German Tax Return: Necessary? Mandatory? Worth The Effort?
Submitting a German tax return (German term: Steuererklärung) is something which has most likely been a consideration at some point for those who are established expats in Germany but still have not got round to figuring this out, or have perhaps just completed their first year here as tax residents.
For employees who do not have any income from other sources such as self-employment or capital gains beyond a certain threshold, the simple answer to the question is that NO, it is not mandatory. However, it may very well be in your interests to complete one.
Whether or not it's worth the effort though is a more complex topic, so let's take a look at the essentials which you need to know.
Disclaimer: Neither myself as the author of this article nor the Live Work Germany website are qualified to provide tax advice according to German law. We cannot provide specialist tax services beyond any of the general tips contained herein. If in doubt, consult a professional tax advisor.
Take this quick quiz if you want to find out whether it's worth your effort to submit a German tax return!
Is it compulsory?
It is not compulsory to submit a tax return in Germany if you are a regular employee and you don‘t have any income derived from other sources.
If you have other sources of income, then it is necessary in almost all cases except for small capital gains of less than €801 for singles (€1,602 for married couples). This usually is sufficient to cover interest from savings or dividends from modest stock portfolios.
The most common forms of income from other sources are capital gains (above the threshold in the last paragraph), rental property and self-employment as a source of extra income i.e. “side-hustles” such as coaching, teaching, any paid artistic pursuit, evening or weekend work, or any other business interests.
For the self-employed, which includes part-time work and freelancing, it is compulsory to submit an annual tax return. Why? Because the Finanzamt wants to know about any activity you have undertaken where tax is not deductible at source i.e. not deducted by your employer on your monthly payslip.
Is It Worth It?
Below are a few examples where it will most likely make sense to seriously consider submitting a tax return. This is based on the likelihood of you being able to claim a rebate large enough to make it worth your while.
- If you commute to the office more or less daily by car or by public transport (not including company cars or employer-financed public transport tickets)
- If you‘ve paid for tuition or reference material as part of your professional development
- If you‘ve only been engaged in employment for part of a fiscal year
- If you‘re paying rent or a mortgage on more than one residential property because your job is in one city but your life essentially is somewhere else. A classic example being the weekend commuter.
- If you are supporting immediate family members overseas or are travellng on a frequent basis to care for a sick parent or next of kin
- If you have had any maintenance or repair work done on your apartment for which you have received an invoice (yes, this also applies if you are a tenant and have carried out maintenance for which the landlord has not picked up the bill)
- Any manual labour which is listed separately on your annual service charge statement from your landlord. Tax law allows this to be deductible and as such, the property management company or your landlord should list these costs separately. Usually this will reference clause §35a EStG of German tax law next to the description or line on your statement. If you understand German, this article provides more info.
What Are The Rules?
If you plan to submit your tax return without using the services of a Steuerberater then the deadline is the 31st May of the year following the tax year you are claiming for. For 2017 tax year, you need to submit by 31.05.2018. This also applies if you use third party apps or software products to help you complete your tax return.
HOWEVER…here comes the good part…
If you have never submitted a tax return since arriving in Germany, and your situation dictates that it is not compulsory for you to submit one, you can claim back up to 4 years of rebates.
Also, if you decide to utilise the services of a Steuerberater, the Finanzamt generously gives you an extra 4 months to submit your paperwork. The deadline then is 30th September.
Late submissions have been known to be tolerated with a reasonable justification and fined are not usually issued for a genuine, minor delay. It is highly dependent upon the tax office which processes it though and there is no hard and fast rule.
How does it work?
Whichever way you choose to submit a tax return in Germany, the forms are transmitted electronically through a system called ELSTER, which communicates directly to your local Finanzamt.
You will receive an acknowledgement confirming that your documents have been submitted successfully. Depending on the type of system or software you are using, you may have to send originals of your supplementary supporting documentation separately by post.
Some time later you get your statement (Steuerbescheid). This will tell you how much you owe or how much your rebate will be. The time taken from submission to receipt of your statement is highly dependent upon which Finanzamt is processing it.
If you owe taxes, you have 4 weeks to pay your bill. If you're due a rebate, this is usually transferred within a few working days of you receiving your Steuerbescheid and paid into the bank account you specify on your tax return.
When does it make sense to consult a tax advisor?
This is obviously based on your comfort level with regard to submitting your own taxes. Some individuals may feel more comfortable reaching out to a Steuerberater for the first time they complete a return, whereas others my feel confident enough to go it alone first time around.
However, with that said, it does depend on the complexity of your own tax situation. In these cases specifically, I would highly recommend you consult a tax advisor.
- Submitting a tax return for the year when you moved to Germany (usually this will be mid-way through the fiscal year and makes things more complex due to potential tax liabilities in the country you moved from).
- If you have significant income from a foreign source (usually this means business interests or rental property overseas). Double taxation is a whole other topic within itself.
- Definitely if you are a freelancer (Freiberufler) or you have your own business (Kleinunternehmer / Kleingewerbe).
