Gafolbyrðen in Þēodisclande
|Þis gewrit hæfþ wordcwide on Nīwenglisce.|
Gafolbyrðen in Þéodisclande is one of the most criticized matters in Germany. Germans themselves assume that it should be one of the most complex systems in the world, only surpassed by the Brazilians who call their tax system chaotic (with 10000 laws, 100000 regulations and 2000 provisory laws). Three quarter of the literature on taxation in the world is supposed to refer to the German tax system. Some tax haters maintain that there are 118 laws, 185 forms and 96000 regulations and that there is one particular commentary on taxation that spreads over 2,671 pages. The complexity of the German tax system is a result of constant modifications prompted by corporate pressure groups. Administration cost an annual 3.7 Billion Euros for levying income taxes, which is approximately two and a half per cent of the total amount of income tax yielded every year (150 Bill. Euros).
Since tax regulations are frequently modified and supposed to be hard to understand people rely on tax advisors, as they do in all industrial countries.
Germany's individual tax rates vary with the income, that is the tax rates are progressive as they are in all industrialized countries of the west. On salaries and wages income taxes are paid as you earn. Income taxes have been reduced recently and the maximum marginal rate is 42 per cent in 2005.
By law employees pay "as they earn" a compulsory fee for their individual social security of approximately 20-21 per cent of what they earn. The same amount is paid by the employer into the bargain, which is a continual contentious political issue in Germany.
Categories of the Individual[adihtan]
In Germany, you can either be a resident for tax purposes, or a non-resident for tax purposes. If you have been present in Germany for over 183 days in the last year, you are generally considered to be a resident for tax purposes. The 183 day rule is not the only consideration for tax residence - see your embassy's website or talk to a tax consultant or accountant.
If you are a non-resident for tax purposes (eg. a short term contractor here), you will generally still be liable to pay tax on German sourced income. This rate may vary. Tax relief opportunities and double taxation agreements may alter this.
There are 6 tax classes that you may fall into, each one with varying rates.
- Those single or separated, but not falling into either categories 2 or 3.
- Single and separated, with a child, entitling them to a child's allowance.
- Married, or widowed employees who are within the first year of a spouse's death.
- Married employees both of whom receive income.
- Married persons who would normally fall into category 4, but whose spouse is in tax class 3.
- Employees who receive income from other employment on other, or several different tax cards.
On top of this, you may either be a salaried employee (as most people are) or a Freiberufler (free professional = contractor). For salaried employees, tax and social insurance are withheld by the employer. Contactors must pay the tax department their tax obligations regularly throughout the year.
Wage Tax, Solidarity Tax, and Church Tax[adihtan]
Wages are taxed in 3 separate linear progressive ranges. In 2004, the ranges are as follows for a tax class 1 resident individual:
- Tax Free Allowance of €7,664.00
- Linear progressive zone from 16% to 24% on taxable income from €7,665.00 up to €12,739.00
- Linear progressive zone from 24% to 45% on taxable income from €12,740.00 up to €52,151.00
- 45% of all taxable income after €52,152.00
Solidarity tax is for the "re-unification of Germany" and is calculated at 5.5% of your wage tax.
Church tax is only relevant if you listed a religion on your tax form. It will be either 8 or 9% of your wage tax. Beware - It's difficult to stop paying church tax once you've begun.
Regular employees are liable for the following individual social insurances: Health insurance, pensions insurance, unemployment insurance, and health/nursing care insurance.
Health insurance is 6% - 7% of taxable income (before tax, minus deductions). Pensions insurance is 9.65 per cent, unemployment insurance is 3.25 per cent, and health/nursing care insurance is 0.85% of taxable income. In total, this is around 21% of your taxable income. These payments are partly subject to a tax relief or tax deductions. Employers have to pay the same amounts that go into the social security of the individual employee.
German pensions are currently not taxable at retirement age. If the earnings of an employee are above a certain limit (~€46,800 in 2005) he or she can take out a private health insurance policy, which can be considerably cheaper especially when the employee is young and unmarried. The national health system is a family insurance while private health insurance policies cover individual risks only.
A free-lance professional, Freiberufler, is not at all lawfully obliged to take out social insurance policies.
Tax payers are entitled to a ~€2,100.00 reduction in taxable income for social insurances.
Individual Taxation Example[adihtan]
- You are offered an employee position at €35,000.00 per year.
- You take deductions of €3000.00 for various deductible expenses (including insurance reduction of ~€2,100.00, your contribution being over)
- You pay €7,041.65 in social insurances (34100 * 0.2065)
- You are liable for €6,634.00 wage tax (based on €32,000.00)
- You are liable for €364.87 solidarity tax (5.5% of €6,634.00)
- You aren't liable for church tax.
- You have a nett yearly income of €20959.00 (€1746.58/month, €401.68/week)
- The company pays €7,041.65 in social insurances, matching your contribution.
With appropriate forms, you may be able to contribute to social security insurance or pension funds in your home country, up to a maximum period of 5 years.
These figures are yet to be confirmed by a professional, but they pretty much agree with the figures from the Yahoo Wage Calculator.
Freiberufler Taxation Example[adihtan]
This will be calculated based on year-end calculations. Actual calculations will vary considerably, as you'll probably pay more tax while working and get a refund from the tax department later.
- You take a 9 month contract at €350 per day (Let's say 190 working days), and then take a 3 month holiday.
- €350 * 190 = €66500.00
- You claim €5300 tax-free (second apartment, car/travel, other business expenses)
- You pay €1200.00 for almost-comprehensive Germany-only yearly private health insurance, and claim it back tax free (under the ~€2100 insurance allowance)
- You pay €18,155.00 in wage tax.
- You pay €999 in solidarity tax.
- You are left with €39646.00 + €5300 in the year.
It might be wise to take up some other insurance, also, such as permanent disability, life insurance, or pension insurance. You are allowed around €2100 in insurance deductions per year, so it's not a great loss to make the most of it. With the appropriate forms, you can contribute to social security funds in your home country.
Depending on your type of work, you may not be classed exactly as a Freiberufler, and you will be subject to Trade Tax (Gewerbesteuer), which is a tax calculated with a region-dependant multiplier on your existing tax obligation. This varies between around 10% and 16% of your existing tax bill, depending on where you are. For example, if you pay 18,155 in wage tax, you will also be taxed €2,904.00 in trade tax if you live in Munich.
These figures are yet to be confirmed by a professional.
To be completed.