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PENSIONS

Why taxes on pensioners in Germany have risen up to 500 percent since 2010

The tax burden on pensioners has increased fivefold within ten years in some cases, according to figures released by the Finance Ministry on Wednesday.

Published: 20 November 2019 11:59 CET
Why taxes on pensioners in Germany have risen up to 500 percent since 2010
Photo: DPA

For example, new pensioners now have to pay €430 in income tax per year on a monthly gross pension of €1500, compared with €79 in 2010.

The figures were released on Wednesday, as part of an inquiry submitted to the Federal Ministry of Finance by Die Linke. 

READ ALSO: How to maximize your German pension – even if you plan to retire elsewhere

For an individual with a monthly gross pension of €1700, €294 was due at the start of pension payments in 2010. This year that figure has risen to €758.

If the monthly earnings were €2000, €679 in taxes would have been due in 2010. Now the figure has risen to €1326. 

Die Linke Left Party leader Dietmar Bartsch criticized the increasing pension taxation as a “de facto pension cut”.

Why is there an increase?

The sharp increase is due to a change which was introduced in 2005. Until then, a tax-free allowance of 50 percent of the pension was permitted. 

Since then, the tax rate on pensions has risen by two percentage points annually. 

Health and long-term care insurance contributions and some everyday expenses can also be claimed.

The tax becomes due when the total income of a pensioner exceeds the basic annual tax-free allowance (€9168 or €764 per month). The average monthly pension in 2018 was €1219.

“In the next few years, the tax burden for small and medium-sized pensions will continue to rise,” Barsch told DPA.

He called on Finance Minister Olaf Scholz and Labour Minister Hubertus Heil (both SPD) to present a plan with significantly higher tax allowances to protect small and medium-sized pensions.

In 2015, a total of €34.65 billion in income tax was paid to the state by taxpayers with pension income.

There is currently a push around Germany to raise the pension age to 69, up from 67, in light of rising lifespans.

Read more of our coverage of pensions in Germany HERE. 

Vocabulary

Tax burden – (die) Steuerbelastung, (die) Steuerlast 

Fivefold – um das Fünffache

due/payable – fällig

Pension contributions – (die) Rentenbeiträge

Basic tax-free allowance – (der) Grundfreibetrag

To deduct – abziehen 

We're aiming to help our readers improve their German by translating vocabulary from some of our news stories. Did you find this article useful? Let us know.

 

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TAXES

What freelancers in Norway need to know about tax

If you’re ready to venture out on your own as a freelancer, then it is essential to brush up on the tax rules and regulations in Norway.

Published: 20 January 2022 13:06 CET
Updated: 30 January 2022 09:50 CET
People going over their taxes and finances.
Here's what freelancers in Norway need to know about taxes. Pictured are people going over their finances. Photo by Scott Graham on Unsplash

Are freelancing and being self-employed the same thing?

According to the Norwegian website for government dialogue, Altinn, “A freelancer receives payment for individual assignments without being a permanent or temporary employee of the organisation he or she is carrying out work for, but does not need to be self-employed.”

This is helpful to clarify. Because when you decide to work for yourself in Norway, you can do this in a matter of two ways. The two most common methods to register your freelance work or self-employed business is as an enkeltpersonforetak, or as an AS, which is an acronym for aksjeselskap. 

In English, an enkeltpersonforetak means “sole proprietorship”. And an aksjeselskap means “Private Limited Company”. 

Both enkeltpersonforetak and AS come with their own set of positives and negatives. Technically, you are NOT considered a freelancer if you have set up an AS. 

If you have set up an AS, then you are considered an employee of your own company. 

The two may often be compared to one another. But in the eyes of tax law and the rules that apply to your freelance work, they are very different. If you are setting up an AS, it is highly recommended that you hire an accountant as the tax rules are intricate and very specific to what type of business you run.

If you are a freelancer working as an enkeltpersonforetak 

For a sole proprietorship, you need to pay advance tax quarterly – or four times a year in Norway. This is done by the freelancer calculating how much profit they expect their work to earn within the taxing quarter. 

It may be difficult to predict, which is why you shouldn’t worry if you make more or less than your original registered claim.

For example: Let’s say freelancer Petter registered with skatteetaten, the Norwegian Tax Administration, that he would make 50,000 kroner in the first quarter of the year. Suddenly, Petter unexpectedly gets five new clients and happily makes double, earning 100,000 in the first quarter instead, all Petter has to do is log into his skatteetaten account and adjust his original tax claim so the amount he pays in taxes will be accurate. 

The Norwegian Tax Administration determines how much tax is to be paid based on the expected profit. 

In addition to quarterly registers, freelancers are responsible for sending invoices, keeping track of their accounts, and creating their own pension scheme. They are also responsible for the value-added services, or VAT.

What is VAT?

This is where it can get a little confusing with the terms. The Norwegian VAT officially uses the acronym MVA, for merverdiavgift. And if that wasn’t confusing enough, Norwegians have developed a slang word for this type of tax called moms. 

So, VAT = MVA = merverdiavgift = moms. All four terms refer to the same type of tax.

For freelancers that have earned more than 50,000 kroner over the course of a year, they need to register their VAT, which is the sales tax on goods and services.  

Again, this is when you should double-check to see if your line of work can be VAT exempt. Specific industries, such as education and arts and culture, are exempt from registering their VAT. This is because they don’t have to pay VAT. But most importantly, they are not allowed to charge their clients VAT for their services or goods.

However, freelancers who work in VAT exempt industries can electively register their VAT so they can both charge VAT and receive VAT deductibles. 

The VAT tax rate has held steady at approximately 25 percent over the past decade. When you have registered the tax on your goods and services, it is possible to request a VAT refund on purchases made up to three years back in time.

This is, again, a really good time to know what you can deduct or get back with VAT. 

For example: Let’s say Anna works as a freelance PR agent and takes a potential new client out for a “working lunch”. Unfortunately, she cannot register the lunch receipt as a work-related deductible as it is not allowed to apply for a VAT deductible on foods. 

However, let’s say Anna bought a printer that was necessary for her PR services. She could apply for a 25 percent VAT deduction on the printer’s costs as it is deemed necessary work equipment.

To register VAT for your goods and services, look here. 

Programmes and accountants can help with this.

Accounting programmes and actual accountants can help ensure you are managing the administration side of your business correctly. And even if you have both of these helpful options, you should still give yourself enough time each week, or month, to keep your accounts up to date if you are a freelancer. 

Managing your own accounts and taxes can be overwhelming. Luckily, there are some different options available.

Having an overview of your accounts with an accounting programme is cheaper than hiring an accountant and a great way to keep a 24/7 overview of your business.

If you are intimidated by the math side of things, or worse, making an honest tax mistake that is still illegal, don’t worry. The newest programmes have a reputation of being easy to learn and user friendly. 

Here is a list of the top accounting programmes recommended for small businesses in Norway. 

Remember, Google Docs and Word are not an option for creating your own invoices, as all invoices must be auto-numbered. 

There is peace of mind in letting a professional handle your accounts, but you will have to pay for it. The average price for an accountant in Norway is around 500 kroner per hour plus VAT (value-added tax). 

If you choose to hire an accountant to manage your firm’s books, here is a list of what the average accounting services can cost you. 

If you’re still unsure

Learning your adopted country’s tax laws is both time-consuming and filled with small intricacies and loopholes. If ever you come across a new billing or taxing situation you’re not completely sure about. You can reach out to the Norwegian Tax Authority for more clarity.

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