Germany

Residency

Steuererklarung for 2025, filed in 2026

A person is generally a German tax resident if they have a Wohnsitz (registered home or dwelling) in Germany or their gewohnlicher Aufenthalt (habitual abode) is in Germany. A stay of more than six months typically establishes habitual abode.

German tax residents are subject to unlimited tax liability: they pay German tax on their worldwide income. Non-residents are subject to limited tax liability, which covers income with a German source (such as German rental income or German employment income).

Arrival and departure years

In the year of arrival or departure, residency begins or ends on the date of registering or deregistering a home. A part-year resident may have split obligations within the same tax year, particularly relevant for the treaty tie-breaker in the months before establishing German residence.

Who Has to File

Many employees in Germany are not required to file a tax return because their employer withholds tax at source through the payroll (Lohnsteuer). However, a return becomes mandatory in common expat situations:

• More than one employer in the same year
• Untaxed other income above €410 (freelance fees, rental income, foreign pensions, investment income above the saver's allowance)
• Certain tax-class combinations for married couples (Steuerklasse III/V)
• Receipt of certain state payments (unemployment benefit, parental allowance, sickness benefit) above €410
• Application of a tax-class change during the year

Income Tax Rates (2025)

Germany applies a continuous progressive formula rather than discrete tax bands. The effective marginal rate rises smoothly from 14% to 45% as taxable income increases.

Married couples filing jointly (Zusammenveranlagung) benefit from income splitting, which effectively taxes each spouse on half the combined income and can produce a significant reduction in the overall rate.

Key 2026 Deadlines

Common Deductions and Allowances

• Basic allowance (Grundfreibetrag). €12,096 for 2025 (single); doubled for joint-filing couples. Income below this is entirely free of income tax.
• Employee lump-sum (Arbeitnehmer-Pauschbetrag). €1,230 automatic deduction for employment-related expenses. Actual higher expenses can be claimed instead.
• Pension contribution deduction. Employee contributions to the statutory pension scheme and certain private pensions are largely deductible, within limits.
• Health and care insurance. Compulsory health and long-term care insurance contributions are generally deductible in full.
• Saver's allowance (Sparer-Pauschbetrag). €1,000 per year (single), €2,000 for joint-filing couples, of investment income is exempt. Above this, the flat rate (Abgeltungsteuer) of 25% applies, plus solidarity surcharge.
• Home-office deduction. Up to €1,260 per year (€6 per day, up to 210 days) for working from home, even without a dedicated room.
• Commuting costs. €0.30 per kilometer for the one-way distance to work (rising to €0.38 per km from the 21st km), for each working day.

Solidarity Surcharge (Solidaritatszuschlag)

The solidarity surcharge was introduced after German reunification. Since 2021 it has been effectively abolished for the large majority of taxpayers: it only applies where the income tax liability exceeds approximately €18,000 (single) or €36,000 (couple). Above that threshold it phases in at 11.9% of the income tax liability, reaching the full 5.5% rate on the income tax at higher incomes. Most employees and lower-income earners pay no Soli at all.

Church Tax (Kirchensteuer)

Germany levies a church tax on registered members of recognized religious communities (Catholic, Protestant, and some others). The rate is 8% of income tax in Bavaria and Baden-Wurttemberg, and 9% in all other states. Membership is linked to official registration: leaving a registered church (Kirchenaustritt) at the registry office ends the obligation going forward. Investment income is also subject to a church tax if the individual is a registered member, typically collected by the bank if the relevant data has been passed to the Federal Central Tax Office.

Freelance and Business Income

Freiberufler vs Gewerbetreibende

Germany distinguishes between liberal professions (Freiberufler, e.g. lawyers, doctors, artists, IT consultants in certain configurations) and commercial traders (Gewerbetreibende). The distinction matters because commercial traders pay trade tax (Gewerbesteuer) on business profits in addition to income tax, while liberal professionals do not. Classification depends on the nature of the activity and sometimes on the qualifications of the person performing it.

Trade tax (Gewerbesteuer)

Trade tax is levied by municipalities on business profits above a deductible amount (€24,500 for individuals). Rates vary by municipality but typically range from about 7% to 17% of profits. A portion of the trade tax paid is offset against income tax, reducing the overall combined rate.

VAT (Umsatzsteuer)

Standard VAT in Germany is 19%, with a reduced rate of 7% for certain goods and services. Freelancers and small business owners may qualify for the Kleinunternehmerregelung (small entrepreneur rule) if turnover in the prior year was below €22,000 and is not expected to exceed €50,000 in the current year. Those who qualify charge no VAT on invoices but also cannot reclaim input VAT.

Tax Treaties

Germany has a broad treaty network with around 100 countries. Treaties generally prevent income from being taxed in both Germany and the source country. The most common method in German treaties is the exemption method: Germany exempts foreign income from German tax but takes it into account when calculating the rate on the remaining German-source income (Progressionsvorbehalt).

Progression reservation (Progressionsvorbehalt)

Even when treaty-exempt foreign income is not directly taxed in Germany, it is added back to calculate the effective tax rate applied to German income. This can raise the effective German rate significantly for high-income individuals who also have large foreign-source income.