 15/100 = 15% of the operational expenses will be considered as operational expenses for the Home Office. These include
Electricity costs
Heating costs
Interest paid to housing loan that year
Income in India
India and Germany do not have a tax sharing agreement. However, German tax laws mandate declaration of foreign sources of income. Not declaring shall be considered as hiding of income. The declared income will not be taxed directly in Germany, but will be used to determine the progressive tax rate. e.g. Let’s say the progressive tax rate for income of €50,000 is 10% and for €55,000 is 12%. This would have meant for an income of €50,000 you would have paid €5,000 as tax, and for an income of €55,000. you would have paid €6,600 as tax. If your German income is €50,000 and you declare a foreign income equivalent to €5,000, then you will be taxed on €50,000 at the rate applicable to €55,000 i.e. 12% of €50,000 = €6,000.
Home office lump sum
If you have been working from home for a maximum period of 210 days in the year, you can claim €6 per day with a maximum limit of €1260 per year.
But, if you have been working from home for the entire year or almost the entire year, you cannot claim the transportation allowance, except for the days you actually went to office.
If you worked from home and also went to the office on the same day, you could claim only one or the other, but not both.
Membership fees (Mitgliedsbeiträge)
These can be deducted as part of special expenses, such as for University or any other professional associations. Exceptions are sports memberships, cultural memberships, etc.
So if you are a member of a football club, tennis club or basketball club, etc., you cannot claim the membership fees as tax deduction, but you can donate to these clubs and that is deductible.
Interest from education loan (Zinsen aus Bildungskrediten)
Similar to how it is in India with Section 80E of the Indian Income Tax policy, one can claim the deductions for interest accumulated on the education loan; In Germany too you can claim the interest from the education loan, whether the loan is taken in India or Germany or anywhere else, you can claim the entire interest paid on the education loan every year.
Telephone and internet
The costs incurred for your calling and internet charges can be claimed as part of tax deduction as well, upto the minimum limit of 20% of the invoice amount, but with a cap of €20 per month without providing any proof. So a flat rate of €240 can be claimed annually, but it is at the discretion of the Finanzamt.
Tax consultant charges (Steuerberatergebühren)
Whether you have used a private app or website or you approached a tax consultant to help with filing your tax returns, the service charges paid to these can be claimed as tax deduction. There is no limit to this. But usually the charges are pre-determined.
Support for dependent persons (Unterhalt)
This is a huge topic to cover demanding a complete chapter in itself. But will try to be brief in this sub-section. Germany recognizes the tax payer supporting their family/relations financially, if they don’t have sufficient income or subsistence for themselves. So only those people who are under this financial situation can be supported by the tax payer. The following levels gives a clear order of precedence the German law adheres to when it comes to their claims.
Level 1 - minors and adult (children) up to 21 years of age
Level 2 - Parents caring for children, divorced spouses
Level 3 - Spouses and Divorces of Previous Marriages
Level 4 - Other adult children (Children who are beyond 21 years of age, with disability, etc)
Level 5 - grandchildren and their descendants
Level 6 - Parents
Level 7 - grandparents, great-grandparents
Beyond this level, one can even go as far as to support their uncles, aunts and any other relations, but the onus is upon the tax payer as to why he/she is supporting them beyond the above 7 levels.
For those who are single and unmarried, you can directly skip to Level 6. Since in Germany the retirement age is 65, the same is applicable to your parents in India irrespective of your parents being retired at the age of 60. Hence one has to provide additional proof if their parents need support when they are <65. This can be done if your parents have a health condition and submit a medical report/ certificate from your family doctor stating why they cannot continue to work.
The amount limitation for the dependent persons (Unterhalt) is defined every year based on the Basic tax allowance (Grundfreibetrag) for that respective year. Depending on which country your parents/ relatives are currently living in, the Finanzamt has classified the countries into these Groups (source)., viz.
