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BUSINESS

These are the 8 German tax breaks you need to know about

With the deadline for filing taxes approaching in a couple months, we spoke with an expert to learn about some money saving techniques. The conversation touched on marriage, health... and wet suits.

These are the 8 German tax breaks you need to know about
Tax day is quickly approaching on May 31st. Photo: DPA
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With a German tax code once revealed to be 17,000 pages long, it comes as little surprise that many people turn to a professional before the May 31st deadline.
 
We spoke with German expat tax expert Thomas Zitzelsberger for his list of useful deductions that you shouldn’t overlook – even though many do. 

A wet suit or a grand piano

Even if you are, say, an insurance broker, you can still claim items such as wet suits and pianos as tax deductions if they are part of your training to switch careers to become a scuba diving instruction or a classical composer.

But just listing these items on a tax return won’t cut the mustard, says Zitzelsberger, the founder of Expattax and tax advisor. He points out that a person will need to submit proof to the tax office the following year – be it in the form of training certificates or, better yet, an actual job – that they have made the jump between professions.

Tying the knot in the winter

Most people aim to tie the knot during the summer, but from a tax point of view, getting hitched on Silvester isn’t such a bad idea. Husband and wife can retroactively claim a married couple’s benefits for the whole year.

By the same token, if a divorce is on the cards, it might be worth the wait until January 1st (or, well, the 2nd when most offices are open again). If you’re still on good terms with your former significant other, you can still file a joint tax return for the year, even if you were getrennt for 364 days of it.

The date of a wedding – and divorce – can be beneficial for tax purposes. Photo: depositphotos/halfpoint

The full costs of an MBA

Let’s say that you’re eying that expensive MBA program in order to get ahead on your career, or swap careers completely. Normally private educational expenses are deductible at 30 percent of the tuition costs, provided that the programme is part of a recognized school in EU/EEA countries. Yet for a private MBA, even an online programme, 100 percent of the costs are tax deductible.

Why is there such a large relief, especially from a programme notorious for tuition fees of more than €30,000? The tax office does not see such a degree as stemming from private motivation, says Zitzelsberger. In other words, “you do not study business for fun,” he says.

Leading a double life

If you can claim that your main residence is more than an hour away from the one you maintain for work, then you can deduct up to €1,000 of housing expenses, says Zitzelsberger.

For domestic cases, a person usually needs to demonstrate that they visit the “main household” at least once per month. But for expats who have left their families behind to come to Germany for work, the number of visits can be as little as one per year, he said, citing the example of a woman who could only visit her “main” residence and family in Japan once a year.

While a family in another location is the most common way to demonstrate a double household, says Zitzelsberger, a single person can also do so by showing they have a fully maintained, and not sublet, place of residence elsewhere.

But it’s dealt with on a case-by-case basis, he adds, pointing to a woman who returned to Brasil three times a year to care for her ailing parents, and was able to argue the country was her main place of residence.

While the time limit of claiming this deduction used to be limited to two years, it’s now indefinite as long as there continues to be supporting documentation.

“You can claim, ‘my heart is in Brasil,’ but that’s the subjective reality,” says Zitzelsberger.

“You need to show an objective reality illustrating and indicating what the link really is.”

A salary split when partially working abroad

Employees in Germany working part of the year outside of the country might qualify for a so-called salary split, meaning that part of their taxes could be paid in a country with a different (in most cases lower) tax rate. This could apply to you if you’re working for an employer who has different branches or affiliations abroad, and you spend a good chunk of the year at one of them.

The salary split can be made with countries with which Germany has joint tax treaties. Let’s say, for example, that an employee works for 180 days of the year at a German company, and 50 days of the year at its US affiliate. If part of the salary is also paid by the US branch, then 50 of 230 workdays would be exempted from German taxes and taxable in the US.

Working in two countries can also mean two different tax rates. Photo: depositphotos/AllaSerebrina

Business expenses without documentation

Let’s say that you forgot to save your receipts documenting which business supplies your purchased during the year (oops). If you are fully employed, a standard €1,000 is deducted over the course of the year in the month-to-month without a need to submit any proof.

