Tax Law

For employees, income tax is collected through deductions from their wages (payroll tax). The tax collection process is generally completed with this deduction, which is typically made monthly.

The extent of tax liability depends on whether employees are subject to limited or unlimited tax liability.

Foreign employees who do not have a domicile or habitual residence in Germany are generally considered to have limited tax liability. Individuals who have a domicile or habitual residence in Germany have unlimited tax liability. Foreign employees subject to limited tax liability who earn virtually all of their income in Germany may, upon application, be treated as subject to unlimited tax liability and thus receive certain personal tax benefits (provided that at least 90% of their income in the calendar year is subject to German income tax).

Employers must withhold payroll tax with every wage payment, regardless of whether the employees are assessed for income tax or not. In order to withhold the correct amount of payroll tax for employees, employers need certain information about the employees, such as their tax class, any applicable tax exemptions, and membership in a religious community for which church tax is levied.

To make it easier for employers to calculate taxes, employees are assigned to different tax brackets based on their personal circumstances. There are 6 tax brackets—I through VI.

Before starting their first job, employees must register with the appropriate tax office. Cross-border commuters employed in Germany must register with the tax office where the employer is headquartered. Those who have their domicile or habitual residence in Germany must register with the locally competent tax office. The respective tax office is also responsible for assigning or changing the tax class.

The tax office assigns the tax number or tax identification number. The tax ID is an 11-digit number and is issued by the Federal Central Tax Office. It is valid for life. For those moving to Germany from abroad, the tax ID is mailed to the address provided after registering their residence. Foreign employees without a permanent residence generally do not have a tax ID. Employees cannot apply for a tax ID on their own.

Not everyone is required to file a tax return. However, it is generally recommended that every employee file a tax return in order to take full advantage of tax benefits (e.g., deductions for commuting expenses, etc.).

(This is an automatic translation by DeepL Translator.)