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TAXES

Why pressure is growing on German government to cut your taxes

Few countries in the developed world have as high a tax burden as Germany. As the state coffers continue to grow, pressure is increasing on the government to relieve the taxpayer.

Why pressure is growing on German government to cut your taxes
Photo: DPA

If you have recently moved to Germany and taken up employment you have probably had the experience of excitedly opening your first pay slip only to find that a huge chunk of your income is taken off you in taxes and social security contributions.

You’re not just imagining that these burdens are higher than in your home country. An OECD report from 2017 showed that Germany has the highest tax burden in the world after Belgium. The report of 35 countries in the developed world showed that close to half of the cost of employing someone in the Bundesrepublik goes towards taxes and social security contributions.

With the German economy experiencing years of growth, high taxes also mean that the German state is repeatedly breaking records for the size of its tax revenue. Last year, the finance ministry estimated record tax intakes for 2018 of €772.1 billion and an increase to an annual intake of €905.9 billion in 2022.

Against this background, calls are growing louder for the Finance Minister, Olaf Scholz, to reduce the tax burden on companies and employees. And with Scholz set to release estimates for the state’s tax intake in 2019 on Thursday, industry and taxpayer organizations have jumped at the chance to attack the government's fiscal policies.

“The tax burden has grown to a record high, so it’s high time that taxes are cut,” Joachim Lang, head of the Federal Association of German Industry told DPA.

SEE ALSO: These are the eight German tax breaks you need to know about

Lang warned that Germany is developing from “a high tax country to the highest tax country.” He argued that companies needed to be given tax relief to ensure that Germany remains competitive in a global economy in which other countries are reducing their corporate tax rates.

“All across Europe countries are lowering their corporate tax rates. This is happening in France, Belgium, Luxembourg and Britain,” said Lang. “It can’t be justified any longer that Germany doesn’t react.

The industry lobbyist said that Germany would need to reduce its corporate tax rate from 30 percent to below 25 percent to remain competitive with an OECD average of 24.7 percent.

The Taxpayer’s Federation meanwhile said that employees also needed relief from the high tax burden. Because of the fact that wages have been increasing faster than the government has readjusted tax rates, anyone who earns above €55,000 falls into the highest tax bracket.

The Taxpayer’s Federation said that this no longer reflected the real value of such a salary and called on Thursday on Scholz to raise the top salary bracket to over €80,000.

But Scholz, a power figure in the Social Democrat party, has made clear that he is reluctant to offer any further tax relief. He pointed out that the government has already committed itself to abolishing the Solidarity Tax (a tax to support former east Germany) for 90 percent of taxpayers by 2021. He said that this measure would cost the federal government €10 billion annually.

Scholz also argued that slower than expected economic growth would suppress the state’s tax revenues this year.

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TAXES

Reader question: How can I find a German tax advisor?

The German tax code is complex enough to confound native Germans and foreigners alike. Finding an expert to handle it for you has many advantages—but how do you find the right one?

Reader question: How can I find a German tax advisor?

Even in “normal” years, when you’re not having to work out the tax implications of ‘home office’ or the reduced working hours of Kurzarbeit, filing a tax return in Germany is daunting. Still, it often pays to do it and a good tax advisor – especially one who speaks English or your native language – can pay off. But how do you find that person and what should you be looking for?

Price is comparable, so look for other things

Tax advisory is a strictly regulated profession in Germany, to the point where tax consultants, or Steuerberater, have a fixed schedule of the rates they’re allowed to charge for certain services. Their rates are also capped depending on what your income is. A complicated case will still obviously be more expensive than an easier one, simply because it’ll take longer. If you make more money, you may also be charged more. But due to price regulations, one tax advisor isn’t able to charge significantly more or less than another for a similar case. So you’re free to let go of the stress of finding the best price and focus on finding the right tax advisor for the services you need.

“If they’re called a ‘Steuerberater’ and they have a stamp of accreditation, that person is qualified to do your tax return. Simple,” says Kathleen Parker, Managing Director of Red Tape Translation. “Now they may offer other services or forms of advice, like bookkeeping or legal advice. These are different and for those, they’re free to charge you what they like. But the price of doing and submitting your tax return is tightly regulated.”

READ ALSO: EXPLAINED: How to save money on your taxes in Germany

Finding someone familiar with international cases

As with so many things in Germany, finding help in a language you speak well is a priority when looking for the right tax advisor. But beyond navigating the technical terminology, you may well need someone familiar with international cases. That’s especially true because German residents who receive income from abroad, whether they’re self-employed doing work for international clients, or they own investments abroad, will typically have to file a tax return declaring it for that year.

“Check the LinkedIn and Xing profiles of different tax consultants and have a look at where they may have studied or worked before. That should give you some idea about whether they speak either English or your native language, and if they are familiar with particular international topics,” says Dirk Maskow, an independent tax advisor based in Berlin and Düsseldorf. “If they’re bilingual, there’s a good chance they’ll have their website in both languages.”

Depending on the firm, the tax advisor may have a lawyer on staff or be in a partnership with one. If so, check their list of available services. Legal advice on international tax cases will often be more expensive than similar advice for domestic cases, so it should be easy to spot in the price list if the firm offers such a service. If they do, contact them and ask if they might be able to handle your specific case. Certain relocation apps and services, such as Ark One, RelocateMe, or Settly, may also work with specialised tax advisors who have the expertise for your individual case. Some websites, like Steuerberater Guru, will even help you compare advisors.

READ ALSO: Everything you need to know about your German tax return in 2022

The trust factor

Once you’ve found someone with the credentials you need, what’s next before you sign on?

“It’s not surprising, but they best way to find the right tax advisor for you is often through the recommendation of a friend who is satisfied with the one they have,” says Maskow. “That’s because tax consulting has a lot to do with trust. That’s even truer if the language and country is new to you and you don’t always know what’s going on. Make sure you have an initial discussion – not just to see if the tax advisor is able and willing to deal with your case, but to make sure you have a good overall rapport.”

READ ALSO: Everything you need to know about paying taxes in Germany

Vocabulary

Tax consultant or advisor – (der) Steuerberater/(die) Steuerberaterin

Tax – (die) Steuer

Tax return or tax declaration – (die) Einkommensteuererklärung

Client – (der) Mandant / (die) Mandantin

Income – (die) Einkünfte

Capital assets – (die) Kapitalvermögen

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