Group 1 --> you can deduct up to €10,908 (2022: €10,347)
Group 2 --> you can deduct up to 75% of €10,908, i.e. €8,181 (2022: €7,760)
Group 3 --> you can deduct up to 50% of €10,908, i.e. €5,454 (2022: €4,872)
Group 4 --> you can deduct up to 25% of €10,908, i.e. €2,727 (2022: €2,587)
India comes under Group 4. So what does this mean? It means that the tax payer can transfer upto €2,727 per person per year to cover their living expenses. So if you are claiming for both your parents, then you will be able to claim twice the amount.
One can also opt to transfer the entire €5,454 (2,727 x 2) to one of the parent’s account, if both are living together in the same household.
Best practice: Transfer funds either once every 6 months or once every 3 months, starting from January.
Summary of eligibility requirements:
Supported person is dependent under German law.
The supported person has no entitlement to a child allowance or joint assessment
There is no real splitting/deduction of special expenses
The ability to pay (sacrifice limit) of the tax payer must be taken into account.
This is only applicable if you are supporting more number of people and your financial ability to support them would have to be calculated.
The total value of assets of the supported person should not be more than €15,500 or €31,000 if both parents live in the same household.
Evidence (forms from the financial administration) must be submitted.
Maximum amounts are divided into 1/12th for payments made during the year.
E.g. 1: If you transferred €2,727 to one of your parents, starting from the month of April, only €2,045 (227.25 x 9 months) will be considered towards the claim.
E.g 2: If you transferred €3,000 to one of your parents, starting from the month of January itself, only €2,727 (227.25 x 12 months) will be considered towards the claim.
Which means that, in order for the entire amount be considered for tax deduction, the amount must be transferred on 1st of January or in the 1st week of January every year.
Required Documentation:
Unterhaltserklärung form (if prompted, search for Unterhaltserklärung zweisprachigen)
Download the English/ German form. Each supported person should fill out this form. The information on how to fill out is provided in detail here. This document must be stamped and signed by a relevant local official/ registration authority from the home country.
Proof of Payments: Bank statement of the tax payer, the statement of mode of transfer (if you used Wise) and the bank statement of the supported person. (The amount must come from the tax payer’s account and must go to the supported person’s account showing the chain of fund transfer).
Additional evidence of eligibility e.g. Medical reports, Doctor’s certificate, etc. (if applicable)
This deduction is as per § 33a paragraph 1 EStG. For more information one can go through this in detail.
This deduction like the Double Household also provides a good chunk of paid taxes as refund if found to be true. Due to which, this deduction is also scrutinized heavily by the Finanzamt until they are 100% convinced that the financial NEED to the supported persons is truly necessary for their sustenance.
Additional costs (Nebenkosten) from rent
Where to begin? Even most Germans themselves don't know about this particular tax deduction option. This is basically claiming the difference between the cold rent and the warm rent (inclusive of heating, water and other utilities, etc.)
An annual statement that shows all the expenses associated to the building that you are living in is called Betriebskostenabrechnung or Nebenkostenabrechnung.
The budget for the nebenkosten is estimated based on amount of utility expenses that is determined from the previous years and is agreed upon by the landlord and the hausverwaltung.
Here are the list of things that are covered as part of the nebenkosten.
Heating, Hot water, Building maintenance of common areas, garbage disposal, gardening, snow removal, Lift maintenance, cleaning of common areas, etc. This list can go on further depending on what services are included in your contract or what services the hausverwaltung are looking into.
These following services are NOT part of the Nebenkosten.
Electricity, Home Internet, Cable TV, Radio fee (ARD)
When should you be expecting the Nebenkostenabrechnung?
Unfortunately it’s a lot more complicated than it looks. For the Hausverwaltung to provide you with this balance sheet, they should get all the required readings for hot water consumption and heating from each and every tenant of the building and from all the respective third party service providers. Technically, one should receive this statement by mid of the following year. But as per law, the hausverwaltung has until the end of the following year to provide these statements.
