Seven ways to pay less tax in Germany

Doing your tax return in Germany can be a famously complex process. The German tax authorities don't always make things easy for English speakers either.

Seven ways to pay less tax in Germany
Photo: Getty Images

However, forewarned is forearmed. Not only can knowing what can be claimed help you to prepare, it can also lead to a substantially lower tax bill. Together with tax expert Lars Weber, from Taxfix, The Local investigates some of the costs you can claim in Germany that you might not know about as an international resident.

Make the process of filing your German taxes a breeze with Taxfix and receive a 50 percent discount by using the code ‘TX_TheLocal50’

1. Childcare

If you’ve got young children, you’re able to claim their childcare costs as a deductible on your tax return. As Weber tells us: “Many expats don’t know that you can claim these childcare fees, you simply need to have a record of payment somewhere safe, that you can show if your local tax office wants to see your records.”  

2. Home office 

Starting in late 2020, the Jahressteuergesetz 2020  (Annual Tax Act 2020) allows employees to claim up to €600 for both last year, and the following tax year, as home office expenses. This is known as the Home Office Pauschale  (‘Home Office Flatrate’). If you’ve been forced to set up a desk and laptop in a corner of your living room to work over the past year or so, you should be sure to claim this expense. 

3. Job education and training 

“If you need further training for your job, and that training is conducted in German, you should claim any associated costs on your tax return,” says Weber. So, if you’ve been sent off to another city to do a course, especially overnight, be sure to keep your receipts, whether they be for hotels, petrol, or any other reasonable costs. If you’re paying for this training out of your own pocket, you should be especially sure to keep your receipts for tax time. 

On the web, iOS or Android – Taxfix is the fast, simple way to claim an average of €1,051. Use the code ‘TX_TheLocal50’ for a 50 percent discount

Photo: LinkedIn/Lars Weber

4. Professional memberships 

Similarly, if you’re obliged to be a member of a German professional organization as part of your work, membership costs and other costs associated with maintaining your membership can and should be claimed. This is not solely restricted to those who require a licence or certification to do their job – if it’s an expectation that you should be a member of an organisation in your professional field, then you should consider these a deduction. 

5. School fees

If you have a family, it’s not just childcare costs you should consider. “If you’ve got school-aged children who are attending a private or international school, then their school fees can be claimed as a deduction,” Weber says. As always, be sure to keep full records, as if the Finanzamt  (‘Finance Office’ for your region) come calling, they’ll want to see them in their entirety, for the year in question. 

6. Workroom 

While everyone who has been forced to work from home by the pandemic can claim the Home Office Pauschale of €600, those who have an entire room in their home dedicated to work can claim up to €1,200 in outfitting costs. “You can even claim the cost of curtains, if you can provide the receipts.” Having a room solely dedicated to work can also lead to further deductions, such as power and internet costs, if you can prove that those costs were incurred in the course of your job.

Be careful however. As Weber warns: “Your local Finanzamt can be very strict in what is considered a workroom, and may come asking questions. Be sure that it is a distinct and separate room to your living area, and somewhere you’re not spending a lot of time outside work.”

7. The simple, fast tax solution

“If you’re using Taxfix to lodge your return, you shouldn’t worry about claiming things on your tax return”, says Weber. This is because Taxfix is specifically designed with a question flow that guides you to answer only the questions that are required for your unique personal circumstances.

Everything is in simple, clear English, and your return can be completed in roughly 22 minutes. If your return is under €50, there is no cost, and if it’s over, you play a flat rate of €39.99. Best of all, users usually receive around €1,051 back – more money to enjoy Germany with! 

Wherever you are, use Taxfix to lodge your return in just 22 minutes. Use the code ‘TX_TheLocal50’ to receive a 50 percent discount

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7 tips for how to survive as a freelancer in Germany

Taking the decision to go it alone and freelance in Germany can be a daunting prospect. But, if you do it right, it can be an exciting and liberating path. Here are some of our top tips on how to survive.

7 tips for how to survive as a freelancer in Germany

1. Get a tax advisor

The German tax system is complicated, even for Germans. All the associated paperwork uses the Amtsprache (authority language) which is more like legalese than ‘normal’ German, and mistakes when filling out tax forms can cause you, at best, a massive headache and, at worst, a costly fine. So it’s best that you employ someone who knows what they’re doing to help you out.

That person is called a Steuerberater (tax advisor) in Germany. They will help you register with the tax office, correspond with them and submit your tax declarations.

Be aware that, in Germany, different deadlines apply for tax returns depending on whether you employ an official tax advisor or not. If you are doing the tax return on your own, the deadline for submitting your annual tax return is earlier than if you use a tax advisor’s services. 

READ ALSO: What NOT to do when you’re freelancing in Germany

When looking for a tax advisor, a top tip is to use your network to get recommendations. Ideally, you want someone who will do more than just fill in the forms for you, but who will actually advise you on how best to manage your business finances so that you can make tax savings.

