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Payroll & Tax in Germany

Germany payroll & taxation

There are specific rules for payroll and taxation in Germany, depending upon whether your company employs foreign nationals or local German employees. The primary concerns for a foreign company that needs to comply with tax laws in Germany are: individual income tax (IIT) for employees in Germany, social and health insurance costs, payroll tax, sales tax, accident insurance, withholding tax, business tax and permanent establishment concerns.

Your Payroll Options in Germany

Remote Payroll

A remote payroll in Germany is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Germany. One option for a non-resident company to payroll its employees (local and foreign) in Germany is to use a fully outsourced service like a GEO which will employ and payroll the staff on their behalf.

Local Payroll Administration

In some cases, a company will register their business in Germany under one of the forms available, but prefer to have another company administer its payroll.  This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.

Internal Payroll

Larger companies with a commitment to Germany may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a German payroll, and can fulfill all tax, withholding, and payroll requirements.

This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with German employment laws.

Fully Outsourced Payroll & Employment

Companies can outsource the employment and payroll of their staff in Germany to a GEO, like Shield GEO. This is possible for both foreign workers and German nationals. This is the easiest, fastest and safest way to payroll staff in Germany.

Shield GEO manages all aspects of payroll for workers in Germany, including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.

Staff are paid monthly with tax and social security deducted at source and paid to local authorities. Shield GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. Shield GEO provides the employees with payslips.

Read more about outsourced payroll and employment through Shield GEO.

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Setting up payroll in Germany

Information Explanation
Currency ?

Euro

Documentation Required for New Employees ?
  • ID / Passport
  • Residence Permit / Visa if applicable
  • Tax ID Number & Tax bracket
  • Social security number
  • Where applicable, proof of service in the German military or alternative civilian service
  • Where applicable, certificate of leave from the previous employer
  • Where applicable, residence permit/visa
  • Where applicable, certificate of leave from the previous employer
  • Certification of membership of a statutory health insurance fund /substitute fund
  • Marriage certificate, birth certificates of children, divorce ruling where applicable
  • Bank details (IBAN & BIC code)

Germany has very strong data protection regulations. Employers should be aware that whilst an employees personal data can be collected for employment related purposes the information sought and in particular methods used for background checks are very limited.

Tax Figures

Information Explanation
Corporate Income Tax ?

29.65%

Income Tax Rate ?
Grossed income Tax Rate (%)
$0-$8,354 0
$8355-$52,881 14%
$52,882-$250,730 42%
$250,731+ 45%
Payroll Tax ?

n/a

Sales Tax ?

19%

Withholding Tax ?

Divident Withholding Tax 25%

Interest Withholding Tax 25%

Royalty Withholding Tax 15%

Can be reduced based on relevant tax treaties

Employee Social Security (EE SS)

Total Estimate is 12.5% (there are caps) and is made up of; 18.9% Old Age Pension and 3% Unemployment Insurance (capped at earnings up to Euro 71,400). Split equally between the employee and employer.

Health Insurance is compulsory if the employees wage is less than Euro 53,550. Employee/Employer split 14.6%. Contributions are paid up to earnings of Euro 48,600. Employee also has to pay 0.9% surcharge to a max of Euro 36.45 a month.

If the employee earns more than Euro 4,462.50 a month then they must contribute to a Private Health Insurance plan, pay the full premium and their employer reimburses them for half the premium up to the max they would receive through the compulsory scheme.

Nursing care/invalidity insurance is compulsory and is levied at 2.35% split equally between employer and employee. Childless employees pay an addition 0.25%.

Employer Social Security (ER SS)

Employers social security in Germany is extensive and made up of 4 elements.

Pension insurance (Rentenversicherung): 9.45% (charged on earnings up until EU 71400)

Unemployment insurance (Arbeitslosenversicherung): 1.5% (charged on earnings up until EU 71400)

Health insurance (Krankenversicherung): 7.3% (charged on earnings up until EU 48600)

Invalidity/Long-term care insurance(Pflegeversicherung): 1.175% (charged on earnings up until EU 48600)

Payments

Information Explanation
Payment Mode ?

Not clear if there is a legal rule but payments are usually transferred electronically via the country’s standardized File Transfer and Access Management (FTAM) protocol.

Frequency of Salary Payment ?

Does not seem to be set at law, but the standard appears to be monthly payments (12)

Invoice / Payslips required ?

Yes – if you have an employment contract then a written salary advice showing gross payments and detailed deductions is a legal requirement 

Minimum Wage ?

EUR 1,473.00 per month
Introduced in Jan, 2015. 

Employee Entitlements

Information Explanation
Working on Sundays ?

Under a five-day week, the average working time is between 35 and 40 hours. The daily productive working time generally may not exceed eight hours. A daily working time of up to ten hours productive working time is possible if, over a period of six months, the average daily working time does not exceed eight hours.

Working on Sundays and public holidays is generally prohibited. However, there are some exceptions

Time Off Work ?

LEAVE
Annual – 24 working days per 1 year of tenure

Medical Leave ?

Sickness – minimum six weeks paid sickness leave

Maternity – Female employees entitled to paid maternity leave of 14 weeks. Payments are made partly by the statutory health insurance provider and partly by the employer. During the employee’s pregnancy and for four months after childbirth, termination of employment relationship is not permissible.

Parental – male and female employees entitled to a maximum of three years’ unpaid parental leave per child. The employer may not terminate the employee, and employees have legal right to work part-time (up to 30 hours per week) during parental leave. After expiry of the parental leave, the employer has to offer an adequate working position to the employee.

Employment Termination

Information Explanation
Termination of Employment ?

TERMINATION
For Employees who have been employed longer than six months, unfair dissmisal protections apply. Employees can only be fired for particular reasons such as misconduct or redundancy. Employees who are on parental leave, handicapped or pregnant can not be fired without government approval.

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