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How should expats invest in Germany?

Lucky enough to have something left over from wages each month? Would it be best to put it in property or start a pension? In this week's Job Talk we asked a financial adviser about the options in Germany.

How should expats invest in Germany?
Property or stocks? Photo: DPA/Nicole Jankowski

Sending money 'home' to a nest-egg may seem like the most logical thing to do, while putting money into a German property might be a little scary. And what about the famed German pensions? The Germans seem to love them – would it make sense to put extra cash into one of those?

Here Munich-based financial adviser Martin Brown gives us some ideas.

Property

The housing market in Germany is doing exceedingly well at the moment. We advised all of our clients to buy German property. Not all of them listened. For those who did, they're doing extremely well. For those who didn't it's probably a bit too late.

If our expatriate clients are going to stay in Germany we advise that they should really look at German property as a reverse pension programme.

We advise people to buy a rental unit – not a two-bedroom flat, or a big property or a house. You are looking for a studio apartment in a central location no more than two blocks away from a U-Bahn or S-Bahn station. There should also be cafes and amenities nearby if possible.

These are still available if you are fast enough. Look for something between 25 and 50 square metres – no more than 50.

The best cities to buy property in are Frankfurt, followed by Munich, followed by Cologne.

I wouldn't advise anybody to buy in Berlin and there are a simple set of reasons why not: It is a lovely city and it is very popular with foreign buyers. But Berlin has no fundamental underpinning. It has too much land and redevelopment possibilities which will go on for decades to come.

This means there is no shortage of apartments and new trendy areas are constantly emerging. You do not have that in small defined business cities like Frankfurt. Prices have increased in certain areas in Berlin but eventually fundamentals will catch up with you.

Never buy in order to rent to someone long-term. It is too expensive and there are too many upfront costs. Buy properties in good areas and do them up nicely and then companies want to rent these because it is cheaper than putting staff for three to six months in a hotel.

Pension schemes

Are they always appropriate to expatriate clients? No they are not. German products are very often inappropriate from a long-term savings point of view.

You only have two forms of saving programme that you are going to be able to save any taxation on – Riester-Rente and Rürup-Rente.

Riester-Rente is generally for people who are employed by a company. It was originally set up for lower income families with children and that is still the case.

If you have more than two children and you are going to be staying in the country it is worthwhile considering one, but not if you are planning to leave the country when you would be eaten up on charges.

Long-term let’s say you are going to stay in Germany, the underlying guarantees on Riester-Rente are normally just one percent a year, so you are making less than inflation so you are going to be losing money.

For self-employed people you have a different type of semi-state sponsored programmed called Rürup-Rente. You can contribute up to €20,000 a year. But you need to be very, very focused. Do not take one if say you are going to be here three to five years or if you are not going to be retiring here.

It is also quite inflexible so be careful. On both types of programmes it is preferable to stay in Germany to get the maximum out of them.

The stock market

Direct stock market participation by any individual should be undertaken only if they have a thorough knowledge of the stock or bonds they wish to buy, and how to trade effectively.

People need to be honest with themselves. They need to look at the four Ws first: What, When, Where and Why. This is particularly important for expat clients.

Customers should ask themselves: What will I need? If I'm trading in stocks and I'm trying to save for retirement, what am I going to need that money to turn into? This helps to design what sort of risk you should be looking at.

Also ask yourself: where? Am I going to stay in Germany? In which case, if you're trading stocks, you're going to be charged all sorts of taxation on your profits including a 25 percent flat tax on profits.

I would say to anyone trading stocks directly: know what you're getting into. Is it the correct risk for you to be taking?

Sending money home

If your intention is to send money home [to a non-Euro country] you need to consider exchange rates to time your transfer. You should probably use a foreign exchange trader. In general they do a very good job.

The worst thing to do if you’re going to be sending say €5,000 or €10,000 is to ask your bank to send it back to your account. You will lose quite a lot.

