In the previous article for expats in Germany, we mentioned topics about the registration and the search of housing. Today, we’ll talk about insurances and taxes in Germany.
Overall, Germans are very security-oriented people and many are overinsured. This should not be the case with you, but you should be aware of the most common existing insurances and which of them would really make sense.
First of all, there are certain insurances in Germany, which are legally imposed, and you cannot even opt out of them. This might be embarrassing for employees coming from other countries, like Singapore or some others, where expats are exempt from such payments unless they have a permanent residency in the country. These are
- Mandatory medical insurance
- Social insurance, like unemployment insurance
- Retirement insurance/ pension fund
The above-mentioned insurances are automatically deducted from your salary on a monthly basis along with a partial tax deduction so that at the end you receive a net salary into your account paid by your employer.
Important to mention that the mandatory medical insurance is not bad, but for those who would like to improve it, there are different add-on insurances covering certain medical areas on top of the mandatory one. These can be dental insurance (covering higher quality treatments than the standard one, for example, implants, ceramic crowns etc.), hospital insurance etc. If you pay special attention to your teeth and their health, additional dental insurance can definitely make sense, as it opens you access to a broad range of dental services with very higher quality.
Another insurance broadly available in Germany and making sense to get a contract for (even though this one is not a mandatory one) is the personal liability insurance. In general, it can cover you in most cases if you cause damage to someone else (personal damage, material damage etc.) This insurance does not cost much (it starts from somewhat like 30 euros per year) but can protect you from costly claims from third parties. Surely, nobody plans to cause damage to others, and it can happen very seldom if at all. But even if it would happen only once in a lifetime, but the damage would amount to a couple of thousands or few hundred thousand euros, you bank account might not have the sufficient coverage to pay for the caused damage. According to the German law, you are fully responsible for the damage caused by you, even if it did not happen on purpose.
Whether you lose keys of a rented apartment, create an accident with a couple of Porsche as an absent-minded pedestrian, or unintentionally drop an expensive porcelain vase in a shop – your personal liability insurance is valid worldwide and a kind of a shield protecting you and your account from third party claims.
When you live longer in Germany and your household consolidates more and more expensive items like home cinema, expensive furniture, high-value decorations etc., a household insurance can protect your home in case of fire or water damage, burglary and house breaking, theft, strong weather events and other potential losses covering not only your stay in a hotel for the duration of damage clearance in the apartment, but also the costs for the purchase of a replacement for your damaged objects.
The best options to check the best insurance for your needs are comparison portals, like check24.de or verifox.de.
Now, let’s get back to the beginning of this article and the fact that your salary arrives net to your account. It can sound convenient that you do not need to pay attention to the taxes, and all is settled in the course of the year through automated payments to the tax authorities. However, in most cases these payments are usually overstated as they do not take into account the possibility of deductions for certain expenses which occur to you throughout the year, and which are related to your professional activities, high health-related expenses or other relevant expenses. Such expenses can be deducted from your revenues and therefore reduce your taxable income.
It makes sense to prepare a tax declaration for the fiscal year. Freelancers and entrepreneurs have to prepare it in any case. But employees who do not have any other source of income but their salary and therefore the tax declaration is not mandatory for them, should prepare one as well, as you can get a nice reimbursement from the tax authorities after the assessment.
If you are an expat working for a bigger company, most probably, your employer provided you with a tax advisor and paid him for your first year in Germany. In most cases, from the second year onwards you are left alone with this topic and either accept the monthly deduction and do nothing else, or you file your tax declaration every year and get appropriate reimbursements (in some cases the tax reimbursements can reach higher 4-digit amounts, but it surely depends on your individual situation).
How can you prepare your tax declarations? There are mainly two ways for it. First, you can engage a tax advisor. In this case, you can get professional help with a detailed assessment of your financial situation. Such help does cost a certain amount of money. By the way, the fees of tax advisors in Germany are fixed in an appropriate law and tax advisors cannot change them as they like. In other words, the costs would be pretty much similar from one tax advisor to another. What you need to pay attention to is the quality of the tax advisor. Is it just a bookkeeping service or is the tax advisor really experienced in international tax affairs? The German tax law is one of the most complicated worldwide and a tax declaration is not easy. Your tax advisor should know what you can deduct and evaluate all cost deduction possibilities together with you.
A second option would be purchasing a tax software and doing the tax declaration on your own. If you do not have any other sources of income apart from your salary, this option could be less expensive and also feasible on your own. The modern German tax software can guide you step-by-step through all stages of the tax assessment. One of the weak points in this case: most of the tax software in Germany is available in German only, so that you would need at least a certain level in German language before being able to work with it or you would need to know someone who could work with you on your first assessment. Once you’ll have done your first assessment, taking over most of the data from the previous submission and adjusting just few figures in the following year would be an easy thing for you. The second point with regards of the software: it can be more comfortable or less comfortable and intuitive to use. But even a well-developed, comfortable software with large range of functions should not cost a lot. You can find good software which won lots of prizes from different comparison portals and consumer protection organizations for somewhat about 40 euro for your annual tax assessment. A recommendable tax software would be, for example, WISO Steuer from Buhl Data GmbH available in mobile version, for Windows or for Mac, offering the options of saving on a local medium or in a cloud storage, depending on your preferences.
Surely, Singabiz can serve as a single point of contact also in the above cases. Within the Singabiz Network we have experienced tax advisors and insurance brokers, who can assist you in the best way. If you need assistance with the mentioned topics, simply contact us.
