The German tax system differs significantly from many other countries, leading to confusion and uncertainties. This guide aims to provide you with detailed information to successfully file your tax return and maximize possible deductions.

An overview of what you can expect in this article:

• Basics of the German tax system
• Types of tax
• Preparing your tax return
• Deduction options
• Tax advice and help
• Step-by-step guide
• Frequently asked questions
  

1. Basics of the German Tax System

1.1. Tax Liability in Germany

Tax liability in Germany is determined by your residence or habitual abode. There are two categories:

Unlimited Tax Liability: You have unlimited tax liability if you have either your residence or habitual abode in Germany. This means you must declare your worldwide income in Germany. Habitual abode is assumed if you stay in Germany for more than 183 days in a year.

Limited Tax Liability: This applies if you do not have a residence or habitual abode in Germany but still receive income from Germany. In this case, only the income earned in Germany is subject to taxation.

1.2. Types of Taxes

The main types of taxes for individuals in Germany are:

Income Tax: This tax is levied on all types of income, including salaries, capital gains, rental income, and other earnings. It is progressive, meaning the tax rate increases with income.

Wage Tax: A form of income tax that is directly withheld by the employer and paid to the tax office. It is an advance payment on the final income tax.

Church Tax: Levied on members of certain religious communities, typically 8-9% of the income tax.

Solidarity Surcharge: An additional contribution to income tax, originally introduced to finance German reunification. Since 2021, it has been reduced or abolished for many taxpayers.

2. Filing the Tax declaration

2.1. Deadlines

The tax return must generally be submitted by July 31 of the following year. If you use a tax advisor, the deadline is extended to February 28/29 of the second following year.

2.2. Obligation to File

You are required to file a tax return if:

• You have secondary income of more than €410 per year.
• You received wage replacement benefits (e.g., unemployment benefits or parental benefits) of more than €410 per year.
• You and your spouse chose tax class combinations III/V or IV with a factor.
• You had more than one employer in the same year.
• You applied for certain allowances in the payroll tax deduction procedure.

2.3. Electronic Tax Return (ELSTER)

The electronic tax return, known as ELSTER (Elektronische Steuererklärung), is the preferred way to submit your tax return in Germany. Using ELSTER offers many advantages, such as automatic data transfer, faster processing, and quicker refunds.

To use ELSTER, you need to register at [www.elster.de](https://www.elster.de). Registration requires a tax identification number, which you receive from the tax office. The registration process includes several steps, including verifying your identity by receiving an activation code by mail.

3. What Can Be Deducted?

The German tax system offers numerous ways to deduct expenses and reduce your tax burden. Here are the main deduction options in detail:

3.1. Work-Related Expenses

Work-related expenses include all costs related to your professional activity. These include:

• Commuting Costs: You can deduct either the actual costs or a flat rate of 0,30 € per kilometer for the one-way trip to work. For longer distances, this can mean significant savings.
• Home Office: If you have a home office that serves as the center of your professional activity, you can deduct the costs. This includes proportional rent and utilities, as well as equipment costs.
• Training Costs: Expenses for professional development, seminars, and training can also be claimed as work-related expenses. This includes course fees, travel costs, and accommodation costs.
• Work Materials: Costs for work materials such as computers, office supplies, or professional literature are deductible. This also includes professional clothing and cleaning costs.

3.2. Special Expenses

Special expenses are private expenses that can also be claimed for tax purposes:

• Retirement Provisions: Contributions to health and long-term care insurance, retirement savings (e.g., Rürup pension), and liability insurance. These are deductible up to certain limits.
• Donations: Cash donations to charitable organizations and churches are deductible. A donation receipt is required. The deductible limit is generally 20% of total income.
• Alimony Payments: Alimony payments to a divorced or separated spouse can be deducted up to a certain amount.
• School and Tuition Fees: Costs for your children’s education, if not already covered by the child allowance. This can also include boarding school costs and tuition fees.

3.3. Extraordinary Burdens

Extraordinary burdens are expenses that you incur inevitably and to a significant extent, such as:

• Medical Expenses: Costs for medications, doctor visits, and hospital stays not covered by health insurance. This also includes glasses, dental prostheses, and alternative practitioner costs.
• Care Costs: Costs for caring for relatives, e.g., through a care service or nursing home costs.
• Disability-Related Costs: Expenses related to a disability, such as costs for a disabled transport service or modifications to your home.

