If you're living, working, or planning to move to Germany, understanding the tax system can seem daunting at first. However, filing taxes in Germany doesn't have to be a stressful experience. This guide will walk you through the key steps and provide all the information you need to successfully file your taxes in.

When Do You Need to Pay Taxes in Germany?

Your obligation to pay taxes depends on the duration and purpose of your stay in Germany. Here’s how to know if you need to file taxes:

• Resident for Tax Purposes: If you reside in Germany for more than 183 days in a calendar year, you are considered a tax resident. This means you are taxed on your worldwide income, not just what you earn in Germany.

• Non-Resident for Tax Purposes: If your stay is shorter than 183 days and your primary residence remains outside Germany, you are taxed only on income earned within Germany.

Understanding Income Taxes in Germany

Germany uses a progressive tax system. This means that the more you earn, the higher percentage of tax you will have to pay on your income. The progressive tax rates start at 0% and can go up to 45%. These rates are based on your taxable income, which is calculated by subtracting certain deductions and allowances from your total income.

Beyond Income taxes there are a couple other important taxes you need to know about before settling into Germany.

Solidarity Surcharge (Solidaritätszuschlag): While it has been mostly abolished for lower and middle incomes, high earners still have to pay this surcharge of 5.5% when you're taxed more than €19,950 annually. 

Church Tax (Kirchensteuer): Expats should be aware that if they declare a religious affiliation upon registration, they may have to pay an additional 8-9% of their income tax. Mentioning how to opt out could be helpful.

Possible Tax Deductions and Returns

Germany offers several ways to reduce your taxable income, which could result in a refund. Here are some common deductions expats may qualify for:

• Work-Related Expenses (Werbungskosten): Expenses related to your job such as commuting costs (€0.30 per km), professional training, or work equipment.

• Relocation Costs: If you moved to Germany for work, certain relocation expenses can be deducted.

• Childcare Costs: Up to two-thirds of childcare expenses (maximum €4,000 per year per child under 14).

• Insurance Contributions: Health, long-term care, and liability insurance premiums can be deducted.

• Home Office Expenses: If you work from home, part of your rent, utilities, and internet costs may qualify as deductions.

• Charitable Donations: Donations to registered charities in Germany can be deducted, up to 20% of your total income.

Make sure to keep all receipts and documents related to these expenses for your tax records.

How to File Taxes in Germany

Here’s a step-by-step guide to filing your taxes in Germany

Determine If You Need to File

• If your income comes solely from employment and the correct tax deductions are already withheld from your paycheck, you may not be required to file. However, it's highly recommended to file if:

  • You have eligible deductions or expect a refund.

  • You have multiple sources of income.

  • You have freelancing or self-employment income.

Gather Required Documents

Before filing, ensure you have the following:

• Tax Identification Number (Steuer-ID): Issued upon registering your residence in Germany.

• Annual Income Statement (Lohnsteuerbescheinigung): Provided by your employer. It includes details of your income and taxes paid.

• Bank Details: For receiving any refunds.

• Supporting documents for deductions such as receipts and invoices.

Choose a Filing Method

You can file your tax return in one of the following ways:

1. Online Filing via ELSTER: ELSTER is the official online tax filing system in Germany.

2. Hiring a Tax Adviser (Steuerberater): For complex tax situations, it’s advisable to consult a tax adviser who can ensure your tax return is accurate and maximised for deductions.

3. Using Tax Software:  Popular options like WISO Steuer, Taxfix, or SteuerGo are tailored for individuals and provide user-friendly guidance in English.

Complete Your Return

Enter your income, deductions, and dependent information into your chosen platform or provide them to your tax adviser. Be sure to double-check all entries before submitting. The deadline for filing your tax returns is July 31 annually. If you’re using a tax adviser, you may get an extension until February 28.

Key Takeaways

• If you’ve lived in Germany for more than 183 days, you must file taxes as a resident.

• Germany's progressive tax rates scales up to 45% based on your income level.

• Take advantage of deductions like work-related expenses, relocation costs, and childcare expenses.

• You can file taxes through the ELSTER system, software, or a tax adviser.

 Filing taxes in Germany may seem complex at first, but by understanding the basics and preparing ahead of time, you can simplify the process and potentially save some money. If you're feeling overwhelmed, consulting a tax adviser could be well worth the investment.