Martin Brown is a financial adviser at First Financial Direct Group

DISCLAIMER: The content of this article should be used for general information purposes only. It does not constitute financial advice. 

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READER QUESTIONS

Reader question: Why haven’t I received my €300 payment yet in Germany?

Many working people in Germany will have received their energy relief payment by now. But if you haven’t got yours yet, there’s no need to worry, here are some reasons why that could be and what you can do.

Reader question: Why haven’t I received my €300 payment yet in Germany?

The €300 payment – known as the Energiepreispauschale or EPP – is one of the German coalition government’s relief measures intended to help people with rising energy costs. It goes out to everyone who lives and works in Germany, including those in part-time and temporary employment, trainees and students in paid internships as well as freelancers.

READ ALSO: What you need to know about Germany’s €300 energy relief payout

Those who have already received the payment as part of their September pay packet will have had an item on their pay slip marked as sonstiger Bezug (“other remuneration”) or “E” for Einmalbezug (“one-time payment“).

The EPP is subject to payroll tax, so only those who earn below the basic tax-free allowance (that means they don’t earn enough to pay any tax) will benefit from the full amount.

According to the Ministry of Finance, employees will receive on average €193 from the €300 allowance.

However, if the EPP didn‘t appear on your pay slip in September, here are a couple of reasons why that could be:

You have a mini-job

Mini-jobbers need to make clear to their employers that their mini-job is their main means of income, as often a mini-job is carried out alongside another job. If you haven’t received your €300 payment yet it’s best to discuss this with your employer and to confirm that it is your main job in writing.

A waiter carries a tray with used glasses and empty bottles. Photo: picture alliance/dpa | Jonas Walzberg

Your employer is not required to make the payment

There are some cases where the flat-rate energy allowance is not paid out by the employer at all. The Federal Ministry of Finance mentions the following exceptions, for example: if the employer is not required to file income tax returns, or the employee is employed on a short-term basis or is a temporary worker in agriculture and forestry.

In these cases, you have to file an income tax return for 2022 and claim the EPP there.

The payment may come later

The Ministry of Finance says that, if an employer misses the payment “for organisational or accounting reasons,” for example if you started your job in August and the payroll department missed you out, then the payment can be made later.

At the latest, however, it should come when the employer sends the Lohnsteuerbescheinigung (wage tax statement) – which is usually sent in December. In this case, too, it’s advisable to clarify with your employer or the payroll department why you haven’t received the payment yet. 

You work for a small company

Sometimes employers are not obliged to pay out the energy flat rate in September, but can still do so in October. This is the case if the employer submits its payroll tax returns to the tax office on a quarterly rather than monthly. Smaller employers, for example, who pay less than €5,000 in advance wage tax per year, only have to submit the advance wage tax payment once a quarter. This is not due until October 10th, so the employees concerned will not receive the €300 lump sum until October.

What other support will people get from the German government?

On Tuesday, Germany’s 16 state leaders are meeting with Chancellor Olaf Scholz to discuss which measures the €200 billion package announced last week should include.

READ ALSO: Germany to thrash out details of €200 billion energy support package

It’s expected that a Gaspreisdeckel – or a cap on the price of gas households would pay this winter – will soon come into force when the details are worked out, while plans for a cheap follow-up to the popular €9 ticket will also be presented later this month.

Benefit payment recipients will receive a one-off top-up to their existing benefit payments to pay for the higher cost of heating and pensioners will receive a €300 payment on December 1st. They do not have to apply for this, it’ll simply be added to the payments they receive from their pension insurance funds.

READ ALSO: KEY POINTS: Everything Germany is doing to help relieve rising energy costs

A €200 one-off payment is also planned for students, although each federal state may end up paying the amount slightly differently in a process that’s still being defined.

From next year, parents will see an increase in the amount of child benefit (Kindergeld) they receive, up to €237 per month, per child, up to and including the third child.

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