 4. Special Considerations for Expats

There are some special rules and reliefs for expats that should be considered:

4.1. Double Taxation Agreements (DTA)

Germany has concluded double taxation agreements with many countries to avoid double taxation of income. These agreements determine which country can tax which income. It is important to inform yourself about the specific DTA between Germany and your home country. A typical example is the avoidance of double taxation on salaries, pensions, or capital gains.

4.2. Exit Tax

If you leave Germany and move abroad, an exit tax may be levied on hidden reserves under certain circumstances. This particularly affects shareholdings in corporations if you have held more than 1% in the company in the last ten years. In this case, be sure to consult a tax advisor to avoid tax disadvantages.

4.3. Tax Allowances and Benefits

There are special tax allowances and benefits for expats:

• Posted Employees: If you are temporarily posted abroad by your employer, certain costs can be reimbursed tax-free. These include additional meal allowances, accommodation costs, and travel expenses.
• Second Income: If you have income abroad in addition to your German income, this can be tax-free under certain conditions if it is subject to the progression clause in Germany. This means that foreign income increases the tax rate on your total income but is not taxed itself.

 5. Tax Advice and Assistance

It may be advisable to hire a tax advisor, especially if your tax situation is complex. A tax advisor can help you make the most of all deduction options and minimize your tax burden. Tax advisors can also assist in clarifying complicated issues and communicating with the tax office.

Additionally, many cities and municipalities offer income tax assistance associations, which are a cost-effective alternative to private tax advice. These associations are particularly suitable for employees and retirees and provide comprehensive support in preparing your tax return.

The most cost-effective way to complete your tax return is with an app, software or ELSTER. At least for the first two to three years, it is advisable to consult a tax advisor or an advisor from an tax assistance association to make sure you don't give anything away and take advantage of all the benefits.

6. Step-by-Step Guide to Filing a Tax Return

To make the process of filing your tax return easier, here is a detailed step-by-step guide, if you are using ELSTER or a software.

But you should do the same preparation if you are working with a consultant. This will make it easier for you and the advisor and the collaboration more effectiv

6.1. Preparation

• Gather All Relevant Documents: This includes pay slips, bank statements, receipts for work-related expenses, special expenses, and extraordinary burdens.
• Register with ELSTER: Sign up at [www.elster.de](https://www.elster.de) and create a user account.
• Tax Identification Number: Have your tax identification number ready. You can find this on your income tax assessment or request it from the tax office.

6.2. Enter Data

• Personal Data: Enter your personal details, including name, address, and tax identification number.
• Record Income: Enter your income from employment (wage tax statement), capital gains, rental income, and other income.
• Work-Related Expenses: Record your work-related expenses, such as commuting costs, training costs, and work materials.
• Special Expenses and Extraordinary Burdens: Enter your special expenses and extraordinary burdens. This includes retirement provisions, donations, and medical and care costs.

 6.3. Review and Submission

• Check Data: Review all entered data carefully for completeness and accuracy.
• Tax Calculation: Use the calculation function of ELSTER to perform a preliminary tax calculation and get an idea of your expected tax refund or payment.
• Electronic Submission: Submit your tax return electronically via ELSTER. You will receive a confirmation once your return has been successfully transmitted.
• You will also need ELSTER access if you use tax software. You can submit your tax return electronically using the software, but only with the ELSTER access described above.

7. Frequently Asked Questions (FAQ)

7.1. Do I Have to File a Tax Return?

Not everyone is required to file a tax return. You must file a tax return if:

• You have secondary income of more than €410 per year.
• You received wage replacement benefits (e.g., unemployment benefits or parental benefits) of more than €410 per year.
• You and your spouse chose tax class combinations III/V or IV with a factor.
• You had more than one employer in the same year.

7.2. What Deadlines Do I Have to Observe?

The tax return must generally be submitted by July 31 of the following year. If you use a tax advisor, the deadline is extended to February 28/29 of the second following year.

7.3. How Can I Reduce My Tax Burden?

You can reduce your tax burden by claiming work-related expenses, special expenses, and extraordinary burdens. These include commuting costs, training costs, donations, medical expenses, and care costs.

7.4. What is the Progressionsvorbehalt?

The Progressionsvorbehalt affects income that is tax-free but increases the tax rate on your taxable income. This applies, for example, to unemployment benefits, sick pay, or foreign income.

Conclusion

Filing a tax return in Germany can be complex, especially for expats. It is important to inform yourself early about the requirements and possibilities to avoid mistakes and take advantage of potential tax benefits. With the right knowledge and support, you can handle your tax matters efficiently and correctly. A tax advisor or an income tax assistance association can provide valuable help and ensure that you make the most of all deduction options.