Taxation is always a “hot” topic in all countries around the world, both for domestic and foreign people. Today, with this “short” article, the author will try to describe a preliminary picture of the topic of tax policy in Germany for individuals.

Taxes one must pay when living and working in Germany as an individual

Germany has many types of taxes and tax policies, depending on each type of taxpayer and each person’s living situation. In general, the most common and important types of taxes include: Personal income tax, Church tax, Property tax, Value added tax, Consumption tax.

In addition to these common taxes, there are many other miscellaneous taxes but the number of people who have to pay them will be less common, for example, Dog Tax if you own a dog (yes, dog tax, guys, that’s right, and when owning a dog, you not only have to pay tax, but also have to comply with Dog Rights, otherwise if you are reported to be abusing dogs, your dog ownership rights will be revoked!), Tobacco Tax (levied specifically on tobacco products), Energy Tax, Beer Tax (levied on beer products), Second-home Property Tax, etc.

In total there are about 40 different taxes in Germany!

Overview of tax policy in Germany

Common taxes in Germany

Personal income tax:

Yes, this tax is the most important tax, the largest proportion, and the most concerned tax. This tax is directly levied on the monthly income of workers, and unless you work illegally and receive cash tips, you will be deducted directly before the money reaches your bank account.

One thing to note is that this tax is not only levied on your monthly salary and company bonuses, but it is also levied on all your income, including savings interest, stock profits, freelancing, house and apartment rentals, etc.

In short, money that comes to you is subject to this tax.

However, the contribution level for each person will be very different, depending on their circumstances: single or married, divorced and having to support a wife, raising children, having multiple jobs at the same time, etc.

And because this tax calculation is complex and depends on so many factors, annual income tax calculation has become a common service in Germany.

Those who are not familiar with taxes and are not good at calculating can use the annual tax settlement service, those who want to calculate by themselves can buy tax settlement software (previously about 100 EUR), those who understand the law and are good at it can do their own tax settlement and submit it to the tax office for confirmation.

Generally, personal income tax rates range from 14% to 45% of our total pre-tax income, depending on the tax rate we pay, and on our income. (Yes, just personal income tax)

Tax class 1-6

For different subjects, there are 6 types of tax rates from Klasse 1 to Klasse 6.

Class 1:

For single people without children (or divorced living alone or widowed, or married but with two or more homes)

2nd grade:

Singlemom. Or singledad. Generally means raising a child alone (on paper)

Class 3, 4, 5:

These are flexible tax rates for married couples.

When married, couples can choose the tax rate each person pays according to the formula that the total tax rate for 2 people is 8, that is, 1 person at level 3, 1 person at level 5, or 2 people at level 4.

The basis is that the tax rate at level 5 is higher than level 4 and level 4 is higher than level 3.

This means that if one spouse has a high income and the other has a low income, the person with high income should choose to pay tax rate Klasse 3 and the person with low income should choose tax rate Klasse 5 to pay less tax (if you like to contribute tax to the federal government, you can absolutely pay tax rate Klasse 5 for the person with high income and Klasse 3 for the person with lower income, the government welcomes it).

If two people have the same income, they can pay the same Klasse 4 tax rate, with the amount paid being lower than Klasse 5 and higher than Klasse 3.

Class 6:

This is the tax we have to pay specifically for side jobs in addition to our main job.

For example, if we work in an office during the day and work part-time at a restaurant in the evening, the income tax for our daytime job will be taxed at rates 1-5 depending on family circumstances, but with income from part-time work at a restaurant, the tax rate to be paid is Klasse 6.

Of course, Klasse 6 is the highest tax rate among the tax rates.

A small note is that if each of our jobs brings in an income of less than 450 EUR per month, it is below the taxable level 6.

Church tax:

Anyone who is Catholic or Protestant will have to pay this church tax. The amount of tax to be paid depends on the personal income tax rate each person pays.

Usually varies by state around 8-9% of personal income tax.

For example, if the personal income tax rate is 30% of total taxable income, then the church tax will be approximately 8%*30% = 2.4% of taxable income.

Property tax:

This is a tax with a somewhat confusing history, it is calculated on the basis of 1% of your net worth. Your net worth = Total assets owned – Total outstanding debts.

This tax was NOT collected until about 25 years ago. But theoretically, the federal government will one day have the legal basis to require you to pay it. J

V.a.t tax:

This tax is levied on the price of goods sold, and most goods are taxed at 19%. Some special items such as food and books are taxed at 7%.

Consumption Tax:

This type of tax includes taxes such as Beer Tax, Tobacco Tax, Coffee Tax, Wine Tax, etc.

Income before tax? Income after tax? Tax settlement

Tax laws in Germany that will surprise you

Pre-tax income in Germany (Bruttoeinkommen)

This is your monthly or yearly income, before taxes and insurance are deducted.

Usually when interviewing for salary negotiation, German companies will give the pre-employment salary (Brutto).

The reason is simple: Your salary after tax depends on your family circumstances. The company doesn’t know, so they don’t know and don’t care how much you receive after tax and insurance.

Net Income from Insurance (Nettoeinkommen)

This is your monthly or yearly income, after taxes and insurance are deducted.

Please note, this monthly income is your actual income that reaches your account after direct taxes AND insurance have been deducted.

In the scope of this article we are only talking about taxes, not insurance.

You can refer to more about Insurance in the article reference link at the end of the article.

Tax settlement in Germany

Just like in Vietnam, every year we have to do a tax settlement to see how much tax we paid in excess or shortage in the past year, to receive a tax refund for the excess or pay additional tax for the shortage.

? In most cases we get a tax refund. ????

As briefly presented above, tax settlement is relatively complicated and depends directly on each person’s circumstances and income each year, there is no concise guide on how to calculate tax settlement.

However, the “relative” number of our income after tax and insurance can be easily calculated through web support tools or software or phone apps that have been popular in recent years.

For example we can use the tool as follows:

https://www.brutto-netto-rechner24.de/einkommensteuerrechner.html

Enter the input figures there and we can get a close to the exact figure of our income after taxes and insurance ????

Practical examples:

We enter the data:

Income before tax: 3000 EUR / month

25 years old

Child: none

Tax level: Klasse 1 (single, no children)

Church tax: No

Bang: Baden-Wuerttemberg

Tax year: 2021

Result:

Tax payable: 393 EUR

Insurance payable: 606.75 EUR (including Pension Insurance, Sickness Insurance, Care Insurance, Unemployment Insurance)

Total monthly net salary: 2000.16 EUR (yearly: 24002 EUR)