faq about german individual taxation date: 11th may 2012 ... · 12.what is the rate of capital...

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"FAQ about German Individual Taxation" Date: 11th May 2012

Time: 3 p.m. Location: MPI-CBG, Atrium

Prof. Dr. Friedrich Vogelbusch

WP/StB – Certified Accountant/Tax Lawyer

Warth & Klein Grant Thornton AG

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300 m …

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Agenda

1. What are the income tax rates in Germany?

2. Who needs to report my foreign income in Germany as an Expat?

3. What are the deadlines for filing a German Income Tax Return?

4. How long will it take to receive German tax refund?

5. Are there advantages of hiring a tax lawyer?

6. For the first part of the year I lived and worked abroad, then I moved to Germany. Where do I declare my income as an expat?

7. What expenses can I claim in Germany against my income as an expat?

8. What is Tax Free Allowance?

9. Are fees for tax advise deductible for Expats in Germany?

10.How can I avoid being taxed twice? (e.g. between my home country and Germany)

11.My wife is a freelancer - how about taxes?

12.What is the rate of Capital Gains Tax in Germany?

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Agenda

A. General overview of the German individual income tax• What are the income tax rates in Germany?• What are the deadlines for filing a German Income Tax Return?• How long will it take to receive German tax refund?• What is Tax Free Allowance? • Are fees for tax advise deductible for Expats in Germany?• What is the rate of Capital Gains Tax in Germany?

B. International individual income tax• Who needs to report my foreign income in Germany as an Expat?• The first part of the year I lived and worked abroad, then I moved to Germany. Where do I declare

my income as an expat?• What expenses can I claim in Germany against my income as an expat?• How can I avoid being taxed twice? (e.g. between my home country and Germany)• My wife is a freelancer - how about taxes?

C. Tips and tricks• Are there advantages of hiring a tax lawyer?

D. Appendix• Check lists

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A.

General overview of the German individual income tax

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General overview

Basics on determination of German Income Tax

Tax = assessment basis * tax rate

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General overview

Basics on determination of German Income Tax

Tax = assessment basis * tax rate

• tax rate is defined in § 32a Individual Income Tax Law (EStG)

• basic income tax rate (Einkommensteuer)

• 2 possible surcharges on top of income tax

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What are the Income Tax Rates in Germany? - 1 -

Tax Rates

Taxrate50%

45%

40%

35%

30%

25%

20%15%

10%

5%

0%

5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115 120 125 130 135 140 145 150 Income €)

Maximum 42% tax rate for an incomefrom 52.882 € - 250.731 €

Maximum 45% tax rate for an income from 250.731 €(„Reichensteuer“)

…

Tax free allowance: for an incomebelow 8.004 € (Singles)

15% Tax rate for an income from8.005 €

24% Tax rate for an income from13.470 € p.a.

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What are the Income Tax Rates in Germany? - 2 -

Tax Rates

• German income tax (progressive tariff)

• Solidarity surcharge: 5,5% on top of income tax

• Church tax: about 7 - 9% on top (vary from state to state)

– Roman Catholic church

– Lutheran church

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General overview

Basics on determination of German Income Tax

Tax = assessment basis * tax rate

• tax exemptions (Freibeträge)

• additional expenses (Sonderausgaben)

• income-related expenses (Werbungskosten)

are reducing the assessment basis

salaries an other incomes from capital and housings are the main components of the assessment basis

General overview

Basic calculation scheme for Income tax:

Income from all categories of the German Tax Code

(employment and independent personal service)

= Total amount of income

‐ Special expenses

‐ Extraordinary burdens

= Taxable income * Tax Rate

= Tax amount

‐ Tax credits

= Tax to be paid

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Overview

Other Topics (General processes)

• Deadlines for filing Income Tax return?

• How long will it take to get my tax refund?

• Is it necessary at all, to fill in a tax declaration?

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B.

International individual income tax

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B. Principles of inter-

national income tax

Case 1: Year of moving to Germany

Case 2: After the first year of living/ working in Germany

Case 3: Year of relocation

Case 4:

Living

in several

countries at

the same time

Case 5:

Living

in 1 country

and working

in another

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B. Principles of international

income tax

• Received income: being taxed from the source (i.e. MPI)

• Possible tax exemptions : e.g. stipends!

• World Income Principle

• Possibilities to avoid double taxation in DTA:

1. Exemption method (commonly applied in Germany)

2. Credit method (commonly applied in USA & Great Britain)

Case 1: Year of moving to Germany

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Example

Taxrate

50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

0%

5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115 120 125 130 135 140 145 150 Income €)

23%

30%

Mrs Smith: 6 months X 2 500 € = 15 000 €

tax rate: 23%

Mr Mueller: 12 months X 2 500 € = 30 000 €

tax rate: 30%

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B. Principles of international

income tax

• Taxation principles are in general the same as case 1

• Generally: DTA (with exemption method)

Case 2: After the first year of living/

working in Germany

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B. Principles of international

income tax Case 3: Year of relocation

•Taxation principles are in general the same as case 1

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B. Principles of international

income tax Case 4: Living in several countries at the same time

• Definition

• Meaning of the 183-day period

Differences between the fiscal and

• Australia 01.07. to 30.06.

• Bangladesh 01.07. to 30.06.

• China 01.01. - 31.12.

