An Overview of German payroll Statutory deductions, compliance & reporting Presented by Denis Barnard
Covered in this module: The German Tax System u Social Security u Employer Responsibilities u
Tax
The German tax system The tax department (or Revenue administration) is responsible for collecting u and assessing taxes The Federal Ministry of Finance is the supreme authority of the Federal u Revenue Administration http://www.bundesfinanzministerium.de/Web/DE /Themen/Steuern/Steuerarten/Einkommensteuer/ einkommensteuer.html
What is required of a company in order to run a payroll The company must be registered as a legal entity in Germany, otherwise the company cannot be registered with the tax and social security authorities and will be unable to fulfil the payroll reporting obligations. The tax authorities require a tax number which is allocated at the time of registration and an authorisation for the transfer of electronic tax data. The social security requires a business number for which the company applies at the local employment office. All returns and employee certificates are submitted under the allocated number. 5
Understanding some of the terms and regulations Tax Identification Number u u An 11 digit number used as the unique identifier of the employee in the tax system u Stays with you your whole life and does not change when you move or marry u It must be used in all submissions, applications and communications with the tax authorities
Understanding some of the terms and regulations Tax Information Centre u u The Federal Central Tax Office’s tax information services u Information and services are provided by qualified teams in call centres and on the web site u Information on fiscal responsibilities u General information on tax within the scope of duty of the federal tax office u A central point of contact for foreign investors
Tax Categories 1: Individuals who are single, in a civil partnership, divorced, widowed or u married, unless category 2, 3 or 4 2: Applies to those from category 1 if they are entitled to solo parents u allowance 3: Applies (when requested) to married persons who both reside in Germany u and u The workers spouse does not earn a wage, or u The workers spouse works but both spouses have requested they be classified under category 5 4: Applies (when requested) to married persons where both work, live in u Germany and are not living apart permanently
Tax Categories 5: Applies to a spouse where both parties have applied for the other spouse to u be classified under category 3 u It is quite common for a married couple to opt for this combination when for instance, one of the persons works part time. The class 5 deductions are higher in comparision, but are then compensated by the fact that the other person has the lower class 3 deductions. 6: Applies to workers earnings multiple wages from more than one employer, u in order for wage tax to be withheld from the second and subsequent employers In addition to the tax class the parameters also include the number of u children the individual has and also his/her religion.
Tax There are three tax elements which are deducted from the salary paid: u income tax, solidarity tax which is 5.5% of the income tax deducted and church tax which is either 8% or 9% of the income tax deducted, depending on which federal state the company is registered in Income and solidarity tax are compulsory deductions u The employee may apply for exemption from the church tax which would u involve the person officially renouncing the church
Tax
Tax Cold Progressive rate from 14% to 42% http://www.bundesfinanzministerium.de/Content/DE/Bilderstrecke n/Mediathek/Infografiken/teaser-bildergalerie-kalte- progression.html?notFirst=false
Tax The income tax calculations are based on the following criteria for single people: A non-taxable base income of maximum € 8,652/year u A linear progression zones which include income from: u u € 8,653 to € 53,665/year u In these zones the tax percentage is progressive and non-cumulative, starting at 14% and rising to 42%
Tax A third proportional zone which includes an annual income from € 53,666 u to € 254,446 per year and is taxed at a base rate of 42% A fourth proportional zone for an annual income of over € 254,446 u is taxed at 45%
Tax Each employee must apply to their local tax office and have their personal u tax data documented and filed. Based on the information for the individual, a tax classification is allocated and is binding for all payroll tax matters. Any changes must be made directly at the tax office by the employee. As a rule, employer payroll taxes are not levied in Germany, however there u are certain pay elements, for instance reimbursement of season tickets for public transport, which are taxable at a flat rate and the employer may opt to carry the tax. It is also acceptable for companies to pass the tax burden to the employee.
Tax All payroll taxes must be reported and paid on a monthly basis for the current u pay month. The payment must be received by the tax authorities by latest 10 th of the following month There are of course many more details and various parameters which need u consideration. An example of the German tax deductions can be found at: http://www.imacc.de/berechnung/steuertabellen/index.html Where you can download the latest tables The complete income tax table is some 800 pages long! u
Church Tax Liability to pay this starts on the first day of the calendar month following the u month in which membership commences Jewish, Protestant and Catholic religions are covered under this tax u This liability is in addition to income and capital gains tax u The standard rate of Catholic church tax in Saxony is 9% of the taxable u income, but is capped at 3.5% of total income Other religious communities are not currently recognised under this scheme u
Church Tax (Kirchensteuer) u The fund supports religious: u hospitals u Schools u Day Care u Other services u A healthy percentage of catholic tax goes to the Vatican u Those who opt out cannot receive/take part in: u Sacraments (except last rights before death) u Confessions u Confirmation u Work in religious organisations u Parish Activities u Become a godparent
Church Tax (Kirchensteuer) u When applying for a German Tax ID card or completing an ameldung form, there is a section to specify if you belong to a taxable faith u If the form is left blank but the person declares a certain faith (or is from a country of an certain faith), the Finanzamt may assume a religion and begin charging u In this case the individual will receive a letter u They will need to renounce the church, even though they never joined it u The process differs between states, see http://www.kirchenaustritt.de/deutschland.htm for details u Renouncing the church does not mean excommunication
Social Security
Social Security deduction % table
Social Security limits 2016 Earnings Caps Monthly € Annual € Health and nursing 4,237.50 50,850 insurance Pensions and 6,200 74,400 unemployment (west) Pensions and 5, 400 64,800 unemployment (east)
Social Security Includes Pension, Health, Nursing, Accident and Unemployment Insurance u u The monthly contributions are calculated as a percentage of the total gross pay with a cap level of € 6,200/month for pension and unemployment contributions and € 4,237.50 /month for medical and special care contributions. The pension insurance providers notifies workers of their social security ID u u Deduction are from gross pay, with a cap of max. € 6,200/month Pension insurance is compulsory u The premium is 18.7 percent of the gross wage and is divided equally u between employee and employer
Social Security The legal health insurance fund bears the cost of your medical care u Employees earning a gross wage of less than EUR 4,575 per month are compulsorily u insured by one of the public health insurance providers (Gesetzliche Krankenversicherung, GKV) Employees whose earnings are above this income threshold can choose from both u public and private insurance companies (Private Krankenversicherung, PKV). The basic flat health insurance contribution rate (public health insurance) amounts u to 14.6% of the employee’s gross income and is equally shared between the employer and employee At this point it should be mentioned that currently there are 132 medical u insurance institutes (Krankenkassen) and that a separate monthly return must be submitted for each one where one of the employees is registered.
Social Security Legal Accident Insurance is compulsory if you are in training or have an u employment contract u Insurance premiums are paid by the employer, not the employee Unemployment Insurance has the same cap as the pension insurance. The u premium for the mandatory unemployment insurance is 3.0 percent of the gross wage and is shared equally by the employer and employee. Nursing insurance has the same cap as the health insurance. For employees u over 23 years of age and/or who have no children an additional 0.25% contribution is levied.
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