2. Keep your accounting in order

The better you keep your own accounts in order, the easier it will be for your tax advisor to compile your tax declarations and therefore the cheaper their services will be.

As a freelancer, there are a lot of costs you can deduct from your taxes – from train tickets, working materials, to meals out – so it’s best to keep hold of all your receipts and to keep them in good order.

2 euros and 50 cents lie on a receipt in a beer garden. Photo: picture alliance/dpa | Peter Kneffel

In Germany, you’re obliged to keep hold of receipts for two years, in case of a tax inspection, so it’s a good idea to photocopy the type of machine-printed receipts you get from restaurants so that they stay legible for a long time.

There are also a few things to be aware of when writing your own invoices. Firstly, make sure that you include your tax number. This isn’t the 11-digit Steueridentifikationsnummer that everyone gets when registering in Germany, but the 10-digit Steuernummer you get from the Finanzamt after registering yourself as a freelancer. 

Most companies won’t pay you if you don’t have this on your invoices so make sure you include it.

You should also make sure that you number your invoices properly – ideally in ascending order so that you can easily keep track of them. You are not allowed to issue two invoices with the same number and if you do so and the finance office notices, you could face an inspection of your whole accounting system.

There are numerous great accounting software programmes you can use to help you, such as Lexoffice and Sevdesk and, even if you have to pay for them, the costs will be tax deductible!

3. Find out if you’re eligible for financial support

In Germany, there are several opportunities for freelancers to gain financial support and to cut their outgoings, and its worth finding out if you’re eligible for them.

If you’re claiming unemployment benefits under ALG 1 and are thinking about becoming a freelancer, the employment office offers a special type of financial support to help you to get your freelance business off the ground.

Called the Grundungszuschuss (“foundation grant”) the payment is a six-month grant equalling your monthly entitlement under ALG 1 plus €300 towards your insurance costs can be applied for those in receipt of this unemployment benefit.

READ ALSO: Will freelancers benefit from Germany’s €300 energy allowance?

If you are engaged in some form of artistic profession in Germany – which can include journalism to pottery – you may be entitled to membership to the Kunstlersozialkasse (artists’ social insurance).

Being a member of the KSK means you only have to pay half of your health insurance and pension contributions, and the KSK will pay the rest.

4. Work out how much you think you will earn

As with starting any business, you need to have some idea of your expected earnings from the outset.

If you’re just starting out as a freelancer, or have some freelance gigs on the side of an employment position, then it might be worth considering registering yourself as a Kleinunternehmer (“small business”).

As a Kleinunternehmer, you can currently earn up to €22.000 per year without having to charge VAT and having to submit only yearly tax declarations. 

An income tax declaration form lies on a table. Photo: picture alliance/dpa/dpa-Zentralbild | Hans-Jürgen Wiedl

Be aware that if you are registered as this kind of freelancer, you must include the following sentence in your invoices: ‘Gemäß § 19 UStG wird keine Umsatzsteuer berechnet’ which means ‘In accordance with Paragrah19 of the German VAT law, no VAT has been added to this invoice.’

READ ALSO: Everything you need to know about your German tax return in 2022

If you think you will earn more than €22.000 per year, you will need to pay Umsatzsteuer (VAT) and will have to submit tax declarations in advance and more often. Depending on how much you earn, this could be every month or every quarter. 

5. Get your insurance in order

In Germany, it’s a legal requirement to have health insurance.

If you’ve just made the move from employment to being a freelancer and want to keep the same health insurer, you should get in contact with your health insurance provider straight away to tell them about your change of circumstances. They will ask you to re-register and to tell them your projected freelance earnings for the year, so they can amend your monthly fees.

If you don’t keep your health insurer provider updated, you could continue to be charged the higher rate that you had from your previous salary.

The insurance cards of the health insurance companies DAK, AOK, Barmer and Techniker-Krankenkasse TK lie with euro notes under a stethoscope. Photo: picture alliance / dpa | Daniel Karmann

It’s not just health insurance you need to think about as a freelancer. It’s also wise to think about protecting yourself from any sort of claims that could arise as a result of any working mishaps. 

If, for example, you lose your laptop which contains confidential client information, you need to be protected against claims.

That’s why it’s good to have both Betriebshaftversicherung (business liability insurance) and Rechtschutzversicherung (legal protection insurance).

6. Plan your time wisely

All of these bureaucratic obligations take time. So it’s really important that you take account of that when planning your time. For example, planning half a day a week to deal with your invoices, filing, emails to clients, and conversations with authorities can be really beneficial when scheduling your working time. 

7. Grow your network

As a freelancer, networking is absolutely crucial to success. 

Keep an up-to-date profile on websites like LinkedIn and German equivalent XING and keep in contact with anyone you’ve ever worked with, no matter how brief the contact was. 

Having a network is not only about getting more clients, but also about building a support network in your field to exchange advice, tips and generally for your own enrichment. 

Participating in workshops related to your field, going to seminars, and meet-ups, can be great ways of broadening your network.