Munich, November 2005

Due to new responsabilities, please refer to Martina Konle for all expatriate taxation issues. Her e-mail contact is: Stb_Konle@gmx.de
 

Dear Expatriate,

Welcome to Germany, a beautiful country in central Europe, where young professionals have excellent career and salary opportunities. Welcome also to Germany which abroad has the image having high income taxes and social security contributions. This picture, however, is far form being correct!

How to deal with that situation, if you are a young, ambitious and successful Expatriat working for some years in Germany as an employee for your old company or as an „Entwicklungshelfer“ in an important position for a German company? Concerning your tax matters, you feel somewhat uncertain.

You can chose between the following alternatives:

Alternative I is rather simple, because there is no action from your side required. You simply don‘t do anything. The German administration has already collected your contribution by the withholding system („PAYE“ – pay as you earn – or the German technical term which is „Lohnsteuer“).

Alternative II uses a more sophisticated approach:

The important thing to know is the following general principle in taxation which can be found all over the world! The higher taxes are, the more exceptions and deductions there are.

This is exactly the situation in Germany. There are many expatriates who expect that their gross income will be reduced by heavy income taxation. Then they find out with the help of a competent tax expert that they were able to reduce the tax to a sum which more or less corresponds to the income tax they would have paid in their home countries, i.e. the United States, United Kingdom, Ireland, Scandinavia etc. However, Germany does not provide a preferential expatriate-tax-status like other countries such as Belgium or the Netherlands.

Instead, the German Income Tax Act (Einkommensteuergesetz) offers various tax breaks and tax deductions which often apply to expatriates and which are unknown in other countries. The following deductions are the most interesting, but please be aware that these deductions do not apply to all taxpayers, since in most cases certain requirements have to be met:
-    moving expenses
-    rent for the German apartment
-    expenses for returning to your home country
-    telephone costs
-    deduction of expenses for postgraduate-Studies etc.

Besides that, your situation as an expatriate offers tax planning opportunities such as
-    salary-split
-    investments in tax-free financial products
-    optimisation of the long-term-use of social security contributions

It is clear that your tax return offers many possibilities for important deductions and tax planning opportunities, so you should have professional assistance in filing your tax returns.

For further queries please contact: raedler@taxation.de

Albert Raedler