What does a Steuerberater cost?
Fees for German tax advisors are based on a regulated set of charges known as the Steuerberatergebührenordnung (StBVV). Nothing like a good old long German word to describe an equally complicated set of charges! I can't even begin to explain how these work. Suffice to say, it is based on the amount of taxable income you are declaring. The more you earn, the higher the fee.
Be warned, they are not cheap! Tax advisors in Germany are highly qualified individuals who have gone through years of training and have passed a very tough exam. You are looking at a bill of several hundred Euro in most cases.
So Is It Difficult To Do My Own Taxes?
The process in itself is no more or less difficult than completing a tax return in most other developed countries which have complex but well defined tax codes.
Those who are more financially savvy should not feel too phased by it. I didn‘t feel too daunted when I completed mine for the first time. I paid a tax advisor first time around, and just asked him lots of questions so as I could then figure it out myself the following year using the previous year as an example.
I would say that anyone with above average intelligence, who has an orderly filing system and is generally a pretty organised person is capable of submitting their own tax return. This is assuming your situation is relatively straightforward.
Having a basic understanding of what can and can‘t be claimed or offset against one‘s taxable income in Germany also helps, for sure. But we already covered some of the main ones above!
Like most things in Germany, the biggest roadblocks are figuring out what the process is, and then actually completing the task in a foreign language (or finding an expert who can explain the process to you in English).
But this last part is actually no longer an issue. There are now options out there which will allow you to submit your taxes online with an interface completely in English.
Your Cheapest Solution To Submit A Tax Return In English
We are happy to recommend SteuerGo.de – The easy way to do your tax return in Germany as a great, online product which offers a very similar service but without the misleading claims.
We‘ve tried to make your life a little bit easier for you by creating a short quiz which you can download for FREE, which will give you a rough idea of what to expect back on your tax return.
If it looks like it is worth your while to submit a tax return, then head over to SteuerGo and check out their tax return software. The link opens up in another window so as you can finish reading this article first. It allows you to submit a complete tax return in English and what's more, you don't pay a cent up until the point where you hit “Submit”!
And at €24.95 for each tax return submitted, it's an absolute bargain compared to the other options you have!
€935 for 15 minutes' work? Nope.
Some of the claims being made by the one company with the most aggressive marketing are very misrepresentative. You may have seen a recent marketing campaign on Facebook by the website germantaxes.de, which claims that you can get a €935 tax rebate for 15 minutes' work.
Sounds too good to be true, right?
Sadly, it is. This is complete bullshit. It would take 15 minutes just to type in all of the necessary information.
But first you have to dig out everything you need. Probably half an hour in itself if you have never submitted a tax return in Germany before and are not familiar with the documents necessary to give you the figures to submit on your return.
Yes, they may have an intuitive format and yes, it is much easier than struggling in German with one of the more traditional, clunky software providers out there which are aimed more at the German market.
The reality is it will most likely take you 2 or 3 hours if you want to double check everything and submit your tax return properly.
Next, let's look at the claim that you'll get €935 back for your “15 minutes” of work.
This may be the average figure that people get back as a rebate (this is based on figures from the German Federal Office of Statistics) but then think about how this is calculated.
For every high net worth individual who receives several thousand Euro back on his/her tax return, this skews the figures higher. How many people do you need who only receive €50 back to balance out those who get thousands back in rebates? Therefore I find this figure to be misleading and a false flag for anyone who is expecting a nice, chunky windfall.
Also, germantaxes.de is €10 more expensive than SteuerGo.de – The easy way to do your tax return in Germany!
Are there alternatives?
If you’re not comfortable with submitting a German tax return yourself but you‘re worried about what the cost may end up being if you hire a Steuerberater, then a halfway-house solution is to approach your local Lohnsteuerverein.
Roughly translated into English, this is an income tax advisory association for private individuals who are seeking help with their taxes. This is a non-profit group made up of volunteers, who are often retired tax advisors and chartered accountants who advise members of the association. You pay an annual membership fee and this essentially grants you access to the members and their knowledge base for a fixed fee.
- Every city and large town will have one.
- It‘s considerably cheaper than a tax advisor and you can get more than one opinion.
- Your membership is essentially a flat fee.
- You‘ll need to speak German or take someone along with you who can.
- For simple, straightforward tax returns, it may not be that much cheaper than what you would pay a tax advisor for his time.
- They won‘t provide advice to freelancers and the self-employed.
- The extended time until end of September to submit your return through a Steuerberater does not apply to using a Lohnsteuerverein.
Membership of a Lohnsteuerverein varies from association to association but as a rule of thumb, expect to pay between €200 and €300 per year.
So, there you have it. A quick rundown of the different options you have and whether it may be worthwhile to submit a German tax return.
Don‘t forget, if you would like to get a rough idea of how much you are likely to receive back from the Finanzamt before you spend time filling out the forms through SteuerGo (or maybe even contacting a Steuerberater), then definitely don‘t miss out on taking the quick, 5-10 minute quiz!