No active claim at the end of the year is needed to enjoy this benefit, but a much higher amount can still be requested if you’ve been saving those receipts for office supplies and business travel.

“There is no upper limit of what you can claim as work related expenses,” says Zitzelsberger.

“They need to pass the test of 'exclusively for work' and you need to have receipts.”

According to the tax expert, an individual can also claim 30 cents per kilometre of travel between home and work per-day, each-way, regardless of the actual costs.

100 percent deduction on health insurance, and then some

There’s no doubt that Germans like to possess multiple types of insurance, with the average German forking out about €2,400 a year for six different types of insurance, a number which has doubled in the past 20 years.

At least there is some tax relief for being so protected from potential ailments. Contributions to health care are completely deductible, whereas other types of insurance policies such as unemployment insurance can be deducted at up to €2,800 per year.

Scoping out housing

Let’s say you live in London and are planning to make a move to Frankfurt next year. You can deduct the costs of visiting the city – from staying at a hotel to paying an agent (even an online one such as ImmobilienScout24) and taking public transit to get around the city. Your plane ticket is also tax deductible, even if you come from a much further-flung location.

Member comments

  1. Could the statement
    “According to the tax expert, an individual can also claim 30 cents per kilometre of travel between home and work per-day, each-way, regardless of the actual costs.”
    Be clarified. I have always only claimed for one way to work.
    Thanks

  2. I have no income i receive a monthly pension from the UK,we sold our property in the UK and the profit from that and my wife’s job sustain our lifestyle.
    Am I liable for paying tax in Germany?

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TAXES

EXPLAINED: The tax cuts foreign parents in Germany need to know about

From babysitters to moving costs, here are some of the top and often overlooked deductions international families in Germany can make on their taxes.

EXPLAINED: The tax cuts foreign parents in Germany need to know about

Whether higher gas costs or forking out more for fruit at the supermarket, daily life in Germany is becoming increasingly expensive. This can be especially true for those who also need to cover the costs of their children and families. 

But there are a number of tax benefits in the Bundesrepublik that help keep these fees down.

The Local spoke with Munich-based expat tax advisor Thomas Zitzelsberger about the top tax deductions for parents – including some which international residents in particular frequently overlook. 

Kinderfreibetrag vs. Kindergeld

Imagine receiving money every month just for having a child or children. That’s exactly what Kindergeld (child benefits) is: since 2021, parents receive €219 per month for each child up to two kids, €225 for a third child and €250 for the fifth child. 

The payments usually stretch until the child’s 18th birthday, and sometimes even their 25th if there are extra Ausbildungskosten (educational costs) for studying at a university or vocational school.

Parents need to apply for this payment through their nearest Familienkasse, and can only retroactively claim the monthly payments stretching back six months. 

“Expats tend to think for whatever reason that they’re not entitled to these benefits…and then they tend to be livid that you can only go back six months and everything is lost,” said Zitzelsberger. “It’s a shame really.” 

A mother and child

It’s best to apply for Kindergeld as soon as possible after a baby is born. Photo: picture alliance/dpa/dpa-tmn | Christin Klose

If you receive Kindergeld, you also claim a Kinderfreibetrag (child allowance), which guarantees that the parents’ income remains tax free up to a certain amount. 

Unlike with Kindergeld, there’s no application involved – rather the Finanzamt inspects with the so-called Günstigerprüfung (cheaper check) whether an individual or married couple qualifies for a top-off to the Kindergeld they receive.

For 2021 and 2022, the tax deductible amount comes to €5,460, which is either assessed for married couples filing their taxes together or single people. 

Childcare costs

It does not matter to Germany’s tax office (Finanzamt) whether parents use a babysitter or nanny for a date night or because their Kita (day care) is closed, as long as the payment for the Betreuungskosten (childcare costs) is documented. 

