Expats / International
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No matter where in the world you’re coming from, if you plan on living and working in Germany you’ll need to pay German taxes. If you’re coming with an employer and plan on working traditionally, most companies will provide a tax advisor for the first one or two years.
But then what?
You’ll eventually need to do your taxes by yourself (which I can promise is giant hassle) or you can hire an accountant in Germany who specializes in expfat taxes.
Here’s what you need to know…
You’ll generally only need to work with a tax advisor once per year to do your income tax return. This is called „Einkommensteuererklärung“. In the United States this is equivalent to your 1040.
The best time of year to hire an accountant is in March or April. That will give you plenty of time to have your taxes done by October or November.
The German tax deadline for your private tax return is December 31st.
If you are not filing your taxes with an advisor, your deadline will be in May. (Basically, Germany “rewards” people with an extension when they hire a tax advisor.)
When your accountant prepares your tax return, you’ll be asked to provide anywhere from 20-25 documents to turn in. The most popular form will be the Lohnsteuerbescheinigung. This is the form you’ll receive from your employer listing all income received that year. Other forms may include your insurance information or evidence of any donations (these are tax deductible).
If you are self-employed or plan on starting a business in Germany, things get more complicated.
You’ll want to hire an accountant right away because they can not only help you fulfill all your tax and social security obligations (and do it right the first time) but also help you register as a business owner. This involves going to your local Finanzamt (your local equivalent of the IRS), but also may include a trip to your local trade office (Gewerbeamt) or notary (Notar). The exact steps will depend on your business, which is why you should consider hiring an accountant right away. Two taxes are most import: VAT and income tax.
VAT: Your tax advisor will also prepare your monthly VAT return, which includes handing in your monthly financial statements at the Finanzamt. When we work with expat entrepreneurs living in Germany, we immediately help file all the registration paperwork. Then each month we send in your VAT paperwork and financial statements to tell the government how high your income was that month and how much VAT you need to pay.
Income Tax: Within your first year of living in Germany you’ll have to pay your income tax all at once at the end of the year. After that, you’ll pay every three months.
Filing taxes anywhere is a pain. There are always things to misunderstand and forms you may or may not have missed.
When you hire an expat accountant in Germany, you will never forget or “mess up” again. Almost all our new expat clients come to us because they made a mistake doing it on their own and we end up having to do it all over again.
Hiring an accountant in Germany will not only reduce your financial burden, but ease the additional stress of dealing with taxes in a foreign country (one famous for bureaucracy) in a language you don’t understand.
The best thing you can do is hire an accountant as soon as you arrive in Germany.
Not only will you start to build a relationship with your accountant long-term (instead of relying on your employer’s harried tax advisors), but they can help you understand what you can do now to save taxes later. We can help advise you on where to spend your money (and where not to) and how to reduce your tax burden.
Daniel Schmaltz is a tax consultant, CPA (inactive) and partner at Schmaltz und Partner in Düsseldorf. He specializes in international taxes for expats, start-ups, freelancers and GmbH consulting. If you have any questions about paying taxes in Germany, email him at email@example.com.