Tax Rates in Germany

You might also find our other country guides to working abroad as a contractor useful too:

If you would like to discuss contracting working abroad or have questions about tax please call Freephone 0500 152500 / 01442 275789, email: antony.edwards@internationalumbrella.com or visit our website here: International Umbrella.

Employment law in Germany

Germany is a rich and technologically based economy and is the fifth largest economy in the world. 98% of people work in Agriculture and Industries with only 2% in the service industries.

German employment law is not consolidated into a single labour code. It is based instead on the service contract provisions of the German Civil Code and several individual statutes. Collective agreements have full legal status and collective labour law is one of the few areas where judicial precedent has helped to develop a systematic body of rights.

German Working Practices

Working hours: Working hours and breaks are governed by the Arbeitszeitgesetz (Law on working hours), collective wage agreements and company agreements, or are arranged on an individual basis.

Standard hours: The working week varies between 38 to 40 hours, depending on the collective wage agreement. Normally, the working day does not exceed eight hours. Employees cannot normally be required to work on Sundays and/or public holidays. There are exemptions for a large number of activities.

Over 28% of all employees now work ‘flexi-time’. With ‘flexi-time’ there are core hours during which all employees must be present at work. Employees are given the opportunity to work more or fewer hours within fixed limits.

Overtime: Can be built up to a limited degree. Electronic time recording systems and working time accounts have been set up in many businesses to record the hours of work performed by each individual.

Holidays and leave: Collective agreements provide leave of 30 working days for most employees. Entitlement does vary across Germany. As the working days are Monday to Friday, this amounts to six weeks. A person’s salary continues to be paid in full during this period. Anyone who consistently performs heavy or harmful work will normally receive additional leave. Full entitlement to leave is acquired only after the employment relationship has been in existence for six months.

Sick leave: In the event of illness an employee must inform the employer as soon as possible. In the case of illness lasting longer than three days, an employee must submit a doctor’s certificate no later than the following working day.

Parental leave: During parental leave the employer exempts parents from work without pay to look after their new-born child. The employment relationship is thus suspended during parental leave. However, ‘parental leave’ also gives male and female employees the opportunity to work part-time so they can look after their child while continuing with their job. Each parent is entitled to parental leave until their child reaches the age of three.

Educational leave: Employees can take educational leave for further training. You can use this for your own political education, language courses or for further vocational training.

Public holidays:1 January, 6 January, 21 March, 24 March, 1 May, 12 May, 22 May, 15 August, 3 October, 31 October, 1 November, 19 November and 25-26 December.

183 day rule in Germany

Your treatment will depend on your residency and the duration of work assignment ‘183 day rule’.

If you are in the country for 183 days or more in any calendar year or for an average of 90 days in any four year period you are deemed to be a tax resident. A similar test exists in most European countries.

Travelling days are normally excluded and only full days spent in the country calculated, however in the UK in recent years the time you spend travelling is a consideration when abroad and there are limits.     

Tax rates in Germany (2011)

As you leave the UK you should complete the P85 notice for with the UK Revenue.  

Euros Personal tax rates in Germany
Less than 8,004 Nil (married couples 16,008)
8,005 - 52,881 14% -  42%
52,882 - 250,730 42%
250,731 45%

Additionally solidarity surcharge (Solidaritaetszuschlag) is generally 5.5% of the income tax payable for all higher tax payers.

Germany's individual tax rates are progressive. Income taxes have been reduced recently, and the maximum marginal rate is 45%. By law, employees pay "as they earn" a compulsory fee of approximately 20-21% of their salary for their individual social security. The same amount is paid by the employer.

In Germany, for tax purposes you are either a resident or a non-resident. If you have been present in Germany for over 183 days, you are generally considered to be a resident for tax purposes. The 183 day rule is not the only consideration for a tax residence. If you are a non-resident for tax purposes, you will generally still be liable to pay tax on German-sourced income. The rate may vary; tax and double taxation agreements may alter it. There are 6 tax classes that you may fall into, each one with varying rates:

  1. Those single or separated, but not falling into either categories 2 or 3.
  2. Single and separated, with a child, entitling them to a child's allowance.
  3. Married, or widowed employees who are within the first year of a spouse's death.
  4. Married employees both receiving income.
  5. Married persons who would normally fall into category 4, but whose spouse is in tax class 3.
  6. Employees who receive income from other employment on one or more different tax cards.

