Last updated on September 17th, 2024 at 04:18 pm
Germany is an attractive option for expats thanks to the affordable cost of living and wide-spread knowledge of English. Moving to any new country, though, means getting to grips with the country’s tax system, which may differ significantly from your home country.
To assist in this transition, we at Remitly have put together some tips about German tax deductions. Read on to learn about the most common types of deductions, procedures, key deadlines, and more.
Who can claim tax deductions in Germany?
Foreigners and immigrants living in Germany for over six months become residents for tax purposes. Therefore, they must declare income every calendar year. This includes employees, self-employed freelancers, and students. Whether you’re a single person or married, anyone who needs to file annual income taxes can also claim deductions.
Remember that the German national tax office deducts 1,000 EUR worth of work-related expenses as part of your annual tax return. No matter your tax class, you don’t need to prove anything to receive this lump sum of euros. However, if your yearly expenses exceed this allowance, then you can request further deductions.
What are common German tax deductions?
Germany offers various tax deductions to help save euros and reduce your overall tax liability.
Some of the most common tax deductions in Germany include:
- Social Security contributions: Any amount that you pay for health insurance, unemployment, or pension scheme are deductible social security expenses.
- Alimony payments: If you are going through a divorce, you can deduct up to 13,805 EUR for annual alimony expenses.
- Childcare costs: Married couples or single parents with children can claim up to 4,000 EUR per child for annual childcare costs. Children must be under 14 years old or handicapped for continual eligibility.
- Applicable insurance: Insurance that covers you from job-related injury is a valid work-related expense. This includes professional liability, accident insurance, long-term care, plus legal expenses insurance.
- Charitable donations: Like many countries, Germany accepts charitable donations as tax deductions.
- Traveling to work: German taxpayers can claim an annual commuter tax allowance of up to 4,500 EUR. So, for example, if you’re commuting to neighboring Switzerland daily, each kilometer is worth 0.30 EUR tax-free. If you think your travel costs exceed the flat rate, then you can claim further allowances. You will need to show all of the receipts and tickets.
- Work equipment: Certain work equipment is tax deductible, such as work clothes, computers, phones, software, and workplace tools. If it does not go over 952 EUR, it can be claimed as an immediate deduction.
- Household costs: Second households for work-related purposes are tax deductible, as well as rent, furniture, furnishings, and travel between locations.
How do I claim tax deductions in Germany?
The first step in navigating the German tax system is getting a tax ID number. Newcomers to the country must do this within 14 days of arrival. This way, you can open a bank account in most cases. If you have an employer, they need this number to pay you and your wage taxes.
Now, if you’re an employed worker, a fraction of your salary automatically goes to the Federal Tax Office (Finanzamt). At the end of every tax year, officials determine if you paid the adequate amount and will either send you a bill or reimbursement. Your valid deductions help determine the outcome and increase the odds of a high tax refund.
For freelancers, the amount of tax differs since there are no immediate withholdings on their gross income. Freelance workers need to submit an annual tax declaration report. From there, you can determine your income tax rate based on your yearly earnings.
What are the key deadlines for claiming deductions in Germany?
July 31 of the following year is the standard deadline for submitting your annual tax return in Germany. In other words, your 2023 tax return is due by July 31, 2024. The following deadline extensions are also available if you hire a tax consultant to pay taxes from previous years:
- Deadline for 2022 tax return: July 31, 2024
- Deadline for 2023 tax return: June 2, 2025
- Deadline for 2024 tax return: April 30, 2026
Are there tips for maximizing German tax deductions?
Aside from paying on time, here are some ways to lower your tax liability in Germany via deductions.
- Be aware of the differences between personal and business expenses.
- Separate company expenses from personal ones with precise accounting.
- Hold on to your receipts to validate deductions.
- Take advantage of both personal allowances and deductions.
What are common mistakes to avoid when claiming tax deductions in Germany?
Here are some commonly made errors when filing for tax deductions in Germany:
- Incorrect classification of expenses: Be sure you accurately classify your expenses, otherwise you could face delays, lost deductions, or even penalties.
- Lost receipts: Certain tax deductions are only possible with proof of the transaction. Keep your receipts organized, especially those for work expenses and travel.
- Overlooking qualified deductions: Research every potential deductions, including commuting costs and unemployment insurance contributions, to claim everything you qualify for.
- Ignoring tax agreements: Depending on your nationality, your home country may have a tax agreement with Germany, allowing you to avoid double taxation.
- Missing deadlines: If you miss the tax filing deadline in Germany, you could face a late filing penalty. Typically, the fine is 0.25% of the outstanding amount for each month the return is late. According to German tax law, the minimum penalty is 25 EUR per month.
- Not being aware of additional taxes: In Germany, there are supplemental taxes, such as the solidarity surcharge (Solidaritaetszuschlag). This is an additional surcharge of 5.50 percent worth of what you owe for both income tax, capital gains tax, and corporate tax. There is also Germany’s church tax, which is an extra 9 percent from your income tax.
Where can I get help with my German tax deductions?
Below are some resources to assist you with your German tax deductions:
- Online platforms: Websites like Taxfix and Wundertax can help you file your German tax return and answer questions about deductions. Look out for other helpful tools such as the German income tax calculator.
- Tax consultants and providers: Professional help from tax advisors is also a valid option for tax deduction assistance.
- Associations: There are income tax assistance associations that provide support based on your amount of income.
- German government resources: ELSTER (Electronic Tax Return) is a digital portal with valuable guidance for filing taxes in Germany.
FAQ
What are the eligibility criteria for tax deductions in Germany?
Both Europeans and non-EU citizens who have lived in Germany for over six months become tax residents. In turn, they must declare taxes annually. This includes expats, employees, freelancers, and self-employed individuals. Eligible tax deductions include:
- Work-related expenses
- Social security contributions
- Other allowances
How do I claim education deductions in Germany?
If you plan to claim education expenses from your German tax return, be sure to keep all receipts and documentation. Ultimately, you must prove these expenses are necessary for acquiring, securing, or maintaining income. Education tax deductions are valid for:
- Courses related to your job
- Relevant training
- Educational activities.
What documents are needed for claiming healthcare deductions?
To claim healthcare tax deductions or medical expenses, the required documents for German residents are receipts and proof of payments. These documents should be organized and submitted with your annual tax return. This applies to anything involving:
- Health insurance contributions
- Medical treatments
- Prescriptions
- Other related medical expenses
When is the deadline for filing tax deductions in Germany?
The standard tax filing deadline in Germany is July 31 of the following calendar year. However, there are deadline extensions if you hire a tax advisor.
Can I claim home office expenses on my taxes in Germany?
Yes, you can claim home office deductions from your German taxes. You just need a dedicated workspace at home before claiming office costs from your taxable income. Keep receipts and documentation to support these claims to lower your taxable income for the following tax-exempt expenses:
- Portion of rent
- Utilities
- Office supplies
Are there common mistakes to avoid when filing tax deductions in Germany?
Some of the most common mistakes for German tax deductions include:
- Misclassifying expenses
- Losing receipts
- Overlooking qualified deductions
- Ignoring tax agreements to prevent double taxation
- Missing filing deadlines
- Failing to keep accurate records
- Forgetting about additional taxes, like the solidarity surcharge
Conclusion
Understanding the German tax authorities can help you manage your finances and lower your liability. This means staying informed about tax legislation coming out of Berlin, and maintaining accurate records to claim appropriate deductions. This way, you can keep your finances healthy, which means more time and money.