General information on income tax in Germany

German tax year is the calender year.

A German tax return in general has to be filed to the tax office on 31st May of the following year at the latest. Extensions are possible, if the tax return is prepared by a tax advisor (until September 30th, further extension until February 28th possible) or if you can show the tax authorities that it is due to various facts  impossible for you to file the tax return in time.

Late filing may result penalty-fees and interest.

Employees working for a German employer should apply for a German wage tax card (Lohnsteuerkarte) at the municipality administration office. The employer has to withhold wage tax that will be credited to the annual income tax.

Non-employees with other income have to apply for quarterly prepayments on income tax at the German tax office. These prepayments will also be credited to the annual income tax.

Married can file a joint return, which will in most cases reduce the income tax liablity, as the whole income is divided by two and then the income tax is calculated (lower progressive tax rate).

For employees the taxable income can be calculated as follows:

salary

<expenses> (lump sum € 920)

+/- other income

<special expenses> (lump sum € 36 (single) / € 72 (married),

                                ceiling amounts for insurances)

<extraordinary burden>

<child allowance>

= taxable income

You can calculate your income tax after deduction of the above shown lump sums here.

Taxation of

• Capital gains: Capital gains are only taxable in Germany, if for mobile goods (i.e. stocks) the time between date of sale and date of purchase is less than 1 year, for immobile goods (i.e. houses) if (with some exceptions) the time between date of sale and date of purchase is less than 10 years. If the sum of capital gains is less than € 512/year it will also be tax free. Taxable capital gains will be handled as other income (see example above), the personal income tax rate will apply.

• Stock options: Stock options granted to an employee by his employer are considered to be a taxable benefit for the employee. The tax benefit is subject to German wage tax withholding (if a German employer is existing) and German income tax (with credit of wage tax withheld).

  If the option is not tradable, the taxable benefit is calculated as difference between the value of the shares at the moment of exercise and the price of the option.

  The benefit is considered to be taxable at the day of exercise (meaning that the German employer has to withhold wage taxes on the taxable benefit during the month of exercise).

  If the employee sells the shares within twelve months after exercise of the stock option, the profit will be taxable for German personal income tax purposes (see capital gains). The taxable amount is the sales price minus the value of the shares at the moment the stock options were exercised.

For further information please visit this page.