Banks & Taxes in Germany
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A Comprehensive Guide about Opening a Bank Account and Managing Your Taxes
Opening a bank account, understanding tax rates, and managing your finances in Germany can be challenging for non-native speakers. Our guide will explain what to look out for when opening a bank account and help you to stay on top of your taxes at all times.
With two types of banks and varying rates of insurance and other fees, opening a bank account in Germany can be a little overwhelming. The tax system, too, is fairly complicated, with different types of mandatory tax, which change depending on whether or not you’re self-employed.
This guide will explain bank accounts and tax systems in Germany, offering information about how to open a bank account, including details about the documents you’ll need and the varying factors you’ll have to consider. It also explains the tax rates in Germany and how to ensure you’re paying the correct amount of tax for your employment type.
How to Open a German Bank Account
If you’re heading to Frankfurt, you might notice the numerous banks there, as it is home to the headquarters of all of the top international banks in Germany as well as the European Central Bank.
The German Banking System
Starting with the first branch of the Rothschild banking empire, Frankfurt has been the capital for banks in Germany since the 18th century. But, regardless of whether you live in a metropolis like Frankfurt or a small German town, there’s sure to be at least one financial service provider nearby.
There are two important kinds of banks in Germany: savings banks, and co-operatives or credit unions, where the German state (e.g. a municipal or regional government) is one of the major shareholders. When opening a bank account, all residents can choose the financial organization they prefer.
Most banks provide similar services, but special offers, interest rates, and fees may differ. It can pay off if you take the time to do some research first to find out which bank is best for you. All banks offer two essential services: a current account (Girokonto) and a savings account (Sparkonto). If you’re interested in buying property in Germany, banks also offer advice on real estate and mortgages.
Opening a Local Account
It is relatively easy to open an account at a German bank. However, you should take care of some administrative paperwork beforehand. These are the required documents:
- A valid ID
- Proof of registration, including your current address. This means that you should have a German residence permit, since the latter is necessary to get said proof of registration (Meldebestätigung)
How to Open a Bank Account in Germany for Non-Residents
Setting up a bank account in Germany as a foreigner is generally straightforward, but not as easy as it used to be before the global financial crisis. As foreigners tried to open German accounts to take advantage of the country’s relative financial stability, the authorities decided to crack down on this trend. However, as technology advances, there are always new ways of doing things.
It is still possible to open a German bank account as an expat though, so don’t worry if you want to get this relocation step out of the way early. However, you will have to be in Germany to do so.
Opening a mobile account with some of the best online banks in Germany might be a good and quick option and there are several excellent services which allow you to receive your salary and organize your finances via your mobile device. One thing to keep in mind is that it will be easier for you if you already speak German.
If you’d prefer to open an account as a non-resident at a traditional, physical bank where you can visit, do your banking, and get advice face-to-face, you might need to already be employed, because that allows you to make a deposit of at least €1,000 per month.
Required Documents to Open a Bank Account as a Non-Resident
Once you have arrived in Germany, it should be easier for them to set up a local bank account. You’ll need to verify your identity and you’ll be subject to a credit check. If you’re going to register at the bank itself, you’ll need the following.
- Proof of address registration or Meldebescheinigung
- Passport or national identity card
Find out with your bank of choice which documents you need so you don’t waste your time going back and forth. If you’re already employed, you might need to take pay-slips or a copy of your employment contract.
If you’re going to sign up online, the process is different. You can do the Postident. This is a way for post employees to verify your identity. You can do the Postident by taking your passport, national ID card, or student registration to a local post office with your printed bank form. You’ll have to sign a document there which will be sent to the bank. You can also confirm your identity online with Deutsche Post. If you have access to a lawyer, you could get them to verify your identity too.
The Best Savings Accounts in Germany
If you want to plan for the future or invest, the following banks have good interest rates (time of writing: December 2018).
|Bank||Interest rate (%)|
Lots of Germans prefer making small transactions in cash, and ATMs are widely available. Banks normally have a 24/7 ATMs in the building.
