One of the first questions almost every expat asks after moving to Germany is:
“How much German income tax will I have to pay?”
Unfortunately, the answer is rarely straightforward. German income tax depends on many different factors, including the type of income you receive, whether you are married, whether foreign income is involved, and whether special tax rules apply.
We at Prinz.tax know from our daily experience how important a reliable tax estimate can be for expats moving to Germany. That’s why we have created our German Income Tax Simulator (German Income Tax Calculator) to help expats estimate their expected annual German income tax within minutes. It considers the most common income categories and provides an initial indication of your German tax burden. However, to use any income tax calculator correctly, you first need to understand which type of income you have.
For most expats, annual German income tax is determined by four main categories of income:
- Employment income
- Additional taxable income
- Investment income
- Foreign income subject to the Progressionsvorbehalt.
While most generic tax calculators out there are in German and do not include foreign income, our German Income Tax Simulator mirrors this structure and is tailored to the circumstances of expats.
Income Fully Taxable in Germany and Subject to German Social Security Contributions
For many expats, employment income is the largest source of taxable income. From an income tax perspective, employment income can include not just your monthly salary but any bonuses, benefits, RSUs and stock option compensation, housing allowances and taxable relocation benefits.
Such income is generally not only subject to German income tax but also subject to social security contributions, such as German statutory health insurance (Gesetzliche Krankenversicherung), German pension insurance (Gesetzliche Rentenversicherung) and German unemployment insurance (Arbeitslosenversicherung).
Prinz.tax Tax Simulator: Our income tax calculator starts with employment income and allows you to estimate how your employment income affects your annual German income tax and gives you a realistic indication of your expected social security contributions.
Additional Income Fully Taxable in Germany but Generally Not Subject to Social Security Contributions
Many expats receive additional income besides their salary, such as rental income from German property, freelance or self-employment income, retirement and pension income, and under certain circumstances income from crypto investments.
Although this income is generally taxable in Germany, it is often not subject to German statutory social security contributions. This distinction is important because your overall tax burden can differ significantly depending on whether social security contributions also apply.
Prinz.tax Tax Simulator: While most available tax calculators are limited to employment income, our more sophisticated German income tax calculator has a second section for income fully taxable in Germany but not subject to social security contributions.
Investment Income Subject to German Capital Gains Tax (Kapitalertragsteuer)
German tax residents are also subject to taxation of their worldwide investment income, regardless of where the investments are held, in which currency they are denominated and whether other countries claim a right to tax. Typical investment income includes dividends, interest, capital gains from shares, ETF distributions, mutual fund income and other types of financial investments.
Investment income is taxed differently from regular income. Instead of the normal progressive income tax rate, investment income is usually subject to the German flat withholding tax (“Kapitalertragsteuer”) of 25%, plus solidarity surcharge and, where applicable, church tax.
Prinz.tax Tax Simulator: Our income tax calculator has a separate section for investment income to ensure that the flat tax rate is applied in your income tax calculation. Please note that complex investment income should always be reviewed individually.
Foreign Income Subject to the German Progression Clause (Progressionsvorbehalt)
Many expats continue receiving income from abroad after moving to Germany. Examples include foreign employment income, foreign rental income, RSUs or stock option compensation associated with prior foreign employment, or foreign pensions.
Often, such foreign income is tax-exempt under a double taxation agreement. Under most tax treaties, Germany has agreed not to tax this income directly. However, it may still increase the tax rate applied to your taxable German income through the Progressionsvorbehalt (progression clause).
This is one of the most misunderstood concepts in German international tax law. Many taxpayers assume that exempt foreign income has no effect on their German taxes. Unfortunately, this is usually not correct. It must generally be reported and often does have an indirect impact.
Prinz.tax Tax Simulator: If you include your foreign income not taxable in Germany under a tax treaty but subject to income tax progression in our tax simulator, our unique tool helps you estimate the potential effect of foreign income on your overall German tax burden.
Start with Our German Income Tax Simulator
Whether you have recently moved to Germany or have lived here for several years, understanding your expected annual tax burden is an important part of financial planning. Use our German Income Tax Simulator to obtain an initial estimate of your expected German income tax. The following table summarizes where each type of income should be entered in our German Income Tax Simulator:
| Income Type | German Income Tax | Social Security | Simulator Section |
|---|---|---|---|
| Employment income | ✔ | ✔ Usually | Employment income |
| Rental income | ✔ | ✘ Usually not | Additional income |
| Investment income | Flat tax | ✘ | Investment income |
| Foreign treaty-exempt income | Progression only | ✘ | Foreign income |
If your situation involves foreign income, RSUs, stock options, rental properties, self-employment, or international tax questions, our experienced tax advisors are happy to review your individual circumstances and prepare your German income tax declaration.
