Lets know about Germany payroll and tax
Germany, the largest and strongest economies in Europe is the 4th largest economy in terms of nominal gross domestic production (GDP). The country is 2nd largest in terms of exports and has a reputation and manufacturing and is also known for its exports of vehicles, machinery, chemicals and equipments. About 97% people of Germany work within agriculture and industries and only 3 percent of residents employed in the service industries. What makes Germany an attractive place for business setup are stable economy, large population and a competitive tax rates. When setting up here from a global Payroll perspective, key points you must consider are mentioned below:
German payroll for 2020
Germany has introduced many measures in response to COVID 19. Such as 2020 tax payment can be deferred and can be applied for up until 31 December 2020, any income and corporation tax prepayments can be adjusted and overdue tax payments penalities are suspended until the end of the year.
Some basic facts on payroll in Germany
Employers are obliged to deduct employee contributions from the employee’s gross wages and transfer it to local state tax office. They are also responsible withholding income tax, levied on social insurance schemes like pension, healthcare insurance and unemployment and solidarity tax. Non German employees are not needed to deduct levies from them who working here for less than 5 years.
Income tax
Income tax is calculated from the employee’s gross monthly income. Also, employees with an annual income lower than €9,000 are exempt from paying income tax from the 1st of Jan 2018 and employee tax brackets are listed below:
Tax band for employees with a status as single- Up to €9,000 upto €18,000–0%
From €9,000 to €54,058–0%
From €18,000 to €108,116–14% for the minimum amount and rising to 42% as income increases. Over €256304- 45%
Tax band for employees with a status as married
From €54,058 to €256,308 from €108,116 to €512,608–42% and over €512608- 45%.
Germany allows many deductions that can lower taxable income. Also, deductions are granted for circumstances like kids under 18, specific insurance premium and charitable and political contributions to German entities upto certain limits and unavoidable expenses above a certain limit. Also, deductions from compensation are made for 4 social programs- 1) retirement, 2) unemployment, 3) health insurance and 4) long term nursing care.
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