• Iran 21.03. to 20.03.

• Namibia 01.03. to 28./29.02.

• New Zealand 01.04. to 31.03.

• Pakistan 01.04. to 30.06.

the calendar year

• South Africa 01.03. to 28./29.02

• U.K. 06.04. to 05.04.

• USA 01.10. to 30.09.

• India 01.04. to 31.03.

• Mauritius 01.07. to 30.06.

• Sri Lanka 01.04. to 31.03.

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B. Principles of international

income tax Case 5: Living in 1 country and working in another

If the place of employment is in

Germany, you have to fill in this tax form

http://www.steuern.sachsen.de/img/Steuern/EU_EWR_englisch.pdf

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B. Principles of international

income tax

Case 1: Year of moving to Germany

Case 2: After the first

year of living/ working in Germany

Case 3: Year of relocation

There is no duty for tax declaration,

if there is no foreign income and if tax class I (single) or IV/IV (couples).

Duty for tax declaration, if you have more than 410 Euro p.a. income in Germany

Duty for tax declaration

(§ 3 number 44 Income Tax Act)

Case 4: Living in several countries at the same time

Duty for tax declaration, if you are

living more than 183 days in a calendar year in Germany

Case 5: Living in 1 country and working in another

Same as Case 4

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Overview

Other Topics (General questions)

1. Who needs to report my foreign income in Germany as an Expat?

2. The first part of the year I lived and worked abroad, then I moved to Germany. Where do I declare my income as an expat?

3. What expenses can I claim in Germany against my income as an expat?

4. My wife is a freelancer - how about taxes?

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C.

Tips and tricks

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C. Tips and Tricks

• Children and Income Taxation

• 400 € Job

• What are taxation classes?

• Are there advantages of hiring a tax lawyer?

• Where to get information about German tax?

• Address and opening hours of the Tax Office in Dresden

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Children and Income Taxation

• Allowances for costs expended on child supervision, education and training, and with child benefit payments.

• Kindergeld (subsidy) or Tax Free Allowance

• Exemption of kindergarten/ Tagesmutter costs

– Both parents are working / single parent

– One of the parents doesn‘t work

Kindergeld monthly

1st Child & 2nd Child 184 €

3rd Child 190 €

4th Child, 5th Child ... 215 €

Tax allowance 1 yearly

Kinderfreibetrag(Each child)

2 184 € (single)4 368 € (couple)

Special Expenses yearly

Kindergarten 2/3, max. 4 000 €

Tax allowance 2 yearly

Betreuungsfreibetrag(Each child)

1 320 € (single)2 640 € (couple)

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400 € Job

• Mini Job

• Advantages for employee: Gross = Net

• Advantages for employer

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What are taxation classes?

- Taxation classes (tax groups, Lohnsteuerklasse aka Steuerklassen)

- Changing the classes

Class I = single

Class II = single parent

Class III = married and spouse has no income or lower income

Class IV = married and similar income to spouse

Class V = opposite of class III, i.e. this is the class your lower

earning spouse has if you have III

Class VI= for a second job.

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Advantages an costs

of hiring a tax lawyer

• Help to fill in the forms

• Letter of attorney: tax lawyer will represent you to deal with the tax office about any tax issues

• Higher liability if the form is proved by the tax lawyer

• Difficult cases (e.g. investment on real estate, start up etc.)

• Fixed range of consulting fee

• “Steuerberater-gebührenordnung”

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Information about German Tax

https://publikationen.sachsen.de/bdb/artikel/10691

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Link of the Federal Ministry of Finance

http://www.bundesfinanzministerium.de/nn_103362/EN/Home/node.html?__nnn=true

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Tax Office in Dresden

Address:

Finanzamt Dresden-Nord

Rabenerstraße 1, 01069 Dresden

Telephone: 0351 4691-0

E-mail: poststelle@fa-dresden-nord.smf.sachsen.de

Office hours:

Mon 08:00-15:00

Tue 08:00-18:00

Wed 08:00-15:00

Thu 08:00-18:00

Fri 08:00-12:00

Website: http://www.finanzamt.sachsen.de/dresden-nord.html

https://publikationen.sachsen.de/bdb/artikel/10691

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Certified Accountant/Tax LawyerProf. Dr. Friedrich Vogelbusch

PartnerHead of Dresden Office

Telefon +49 (0) 351 - 318 21 - 612Fax +49 (0) 351 - 318 21 - 635

E-Mail friedrich.vogelbusch@wkgt.comInternet www.wkgt.com

Tax Lawyer

Dipl.Betriebswirt (BA) Sven FiebigManagerHead of Tax Departement

Telefon +49 (0) 351 - 318 21 - 615Fax +49 (0) 351 - 318 21 - 635

E-Mail sven.fiebig@wkgt.comInternet www.wkgt.com

Thank you very much for listening!

Agnes Leung

ConsultantTax Department

Telefon +49 (0) 351 - 318 21 - 632Fax +49 (0) 351 - 318 21 - 635

E-Mail agnes.leung@wkgt.comInternet www.wkgt.com

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D.

Appendix

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List of Deductions and Additional Expenses

Deductions

• Allowance for capital earnings currently at € 801 (€ 1,602 for married couples)

• lump sum of € 1 000 (earnings in 2011 or onwards)

• more details in the check list…