As well as this, you may either be a salaried employee or a Freiberufler (independent (free) professional: e.g. doctors, architects or contractors). For salaried employees, tax and social insurance are deducted by the employer. Contractors must pay the tax department their tax obligations regularly throughout the year.

Social Security and Employee Benefits in Germany

Expatriates can take advantage of the generous German social security benefits while living here and even, in some cases, when they return home.

Germany has an elaborate social security system that sees to it that its citizens live comfortably even if they're sick, disabled, unemployed or retired. Expatriates can also participate in the system to a large degree.

People with jobs must, as a rule, make payments to four parts of the system, for health insurance, long-range nursing care, pensions and unemployment. These payments will usually come to about 40% of gross income, but the employer normally pays half of the cost, meaning that the employee is out of pocket by only 20% of his income. Other pillars of the social security program are company accident insurance, paid for completely by the employer, and social indemnity, which the state handles.

The premiums depend on income. The greater it is the more must be paid, up to a certain limit. In 2010, the premium is about 15% of gross income for the national health insurance, the exact amount depending on the insuring company. Persons earning more than €49,950 per year (€4,163 monthly) may be able to choose their own private health plan if they meet certain criteria. For long-range nursing care insurance the payment is 1.95% or 2.2%, also up to €4,163. The 2010 income limits for pension and unemployment insurance are €5,500 in the former West Germany and €4,650 in the former East Germany. The charges are 19.9% for pension insurance and 2.8% for unemployment insurance. (The unemployment charge may increase to 3% in mid 2010.)

If you have any questions about Contracting or would like any further advice please call our International team on Freephone 0500 152500 / 01442 275789 or email Antony Edwards: antony.edwards@internationalumbrella.com

About International Umbrella

International Umbrella, previously know as SJD International, has the skills and experience to support contractors working abroad ensuring they operate in a compliant and tax efficient way.

Contracting abroad can bring many rewards but it also carries extra responsibilities and challenges with regards to tax and in-country compliance. Few companies offer support to British and non-British contractors working overseas. However, International Umbrella has the skills and experience to support contractors working abroad ensuring they operate in a compliant and tax efficient way.

If you would like to discuss contracting abroad or have questions about tax please call Freephone 0500 152500 / 01442 275789 or email: antony.edwards@internationalumbrella.com.

SJD Accountancy

SJD Accountancy are the UK's largest specialist provider of fixed fee, Limited company accountancy services to contractors; we've been acting for contractors across the UK since 1992 and have more than 15,000 clients.

We are the only national specialist firm of contractor accountants with offices nationwide. SJD Accountancy has more qualified staff than any other firm in our market with qualifications from the following major tax and accountancy bodies - ATT, AAT, CTA, ACCA, CA, ACA and FCCA.

  • Unlimited face to face meetings. This is a unique service only SJD Accountancy offers - unlimited face to face meetings across the UK - tax is complicated and sometimes only a meeting will do.
  • UK's Largest contractor accountants with more qualified staff. No call centres, no outsourcing, no automated call handling. Simply telephone, email or meet your own dedicated accountant* face to face.
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  • Outstanding reputation. We have won more awards for customer service and accountancy excellence than any other firm in our market, including: Best Accountant for Contractors, Accountant of the Year and Best Professional Service Team to name just a few.
  • All inclusive low cost fixed fee accountancy package which includes completion of accounts*, payroll bureau, dividends and corporation tax computations, personal taxation, free bookkeeping software, your own dedicated accountant* and all company returns for a fixed fee of £120 plus VAT per month.

If you have any questions about contracting or would like any further advice please call our new client services helpdesk on 01442 275789 or email: janice@sjdaccountancy.com.

Appoint SJD Accountancy and never worry about your tax or accountancy affairs again.

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*If you would like us to complete your company year end accounts we simply ask that you have been a client of SJD for one year or have made 12 monthly payments. All accountants are part or fully qualified.