The Top Tax Deductions for Expats in Germany
Don't miss out on a tax refund! We break down the biggest deductions for expats in Germany. 💸
Key Takeaways
- Many in Germany receive substantial tax refunds; understanding key deductions is crucial to not leave thousands on the table.
- Deductions lower your taxable income, saving you money at your personal marginal tax rate, not your average rate.
- Deduct work-related expenses like your commute and home office, plus childcare costs for children under 14.
- Contributions to German pensions, health insurance, and charitable donations are key ways to reduce your tax bill.
- Don’t forget smaller deductions for tax advisors, job applications, bank fees, training, and work equipment.
- Claim worldwide income, understand double taxation treaties, and deduct relocation and language course costs.
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More InformationIntroduction
Did you know that people in Germany received €15.1 billion in tax refunds last year, with nine out of ten people averaging almost €1,200? This remarkable figure highlights a crucial point: if your tax refund is less than this average, you are most likely not claiming all the deductions you are legally entitled to. This means you could be leaving thousands of Euros on the table—money that could be better used for your savings, investments, or personal goals.
And so this doesn’t happen to you, we’re going to break down the biggest and most important tax deductions specifically for expats in Germany. We’ll show you exactly how to navigate the system and put more money back in your pocket. Understanding these deductions is not just about getting a refund; it’s about making the tax system work for you and maximizing your financial potential while living in Germany.
How Tax Deductions Really Work: Your Marginal Tax Rate
The biggest misconception about tax deductions is this: if you deduct €1, you get €1 back. But that’s simply not true. Instead, when you list certain deductible expenses on your tax return, your taxable income is reduced. And the smaller your taxable income, the less tax you pay, or the bigger your refund will be.
Germany operates under a progressive income tax system, which means the more you earn, the higher your marginal tax rate. This marginal rate is the rate applied to the very last Euro you earn. For most high-income expats, the top marginal rate is 42%. But this doesn’t mean you pay 42% on everything you earn. Let’s look at a clear example. Say you have a taxable income of €100,000. Your marginal tax rate on that last Euro is 42%, but your average tax rate across your entire income is only about 32%.
Now imagine you have €10,000 in deductible expenses. Your marginal rate stays the same at 42%, but your average tax rate drops by almost 2 percentage points. Most importantly, those deductions save you €4,200 in real money because your marginal tax rate is 42%. So deductions aren’t free money from the tax office, but they can make a big difference in your financial life.
Key Deductions for Your Work and Personal Life
Now that we know how tax deductions really work, let’s break down some of the biggest categories of tax benefits everyone in Germany can use. The first category is work-related expenses. One of the most common deductions is your commute. You can claim €0.30 per kilometer for the distance between your home and your workplace, and from the 21st kilometer, this increases to €0.38 per kilometer. This deduction alone can be worth thousands of Euros every year.
If you work remotely, there’s the home office deduction of €6 per day for up to 210 days, or up to €1,260 per year. If you have a separate office at home with a door that you can lock, you can even deduct a share of your rent and utilities. For those with a second household closer to work, you can deduct rent, utilities, moving costs, and even one trip home per week.
The second category is personal life. If you have children, you can deduct 80% of childcare costs, up to €4,800 per child under 14. Kindergarten, daycare, or a nanny all count. Private school tuition can also sometimes be deducted. And if you’re paying alimony to a separated or divorced spouse, you may be able to deduct up to €13,800 per year, provided the recipient declares it as income.
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More InformationDeductions for Personal Finance, Home & Charity
Let’s continue with the other crucial deduction categories. The third category is personal finance. Almost everyone benefits from deductions on contributions to your pension and health insurance. For employees, many of these might be deducted automatically, but additional insurances may also qualify. For retirement savings, contributions to base pensions, company pensions, or Riester pensions are deductible up to a certain limit per year per person. This is effectively a guaranteed tax refund on your contributions, which boosts your return tremendously.
Even outside of pension plans, you get a little bonus: the Sparer-Pauschbetrag allows you to earn €1,000 in capital gains tax-free each year. And if you invest in real estate, you can deduct mortgage interest, renovations, depreciation, management fees, and much more.
The fourth category is giving back. Donations to German charities are deductible up to 20% of your income. It’s a great way to support causes you care about while lowering your tax bill. Political donations also count, with special limits.
The fifth category is home and household costs. Are you hiring a cleaner, gardener, or babysitter? You can deduct 20% of the labor costs up to €4,000 per year. Handyman services also qualify with 20% of labor costs up to €1,200 per year. Just remember: invoices must be paid by bank transfer; cash doesn’t count.
For homeowners, energy-efficient renovations like new windows or heating can be deducted as well, including part of the material costs. But always check in advance what’s more beneficial: government funding or tax deductions. If you’re not sure which of these apply to you, or how to maximize your tax benefits, book a free meeting with us. Most expats leave money on the table—don’t be one of them.
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More InformationA Speed Round of Smaller, but Still Valuable Deductions
Before we dive into the special tax deductions for expats, let’s do a speed round of deductions that are worth usually less than €1,000, but can still add up. First, claim the cost of a tax advisor or tax software. Up to 70-80% of your advisor’s bill is deductible, and tax software or tax literature can save you up to €100 per year.
Second, job application costs. If you’re applying for new jobs, you can deduct expenses for photos, printing, seminars, and travel. You can even claim a flat rate of €2.50 per online application or €8.50 for paper applications without receipts.
Third, bank account fees. For the account where your salary is paid, you can deduct a flat €16 per year, even if your account is free.
Fourth, training and education costs. Whether it’s online courses, evening classes, or seminars, you can deduct tuition, materials, and even travel expenses if it improves your professional skills. Fifth, work equipment. Anything you use almost entirely for your job—like laptops, monitors, or tools—is deductible. Items under €800 net (without VAT) can be written off immediately.
And finally, moving costs. If your move is job-related, you can deduct expenses like transport, double rent, or agent fees. There’s even a moving allowance of €964 for singles plus €643 for every additional family member. So even these smaller deductions can add up big time.
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More InformationSpecial Tax Rules and Deductions for Expats
As soon as you become a tax resident in Germany—either by establishing a residence or by staying more than 183 days—you are required to declare your worldwide income. It is important to note that the German tax system does not care about your nationality; it only cares about your residency. Once you’re a resident here, you must declare all your income worldwide, including your salary, rental income, and even investments abroad. Now, this doesn’t mean you’ll automatically be taxed twice. Germany has double taxation agreements with more than 90 countries.
Depending on the type of income, two methods are used: the exemption method with progression clause or the credit method. The credit method allows taxes you already paid abroad to be credited against your German tax bill. Either way, you won’t be taxed twice. Now let’s talk about deductions you can actually claim. For many expats, the biggest cost is the move itself. Transport, temporary double rent, agent fees, and apartment viewings are all deductible. If you’ve taken language courses, professional training, or further studies to build your career here, those costs are also fully deductible. These can make a big difference in your first years here.
Finally, looking to the future: the German government is discussing a new benefit for expats. The idea is that for the first three years after moving here, up to 30% of your salary could be completely tax-free. We’ve made a separate article about this proposal that you can watch right here. Thank you for reading—and bis zum nächsten Mal!