For e.g. for the expenses paid in 2020, legally the hausverwaltung has a deadline until 31st Dec 2021 to provide you with the statement. A general rule of thumb is, it can cost you roughly €2.5/ sq.m per month. The tax deductible amount is limited to only 20% of the incurred cost.
Example calculation: Apartment Size: 60 sq.m
Nebenkosten (approx.) based on the thumb rule: €150/ month
Tax deductible: 20% of 150: €30/ month
Total annual tax refund: 30*12: €360
Household-related services (Haushaltsnahe Dienstleistungen)
20% of all the skilled workmen services is tax deductible.
Wallpapering
Facade
Roofing
Flooring
Painting
Heating system replacement
Room upgrades
Moving costs/ Relocation (Umzugskosten)
These are the different possible scenarios wherein one can claim Umzugskosten.
1. Income-related expense (Job related and also Master's degree)
Starting a new job
Commute reduced by an hour
Due to office relocation
Work related Double household
2. Special expense (First Degree)
Moving to another city due to your studies related to first degree.
3. Household related service (Personal move) - at actuals only
Due to the renovation of your own house
4. Extraordinary expense (unplanned personal move) - at actuals only
Due to disaster struck in your area, illness/ health reasons (moving to another apartment close to a hospital)
5. Business Expense (Freelancers) - at actuals
Due to expansion of the business to another city
€886 (Singles), €1,476 (married couples) & €590 (each additional person in the household). If you did not have your own apartment before or after moving, the flat rate is reduced to €177. If had to relocate 2 or more times in 5 years, the flat rate is increased by 50%.
VISA Fees
In the year of filing the taxes, you had to apply for a visa extension or change your visa type and you had to bear the charges, these can be claimed as tax deduction.If your employer reimbursed these or if they themselves paid for it, you cannot claim it again.
Church Tax
If you are living in Bavaria or Bade-Württemberg region, you pay 8% of the income tax as church tax, while its 9% for the rest of Germany.
Deduction for Parents
As a parent, child expenses would run into thousands of euros a year. Fear not, the FA provides tax deductions on the following claims/services:
30% of actual education expenses of the child upto a max. limit of €5,000/ year/ child
Child Allowance (Kinderfreibetrag): €8,388 / year/ child
Child Benefits (Kindergeld): €250 each/child/month;
The child allowance is applied at the time of filing the ITR, but the process should have started in the tax year itself, While Child benefits is paid out every month from the time of approval of your application. One cannot claim both, but the FA calculates whichever tax claim is beneficial with respect to the parents.
Childcare services upto age 14: €4,000 / year/child
College education**: €924 /year/child
For claiming this, the child should not be living with their parents.
Parental Allowance (Elterngeld)
For upto 12 months, from the time of giving birth, parents can apply for a payment from the State (income-replacement benefit) from a min. of €300 to max. €1800/ month
Or 67% of the previous net income with an upper limit of €1800/month
From the date of birth of the child to within 3 months, the application must be sent and including these 3 months can be claimed.
If the partner also claims this allowance, then 2 additional months are added.
German Pension System
There are 3 levels of German pension system. No 'ONE' option is better than the other, with each having its own pros and cons.
Pension Level 1 (No Choice): Statutory Pension scheme
This is the basic pension insurance which is the mandatory one. If you are an earning employee then this amount gets deducted directly from your gross income every month. The person does not have any control on this pension. This amount is tax deductible. If you plan to leave Germany in future or any time soon, claiming this pension is not easy and there is a statutory waiting period of minimum 2 years.
Pension Level 2 (Partially your choice): Reister and Company pension scheme (Betriebliche Altersvorsorgung)
This is an optional pension scheme from your employer. As the name suggests, the employer contributes their share of the pension, a certain % amount every month (dependent on your gross income) to another pension plan which you do not have control over. Its a voluntary scheme, which the company chooses to pay from their side. But its not obligatory that you as an employee should also contribute to this pension plan, but its optional.
With Reister plan, the government also provides bonuses to adults with €175/ year and for every child €300/year as long as one is contributing to their pension plan.