Generally speaking, you can withdraw cash from any machine. However, you will be charged bank fees at certain ATM machines. This definitely applies if you’re withdrawing money using a foreign card, but even when you’re opening a German bank account, you should check where you can withdraw cash for free.
In Germany, the most important and common transaction is a bank transfer (Überweisung). After receiving your money order (whether in writing, on the phone, or online), your bank deposits the money directly into the recipient’s account. You need the following information to complete a bank transfer:
- The name of the account holder
- The account number (Kontonummer) or an IBAN code for international transfers
- The bank routing number (Bankleitzahl) or a BIC or swift code for international transfers
- The name and location of the bank
The same procedure applies to make a standing order (Dauerauftrag). A standing order is a regular payment you can set up to pay other people, companies, or send money to your other accounts. This sort of payment can be changed or canceled whenever you want, while a direct debit is set up by the organization to which you’re making a payment.
Another widespread method for financial transactions is the Einzugsermächtigung (direct debit authorization). You give permission to the recipient’s bank to withdraw an agreed sum from your account on a regular basis. This authorization is used for regular payments where the amount varies – e.g. for phone bills and other utilities. You can revoke the permission at any time, and it’s also possible to reverse recent payments.
The way electronic financial transactions are processed is currently changing throughout Europe. The Single Euro Payments Area (SEPA) was created to establish one electronic payment system across the entire EU (plus Iceland, Liechtenstein, Monaco, Norway, and Switzerland). This means that as of February 1, 2014, the IBAN and BIC are required for all bank transfers and direct debits in these countries, even domestic ones.
Private customers, however, can still use the account number and bank routing number for domestic bank transfers until February 1, 2016. A money transfer within the country takes two or three business days and is usually free.
Bank Statements and Internet Banking
Depending on which type of account you have, you will be sent an account statement on a regular basis. You can also print out your bank statement at a self-service terminal, often found next to an ATM.
Or, since many accounts now support internet banking, you might be able to get one and check your balance and use services online. However, make sure to inquire explicitly about online banking services. Germans took a while to warm up to internet banking but now more than 14% of all retail banking in the country is done online. In fact, some banks that only operate online have over 18 million customers. Germany’s biggest lender, Deutsche Bank, has moved with the times and adopted the motto: “New Times Require New Banking.”
Most banks in Germany are open from 8:00 to 13:00 and from 14:00 to 16:00. They may have longer business hours once or twice a week and close at noon on Friday. Services and fees, however, vary greatly from bank to bank. Maximum limits on withdrawals or minimum requirements for incoming transfers are the most common restrictions.
Below, you’ll find a checklist of what to take into consideration when opening a German bank account:
- Will I receive an EC-Karte (debit card) immediately?
- Which ATMs can I use free of charge? Where are they located?
- Is a minimum income required for this account?
- What are my withdrawal limits?
- How much do I have to pay in fees if I overdraw my account?
- What’s my overdraft limit?
- What’s the debit interest (Dispozins) if I overdraw my account? (debit interest tends to be rather high in Germany, with an average interest rate of 11%)
- How much is the average transaction fee for money transfers?
- Is there a limit on the number of transfers I can make or receive per month?
- What’s the processing time for money orders?
- Can I use all services immediately?
- Will I receive a credit card (Kreditkarte) free of charge?
- Does my bank offer online banking?
- What about telephone banking with foreign-language staff?
- Do I have a personal contact to ask for advice?
What is the Tax System in Germany?
The following section provides an introductory overview of tax rates in Germany and the types of taxes you would have to pay. However, it does not provide legal or financial advice, and to get a better idea of how German taxes work, especially regarding income from foreign sources, you should talk to a tax consultant
Businesses are subject to various taxes in Germany, such as corporate tax, trade tax, and turnover tax. The type and tax rate depend on the size of the company, its legal form, and the classification of the tax-paying owner as an entrepreneur, small business owner, or self-employed professional (e.g. a doctor or lawyer).
