Taxes and Finances
Germany is a social welfare state, which is why its employers are required to pay taxes and social insurance contributions. For employees, income tax is the most important form of taxation in the country. You are required to pay income tax on all of your earnings in each calendar year. As an employee of a company, however, paying your income taxes is not an immediate concern; your employer will handle this for you.
Each month, the company will automatically deduct the appropriate amount of income tax from your gross salary in the form of a wage tax and transfer it to the relevant fiscal authorities. Your employer will also take care of passing on your solidarity tax contribution and church taxes (if you belong to a religious community for which such taxes are levied). Finally, your insurance contributions for retirement, health services, long-term care, and unemployment will also be deducted from your salary and transferred to the relevant fiscal office. To find out how much money your employer is transferring to you (in other words, what your take-home pay is), you can consult the payroll statement you receive each month.
Income taxes in Germany
The income tax rate that serves as the basis of the official wage tax tables (which also factor in the tax exemptions and flat allowances relevant for employees) represents the core of Germany's income tax laws. In principle, it is the rate according to which the amount of tax to be paid by each citizen is established.
At a glance
- Income tax is to be paid on all of the money you earn in each calendar year.
- If you are an employee, your employer will handle your income tax payments (in the form of a wage tax) each month.
- If you are self-employed, you are required to file an income tax declaration.
- Along with the aforementioned payroll tax, your employer will pay your solidarity tax and insurance contributions for retirement, health services, long-term care, and unemployment (and church taxes, if applicable) after deducting them from your gross salary. You will then receive the remaining amount (read: your net salary).
Tax identification and electronic wage tax cards (ELStAM)
Every registered citizen in Germany receives an 11-digit tax identification number. This number is required for all matters pertaining to taxes and the fiscal authorities. Those who have just arrived from a foreign country and have registered as citizens will automatically receive their tax ID numbers within three months. These numbers are assigned for life and do not change, even if you get married or move to a different location in Germany.
The previous paper-based system was replaced by an electronic procedure in 2013, which also involved moving from paper wage tax cards to a digital version. In the new ELStAM system, the information previously found on the card's front side (tax bracket, number of children, exemptions, church tax characteristics) is stored in a database kept by the fiscal authorities, where it is electronically accessible for your employer. Since 2011, Germany's fiscal offices have been the only authorities you need to consult about changing tax brackets or other aspects of the amounts deducted from your salary.
Income tax declarations
At the end of a calendar year, you can ask the government to check whether you have paid too much income tax. To do so, you must submit your income tax declaration to the relevant fiscal office. On the basis of the figures you supply about your actual income and exemptible expenses , the government can check whether you are entitled to a refund. The Federal Statistical Office reports that nine out of 10 taxpayers in Germany are, so filing the form is often worthwhile. On average, people receive a refund of around €900.
Dog license fees
If you own a dog, you are required to register it and pay a corresponding fee. You can typically register in person or by writing to the authorities responsible. A form is available for this purpose. In principle, you are required to register your dog within one month of the day on which you:
- First acquired the dog, or
- First moved to your current community
If you move to another community, you will need to deregister your dog in your previous place of residence and reregister with the authorities in your new community. Corresponding guides can provide further information on these procedures.
If you move to a different location within the same community, you only need to inform the local authorities of your new address. You can do so in person, in writing, or over the phone by providing your name and the transaction number on your dog license fee statement.
Cost: Each community establishes its dog license fees based on related local statutes, which means that they vary from place to place.
These fees can increase significantly with each additional dog beyond the first, or for particular breeds.
Required documents: When registering in person: current form of personal identification or registration confirmationIn some cases: documentation of the dog's breed (to determine the fee to be paid).
Opening a bank account
To help you better organize your everyday life, you should open an account at a bank in your place of residence as soon as possible.
This is important because numerous financial transactions in Germany do not involve cash. For example, renting an apartment requires a bank account because you will need to transfer rent payments (and an initial deposit, in most cases) to your landlord. Wages and salary installments will also be transferred to your account rather than paid out in cash. You can inquire at your bank as to whether the accounts they provide are subject to any fees.
Requirements for opening a bank account in Germany:
- Your passport
- The official document confirming your place of residence
- A payroll statement from your employer (only for some account types)
- Your work permit (only for some banks)
These documents will enable you to apply for a standard account and a corresponding EC debit card. Some banks also offer standard accounts that come with no overdraft privileges, while others waive fees if a minimum amount is deposited every month. You should, of course, clarify these details before signing any contract. Since many banks charge a variety of other fees - such as for each transfer you make, or simply for the account itself - comparing the services available is definitely a good idea.
Online bank accounts are also available as an alternative to standard accounts. You can open an online account by mail or on the Internet. These accounts are offered by several direct banks -- that is, banks that do not have brick-and-mortar branches. An online account comes with the same functions as a standard German bank account, as well as its own German account number and bank identification code. You can also send and receive money from accounts in other countries.To open an online account with a direct bank, you will need to prove your identity through the Postident procedure. Your bank of choice will provide the necessary documents. The process involves visiting a branch of Deutsche Post and confirming your identity with one of the employees there, who will then send the relevant documentation back to your bank.
You can use your EC card and PIN to withdraw money from cash machines around the clock. Your bank will send you your PIN in the mail after you open an account. While you can also pay at most stores and gas stations with your EC card, we recommend always having some cash on hand. Germany is still a country where many transactions - particularly those involving small amounts at restaurants and shops - are made with physical money.
Remember: You can withdraw cash from your own bank's machines free of charge, but those of other banks may charge you a fee (usually one percent, but potentially as much as five per withdrawal) to do so.
There are two main banking networks in Germany: Cash Group and Cash Pool. Be sure to find out which one your bank belongs to; you can also withdraw money from the machines of other banks in the group without incurring fees!
You can transfer money to another account either online or by filling out the appropriate form at one of your bank's branches. The process usually only takes a few business days. We recommend keeping the carbon copy or printing out the transaction whenever you make a transfer.
To another country
Transferring money to another country takes longer than it does within Germany. However, the methods described below will help you do so quickly and securely.
- Using the SWIFT procedure, the money should reach the recipient's account within 24 hours. The fees involved vary from bank to bank. For further details, please consult your bank.
- Wire transfer: Various service providers can help you transfer money abroad. To do so, take the amount you wish you transfer in cash to a branch of your chosen service (Western Union can often be found at Deutsche Post branches, for example) and specify the foreign branch where the recipient should pick it up. This person will need to present a form of identification. The required fee is usually between seven and 10 percent of the amount you transfer, and the entire process often takes just a few minutes.
- Cashier's checks: For security purposes, you should only send this type of check by registered mail. Should one of these checks be stolen on its way to the recipient, there is no way to cancel the corresponding payment.