This option similar to level 1, is not a good option if you plan to leave Germany any time soon.
Pension Level 3 (100% your choice): Private Pension scheme
This is the private pension plan. Any pension plan that do not fit under the category of the above 2 levels falls here. Any person voluntarily contributes to this pension every month. This plan has a lot more flexibility as compared to the other 2 levels. You can even get back the pension amount if you plan to leave Germany in the near future. Although, they do not provide any tax benefits while contributing, only during payout at retirement the pension amount is tax deductible.
Capital Gains (Kapitalerträge)
For all the investments in stocks and trading, a tax free allowance of €801 for singles and €1602 for couples is available per year. Beyond this amount, there is a flat 25% tax on interests, dividends, and realized capital gains.
One needs to understand that the stocks that you buy are not taxed, but when you sell the stocks and make a PROFIT, beyond the allowance, that's when you pay 25% tax on the profit made.
Additional tax benefits are available for those who have bought shares prior to 2008. If you plan to sell stocks that were bought before 2008, no tax is applicable on the profit you make. But, if you bought the additional shares in 2012 of the same brand and you plan to sell those shares as well in 2022, then only the shares from 2008 are tax free, but the profits from selling the shares bought in 2012 will be taxable.
Cryptocurrency
In Germany, income from Crypto is considered as a private asset, hence it gets taxed as individual income tax itself rather than as Capital gains tax. The gains are taxed according to your personal tax rate (Steuersatz).
Crypto is taxable in Germany:
If you sell crypto in the same year you bought it and make a profit of over €600. This is according to rule 23 EStG, where private sales that do not exceed €600 are tax exempted.
If you sell crypto used in staking which earns interest and you do so within 10 years from purchase.
When you're mining, staking or otherwise earning an income from crypto.
Donations
Upto a max. of 20% of the gross annual income can be claimed as tax deduction.
For donation, the following criteria must be met:
They are beneficial to non-profit organisations
They are voluntary, which means you should not receive any reward for donating
They should be easy to confirm via bank statements and receipts
TAX FILING OPTIONS
There are 3 ways of filing taxes in Germany:
On your own
For people who are more of a paper person, you can download all the required forms, print it out, fill it up and submit it via post to your Finanzamt.
But in these modern times people have got accustomed to filing tax returns online or via apps. The official website for filing tax returns (free of charge) in Germany is Elster. Although it's completely in German and not so user friendly as some private softwares or websites, it is very comprehensive and useful if you make use of it properly. Anyways you can translate the page completely in your browser to help you understand the clauses in the form. But for sure one can go for the private ones such as Steuergo or Wundertax or Taxfix. To find out the best one that suits your requirement, you can go through the following link.
The disadvantage of filing on your own are as follows:
High cognitive load(effort in learning things that you don’t require for your daily work)
You don’t have someone to represent you at the Finanzamt. This might be required for complex scenarios
Through a tax club (Lohnsteuerhilfeverein)
Tax clubs file taxes for you through a member tax consultant for economic prices, which are based on your income slab. E.g. €150 for income between 50k - 60k
Advantages:
They represent you at the Finanzamt.
They are available for advice throughout the year
Economic prices, cheaper than with an individual tax consultant. Some of them even charge you only if you get refunds
Because of the slabs, you get to know the fees in advance
Disadvantages:
They run on auto-pilot mode. They assume that your situation is the same as last year and don’t proactively come up with suggestions to save tax money, or ask if your situation has changed. You need to keep asking them each time about changes of saving possibilities
To achieve economy they often get the returns prepared through inexperienced interns. This is not necessarily a disadvantage as long as their work is reviewed by a more experienced consultant
Through an individual tax consultant (Steuerberater)
Here the prices are expected to be higher, and are proportional to the income and the efforts of preparing your tax returns. The more complex your income, or the more income sources you have, the higher the effort for preparing your tax returns. Also, the more effort you are willing to spend on your side, the lesser the efforts for the consultant. E.g. If you want to meet up in person, hand over physical copies of documents, then it’s more time and effort for the consultant. If you are willing to scan the document online without a physical meeting or make some calculations of your own, then it’s less time and effort for the consultant.