Among the various sorts of taxes in Germany, income tax is the most important. However, tax law in Germany distinguishes between Einkommensteuer (income tax in general) and Lohnsteuer (pay-as-you-earn tax / withholding tax for employees).
PAYE Tax for Employees
This subcategory of German income tax applies only to employed wage earners. The employer automatically deducts the contributions to social security in Germany and the actual PAYE tax (Lohnsteuer) from employees’ monthly gross income. Tax rates for Lohnsteuer are the same as those for income tax in general.
What is the Tax Rate in Germany?
In 2014, an annual salary lower than EUR 8,354 for singles or EUR 16,708 for a married couple will not fall into the tax bracket for PAYE taxes in Germany. The starting point for any tax on your salary above those figures is 14%, and then rises the higher the salary.
For annual gross incomes between EUR 8,355 and EUR 13,469, the rise is pretty steep, followed by a more gradual increase for incomes of up to EUR 52,882. People earning more than EUR 52,882 per year are subject to a tax rate of 42%. For incomes of over EUR 250,731, the highest tax rate of 45% applies.
In addition to Lohnsteuer, you have to pay the so-called solidarity surcharge (5.5% of your income tax) as well as church tax (Kirchensteuer), but you can opt out of the latter. To do this, you must technically ‘leave the church’, which involves going to your Standesamt or Amtsgericht and paying 0-31 EUR, as well as bringing your ID and Meldebescheinigung. If you’re married, you must also bring your Heiratsurkunde.
Tax-relevant information on employees, such as how many children they have or their religious affiliation, is registered on their electronic tax card (elektronische Lohnsteuerkarte).
You just need to provide your employer with your tax identification number and date of birth, and then they can access all your relevant tax information from the German central revenue service (Bundeszentralamt für Steuern) and add you to the company payroll.
As mentioned above, an employee’s Lohnsteuer may merely be a part of their overall income tax. You also have to pay taxes in Germany on your personal income from the following sources:
- Income from agriculture and forestry (1)
- Income from business operations (2)
- Income from self-employed work (3)
- Income from employed work (4)
- Capital income (5)
- Income from letting property (6)
The tax on “income from employed work” (4) is identical with the Lohnsteuer mentioned above. Categories 2 and 3 (income from business and self-employment), on the other hand, are relevant for freelancers who run a small business or trade (Gewerbe) or who are self-employed artists, accountants, physicians, etc.
However, if you have additional income from any other category, such as interest on your savings (5) or rental yields (6), it is also subject to income tax. Tax rates range from 14% to 45%, as described above.
The basic tax-free allowance (Steuerfreibetrag) is the same as that for PAYE tax, i.e. EUR 8,354 a year for singles and twice as much for a married couple.
In addition to a basic allowance for low-income earners, there are numerous deductibles that may apply to your taxes in Germany. You can get deductions for raising children, commuting to work, paying for work uniforms, being a single parent, joining a trade union, contributing to private pension funds, paying for selected insurance premiums and donating to charity.
You have to list all these factors in your annual tax return. If you don’t pay PAYE tax on any income from employed work, you have to submit income taxes in Germany each quarter. For this purpose, the taxable income is based on that in the previous year.
Filing the income tax return by May 31 is mandatory for everyone who is not a student, pensioner, or an unemployed person, and whose majority of income does not stem from employed work.
However, most employees do file a tax return, since it is the only way of benefiting from tax reductions. Once you have filed your tax return, the tax office will decide if you owe them money or if you get reimbursed. You will receive their final calculation in the Einkommensteuerbescheid (notification of income tax assessment).
General Advice for Expats
Once you have lived and worked in Germany for six months, you will be considered a fiscal resident and will have to pay income tax. In order to avoid double taxation, Germany has entered into tax treaties with over 100 countries. They apply in case a resident also has to pay taxes on their income from other countries. The Ministry of Finance lists all the countries that have agreed upon the double taxation treaty with Germany (German only).
If you have multiple sources of income or if you’re self-employed, consulting a tax advisor is a good idea. They can offer guidance and help you minimize the amount of taxes you owe.