Germany payroll and tax overview.

Your guide to doing business in Germany

Doing Business in Germany

Germany is Europe’s largest economy and one of the continent’s best locations for foreign investment. Rich in natural resources, in the 20th century, Germany experienced a period of significant economic growth and today is home to a vast range of industries - from healthcare and IT, to aerospace and automotive engineering. With a large, well-educated population, and a geographic location at the heart of Europe, Germany is an attractive place to start-up a business, offering organisations from around the world the resources, skills and innovation to succeed and grow. In 2017, over 22,000 enterprise organisations maintain a presence in German and, at 4.7%, it has the lowest unemployment rate of any EU country.

Why Invest in Germany?

Germany is ranked 17 on the World Bank’s ‘Ease of Doing Business’ survey, and its growing economy offers plenty of opportunities for investment:

  • With a 2016 GDP €3.573tr, Germany’s economic strength is an encouraging factor for foreign investors. Germany’s economy is the fourth largest in the world (the largest in the EU), and the second-largest in terms of exports.
  • EU Status: As a leading member of the European Union, and with the largest population, Germany is an influential financial force, with access to a vast regional marketplace. It also benefits from trade agreements with the rest of the world.
  • Germany’s geographic location at the heart of Europe makes it one of the continent’s busiest trade hubs. With excellent energy, communication and transport infrastructure, Germany represents a gateway to the world for many investors.
  • Germany’s workforce is amongst the most skilled and innovative in the world, with over 81% of the population holding a university or vocational qualification. Research and development in Germany receives billions of euros in federal funding every year.
  • As the largest population in Europe, Germany is a huge market for consumer goods, including high-technology products and machine tools. Renewable energy is also a popular foreign investment target.

Foreign Direct Investment in Germany

The German Government has been a driver, innovator and beneficiary of an ever more globalised economy. Germany is the second largest exporter in the world, with exports accounting for over one third of GDP. Foreign and local investors are treated equally and are both eligible for investment incentives.

Germany’s stable, robust domestic economy is reinforced by a transparent government infrastructure, while intellectual property rights and other matters of business law are backed by an efficient and respected judicial system. The strong legal grounding and regulatory environment that Germany provides for business ventures serves as a foundation from which investments can be planned and proceed securely. Financial incentives for foreign business, and a competitive corporate tax rate (29.72%) attract interest from investors across the globe.

Registrations and Establishing an Entity in Germany For companies that are looking to process payroll in Germany, the company registrations to the Tax and Social Security Authorities include:

  • Employer Number with Employment Agency
  • If no German company exists, a copy of the foreign company registration is necessary
  • Application with statutory accident insurance (Berufsgenossenschaft)
  • Employer Tax Number

The timeline for processing depends on the Registering Authority. According to experience, this can take up to six weeks.

  • The key legislative authority in Germany varies depending on where the Employer is located. Tax Authorities
  • Health Insurance Company
  • Statutory Accident Insurance

Business Banking in Germany

It is not mandatory to pay employees from an in-country bank account. Salary and third party payments can be made on behalf of the client. Bank transfers are used to pay both employees and the local authorities in Germany. Any transfers that are made between banks in Germany are usually complete within a day. International bank transfers can take at least 3 working days.

Working Days and Working Hours in Germany

The working week in Germany is Monday to Friday and is, in general, a 40-hour week. However, depending on some union agreements, some companies work a 37.5 - 38-hour week.

Basic Facts about Germany

Germany is situated in central Europe, and represents a historic gateway between the East and the West. Bordered by Poland and the Czech Republic to the east, Austria and Switzerland to the south, and France, Luxembourg, Belgium and the Netherlands to the west, Germany connects the continent in a variety of ways, including trade, transport and culture. Since the reunification of East and West Germany in 1990, and the founding of the European Union in 1993, the country has become one of the world’s leading financial powers, with a reputation for technological innovation and manufacturing. Bordered by the North Sea, Germany has a temperate climate and a diverse geography ranging from rocky, southern Alpine regions to more verdant, forested northern regions.

Full name: Federal Republic of Germany Population: 82.79 million (World Bank, 2017) Capital: Berlin Major Language: German Major Religion: Christianity Monetary Unit: 1 euro = 100 cents Main Exports: Motor vehicles, electrical machinery, metals Internet domain: .de International Dialling Code: +49


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Good morning Guten Morgen

Good evening Guten Abend

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Tax & Social Security in Germany

The Tax Year runs from 1st January to 31st December in Germany. All ‘resident’ individuals pay tax on worldwide income, while ‘non-residents’ pay tax only on income sourced from within Germany.

  • Resident status is given to those taxpayers who spend longer than 183 days (six months) in Germany - or who spend an average of 90 days a year in Germany for four years.
  • Non-resident status is given to taxpayers who spend less than 183 days in Germany.

Every individual subject to income tax in Germany must file an annual tax return - unless their salaries are subject to tax withholding measures. Tax reductions and relief schemes are only accessible through an annual tax return. Married couples in Germany have the option of filing a joint tax return. A ‘Solidarity Surcharge’, capped at 5%, is also due on top of income tax payments. The tax was introduced in 1991 to cover the cost of German reunification.

Income Tax in Germany

Taxable income in Germany is determined to come from the following sources:

  • Agriculture and forestry
  • Business operations
  • Self-employed work
  • Employment
  • Capital income
  • Property letting

Payroll in Germany

Employers in Germany must provide employees with payslips, which will contain information pertaining to tax deductions and social security contributions (pension, health, unemployment and nursing insurance), along with their total earnings in that pay period. The minimum wage in Germany is €8.50 per hour (with some exceptions for employees under 18, and other special statuses), while the maximum number of hours in a workweek is 48 - compensation provisions must be made for handling overtime work. It is legal to issue online payslips in Germany.

Payroll compliance penalties in Germany can be costly, amounting to fines of €30,000 - €50,000.