Advantages:
Thorough give attention to your personal detail and are available for advice anytime
They represent you at the Finanzamt
Disadvantages:
Most expensive of the options
You don’t get to know the fees in advance
LOSS CARRYFORWARD (VERLUSTVORTRAG)
If the expenses you had to pay are greater than the income itself, you have a loss. In certain cases, the law allows you to carry that loss forward into a year in the future when you make more money. This allows you to offset your future tax liability. This situation mostly arises when a person is pursuing his education in Germany.
In general,
Income - Expenses = a Positive value, means the person is liable to pay taxes.
Income - Expenses = a Negative value, means the liability to pay is offset, thereby generating a loss-carryforward.
So what does this mean, if you are pursuing a first degree? i.e. Bachelor’s degree in Germany
As per the Federal Constitutional court ruling, the expenses for the first degree and initial training cannot be claimed under business or work-related expenses (Werbungskosten). But they are considered as “special expenses” (Sonderausgaben) with a maximum annual limitation of €6,000. This can only be claimed if one has earned taxable income in the same year.
Your accommodation rent can be fully claimed here as part of special expenses in addition to tuition fees, study materials, travel expenses, etc.
What about a second degree? i.e. Master’s, MBA, PhD, etc.
If you have already completed with a first degree, the annual limitation of €6000 is not applicable and all the expenses associated with the second degree can be claimed irrespective of the limit. This can be claimed under work-related expenses (Werbungskosten). Unlike the loss-carryforward for the first degree, here even if you haven’t earned any income, you can still claim all the expenses and carry it forward to the following years. Your accommodation rent can be claimed under double household.
A loss-carryforward is redeemed when your income is more than your expenses, usually when you are finished with your studies and start working full time. All the negative income i.e. losses gets redeemed offsetting against your income tax.
The standard formula for calculation of taxable income is:
Taxable income = Gross Income - Loss carryforward - Social security Contributions - all other deductions
Some examples for better understanding how loss-carryforward gets redeemed.
Case 1: Person A pursued a master’s degree between the years 2018 and 2020 without having any income during the 3 years period and also accumulated €5,000 each year as expenses.
Case 2: Person A pursued a master’s degree between the years 2018 and 2020, worked part time and earned an income of €3,000, €6,000 and €9,000 respectively, no taxes were withheld and also accumulated €5,000 as expenses each year.
In both the above cases,
Person A graduated in the month of Oct 2020 and started working full time from 1st Jan 2021. Let’s say the salary was €50,000, for which the wage tax comes to €8,500, as per § 32a Einkommensteuertarif 2021. (the figures are round-off for simplification)
Best case Scenario: Case 1
For case 1, when person A finds a full time job and files the ITR for each year, the tax office carryforwards these expenses as losses to 2021. The taxable income reduces to €25,000. The wage tax comes to €3,500 as per § 32a Einkommensteuertarif 2021.
So when person A, files the tax return for 2021 for an income of €50,000, an amount of €5,000 is refunded by the Finanzamt. If further deductions from 2021 are considered, the refund amount will be even higher.
Worst case scenario: Case 2
For case 2, when person A finds a full time job and files the ITR for each year, here comes the difference in how the tax office calculates your losses.
For 2018, the taxable income becomes (-)2,000 i.e. losses, which gets carryforward to 2019.
For 2019, the taxable income becomes (-)1,000 (inclusive of losses from 2018) which gets carryforward to 2020.
For 2020, the taxable income becomes 3,000 (inclusive of losses from 2019) and the tax rule § 32a Einkommensteuertarif 2020 gets applied and no taxes are liable to be paid.
In all the 3 years, even without the utilization of the losses no tax was liable to be paid and yet the tax office reduces their liability by utilizing the losses in their calculation, effectively nullifying all the accumulated losses.
And for 2021, the person gets no tax benefit from the losses.
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