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‘One of the biggest tax cuts in German history’: What the ‘Soli’ change means for you

The majority of taxpayers received a boost at the start of this year as the so-called 'Solidarity tax' or 'Soli' was almost entirely abolished. Here's what you need to know.

'One of the biggest tax cuts in German history': What the 'Soli' change means for you
Most taxpayers will benefit from the new cut in 'solidary tax'. Photo: DPA

What is it?

The solidarity charge, known as the 'Soli' was introduced as a special charge in 1991 mainly to support infrastructure and projects in eastern Germany after reunification in 1990.

The charge levied an additional 5.5 percent income tax, or corporation tax, after a certain level of earnings.

You will have seen the deduction on your payslip under Solidaritätszuschlag (solidarity surcharge).

READ ALSO: Taxpayers in Germany to receive boost as 'solidarity tax' almost entirely abolished

What's changed?

At the start of January 2021, the Soli was abolished for around 90 percent of taxpayers, and a further 6.5 percent now pay less.

As a result, about 96.5 percent of those paying taxes are now financially better off.

“This is one of the biggest tax cuts in our history,” said the German government.

The changes were decided in 2019.

Who will benefit?

Taxpayers with a small to medium-sized incomes will benefit in particular from the changes.

Parents of two children or more will only pay it if they earn a combined amount of around €151,000. Single people meanwhile will have to earn over about €61,700 to still face Soli payments.

In other words, around 90 percent of the employed will no longer pay the tax.

However, those who earn more than €6,004 a month gross pay as a single person will still have to pay – albeit less than the current 5.5 per cent of their wage.

Those who earn €9,000 or more gross income per month will still have to pay the maximum rate of 5.5 percent.

According to the Federal Ministry of Finance, this affects 3.5 percent of taxpayers.

What will you save?

It depends on your situation. A single person in western Germany with an annual gross income of €35,000, for example, could save around €251 a year without the solidarity tax.

Even those who still have to pay, a partial charge can save several hundred euros.

In total, the government is expected to lose out on around €10.9 billion less from 2021 onwards.

The government has launched a solidarity surcharge calculator so you can find out how much your tax savings will be for 2021.

What about low income families or others?

People who earn very little won't make much savings because they currently do not pay a lot in Soli contributions, or they are already exempt.

Therefore, the new tax cut will have no or a comparatively smaller effect for them.

However, there will also be a noticeable improvement in disposable income for these income groups, as child benefit has increased, plus  there is extra support for single parents.

We'll write about more tax changes in the coming days on The Local Germany.

READ ALSO: What changes for families in Germany in 2021?

 

How much did the Soli bring in?

As this graph by Destatis shows, in 2019 the Soli brought the state a total of €19.6 billion – 2.5 percent of total tax revenue.

For comparison, income tax accounted for 27.5 percent of the total, raking in €219.7 billion.

Why is Germany phasing out the solidarity surcharge?

The massive reduction is possible because of the progress that's been made since German reunification, Finance Minister Olaf Scholz has said.

However, the special economic aid for the east has been controversial ever since it was launched.

It's not on the cards to completely abolish it just yet but some politicians have been pushing for it, especially the pro-business Free Democrats (FDP).

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LIVING IN GERMANY

REVEALED: The most commonly asked questions about Germans and Germany

Ever wondered what the world is asking about Germany and the Germans? We looked at Google’s most searched results to find out – and help clear some of these queries up.

Oktoberfest
Hasan Salihamidzic, the sports director of FC Bayern, arrives with his wife at Oktoberfest in full traditional dress. Photo: picture alliance/dpa |

According to popular searches, Germany is the go-to place for good coffee and bread (although only if you like the hard kind) and the place to avoid if what you’re looking for is good food, good internet connection and low taxes. Of course, this is subjective; some people will travel long stretches to get a fresh, hot pretzel or a juicy Bratwurst, while others will take a hard pass.

When it comes to the question on the bad Internet – there is some truth to this. Germany is known for being behind other rich nations when it comes to connectivity. And from personal experience, the internet connection can seem a little medieval. The incoming German coalition government has, however, vowed to improve internet connectivity as part of their plans to modernise the country.

There are also frequent questions on learning the German language, and people pointing out that it is hard and complicated. This is probably due to the long compound words and its extensive grammar rules, however, as both English and German are Germanic languages with similar words in common, it’s not impossible to learn as an English-speaker.

Here’s a look at some of those questions…

Why is German called Deutsch? Whereas ‘German’ comes from the Latin, ‘Deutsch’ instead derives itself from the Indo-European root “þeudō”, meaning “people”. This slowly became “Deutsch” as we know it today. It can be a bit confusing to English-speakers, who are right to think it sounds a little more like “Dutch”, however the two languages do have the same roots which may explain it.

And why is Germany so boring? Again, probably a generalisation, especially given that Germany has a landmass of over 350,000 km² with areas ranging from high rise, industrial cities to traditional old town villages and even mountain ranges, so you’re sure to find a place that doesn’t bore you to tears.

Perhaps it is a question that comes from the stereotype that Germans are obsessed with being strict about rules, organised and analytical. Or that they have no sense of humour – all of these things being not the most exciting traits. 

Either way, from my experience I can confirm that, even though there is truth to German society enjoying order and rules, the vast majority of people are not boring, and I’m sure if you come to Germany you’ll meet many interesting, funny and exciting people. 

READ ALSO: 12 mistakes foreigners make when moving to Germany

When it comes to the German weather, most people assume a cold and cloudy climate, however this isn’t entirely true. While the autumn and winter, especially in the north, come with grey skies and sub-zero temperatures, Germany can have some beautiful summers, with temperatures frequently rising above 30C in some places.

Unsurprisingly, the power and wealth of the German nation is mentioned – Germany is the largest economy in Europe after all, with a GDP of 3.8 trillion dollars. This could be due to strong industry sectors in the country, including vehicle constructions (I was a little surprised to find no questions posed on German cars), chemical and electrical industry and engineering. There are also many strong economic cities in Germany, most notably Munich, Frankfurt am Main and Hamburg.

READ ALSO: Eight unique words and phrases that tell us something about Germany

Smart and tall?

Why are Germans so tall? They are indeed taller than many other nations, with the average German measuring a good 172.87cm (or 5 feet 8.06 inches), however this may be a question better posed to the Dutch, who make up the tallest people in the world.

Why are Germans so smart? While this is again a generalisation – as individuals have different levels of intelligence in all countries – this question may stem from Germany’s free higher education system or their seemingly efficient work ethic. Plus there does seem to be some scientific research behind this question, with a study done in 2006 finding that Germans had the highest IQ in Europe.

So, while many of the questions posed about Germany and Germans on Google stem from stereotypes, we can confirm that some aren’t entirely made up. If you’re looking to debunk some frequently asked questions about France and the French, check out this article by our sister site HERE.

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