Parents can deduct up to two-thirds of their annual childcare expenses per child (up until the age of 14) per year, capped at €6,000. That means the most you can expect to deduct is €4,000 per kid annually. 

Tuition fees

Whether Kitas or high schools, the vast majority of schooling in Germany is free or heavily subsidised. But what about when you do pay private tuition fees out of pocket? In this case, you can claim up to 30 percent of tuition expenses, at a maximum of €5,000 per child per year. 

Yet the Finanzamt strictly sees ‘tuition’ as fees that apply to schooling, not extracurricular activities. “If your child does music classes or football or whatever, that’s your private entertainment and there’s no deduction for that,” said Zitzelsberger. 

READ ALSO: State by state: Why private school enrollment in Germany is growing

Single Parents

Referred to as Alleinerziehende (literally ‘those raising children alone’), there are about two million solo mamas and papas in Germany. 

The government recognises the particularly high financial burden they also bear with a special Entlastungsbetrag (tax credit). As of 2021, single parents can deduct €4,008 from their income plus €280 a month for each additional child.

In some cases, single parents can also deduct Unterhaltszahlungen (maintenance payments) of up to €8,820 per year. This could include, for example, the cost of a room for the child to stay in if they travel between two separate residences. 

But the maximum deduction can only be claimed if the parent is not also receiving Kindergeld or the Kinderfreibetrag. 

Health and medical care

These expenses can be claimed as long as the Finanzamt sees them as “medically required,” said Zitzelsberger.

That does not apply to an over-the-counter tub of aspirin, for example. “However, if you have a doctor’s prescription that says this and this medication is required and your health insurance does not cover it in full, then you can make that claim,” he added.

But there’s a catch. While most other expenses come with the caveat of a maximum deduction, health expenses require a minimum deduction – or two to four percent of your income per year for all medical expenses for both the parent and their children. 

A typical medical deduction Zitzelsberger frequently sees for children is dental work. Parents may opt for a special orthodontic treatment on top of the basic tariff that insurance already covers.

If this costs an extra €1,000, for example, parents can claim the deduction.

spain free dentist public health

Parents can deduct some of the costs of a dental check up from their taxes. Photo by JAY DIRECTO / AFP

Moving costs

If a family receives a dream job or opportunity in Germany, and hops on a plane there before they can get rid of their old rental contract, this rent can count as a tax deduction, said Zitzelsberger. 

Yet sometimes one family member moves to Germany while the rest stay behind – at least temporarily. 

“It is relatively common for the first few months or it is common until the end of the school year and then the rest follows,” said Zittelberger.

To keep costs down, the Finanzamt allows these families to factor in the costs of accommodation for the family member who has moved, plus travel back and forth. 

“One of the questions we get often is: what’s the limit on this?,”said Zittelberger. “There is no limit on travel expenses. But they can only travel back and forth once a week”

“Travel expenses” are then defined as anything involved with door to door travel, including the taxi to the airport.

The cost of accommodation in Germany can also be deducted, but capped at €1,000 per month. 

If the partner staying back with the children is not working or has a low income in another EU country, their setup is treated with Ehegattensplitting – a mechanism for taxing married couples.

“They can claim all tax benefits that all resident German taxpayers would be entitled to even if they’ve never set foot in this country before.”

A good tax investment

In Germany, around the first €10,000 of income is completely tax free. Most parents, however, assume that this can only benefit them directly, and not their offspring. 

Yet starting from birth, parents can actually set up a savings account in their child’s name. Up to €10,000 of interest – for example that a stock portfolio their child is enrolled in generates – is then completely tax free.

“Many parents pay income tax on these investments every year which are really designed to eventually be given to the children when they’re adults,” said Zitzelsberger. “What you could do is give these investments directly to your children.”

READ ALSO: EXPLAINED: What you should know about investing in Germany

In the very best case scenario, said Zitzelsberger, this can add up to €180,000 of tax-free income by the time your child reaches their 18th birthday.

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