Cologne

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Taxes

A general guide to Germany's tax system, including income tax, VAT, and local tax-related assistance for newcomers.

Sections

1. Income Tax (Einkommensteuer)

Who Pays?

  • Residents: Anyone who resides in Cologne (or anywhere in Germany) and earns income is subject to income tax. Residents are taxed on their worldwide income.
  • Non-Residents: Non-residents are taxed only on income earned in Germany.

Tax Rates

  • Germany has a progressive income tax system, meaning the rate increases with income:
    • 0%: Income up to โ‚ฌ10,908 (2023 tax-free allowance for singles; โ‚ฌ21,816 for married couples filing jointly).
    • 14% to 42%: Income between โ‚ฌ10,909 and โ‚ฌ277,825.
    • 45%: Income above โ‚ฌ277,826.

Solidarity Surcharge (Solidaritรคtszuschlag)

  • An additional 5.5% of your income tax is levied as a solidarity surcharge. However, most taxpayers with lower incomes are exempt from this surcharge.

Church Tax (Kirchensteuer)

  • If you are a member of a recognized church (e.g., Catholic or Protestant), you will pay 8-9% of your income tax as church tax. In Cologne (North Rhine-Westphalia), the rate is 9%.

How to File Income Tax

  1. Obtain a Tax ID (Steueridentifikationsnummer): Issued automatically when you register your residence in Cologne (via the Bรผrgeramt).
  2. File a Tax Return (Steuererklรคrung):
    • Filing is mandatory if you are self-employed, have multiple sources of income, or claim deductions.
    • Employees with a single source of income and no deductions typically do not need to file, as taxes are withheld at the source by employers.
  3. Use ELSTER: The official online tax filing system in Germany.
  4. Deadlines:
    • July 31 of the following year (e.g., for 2023 taxes, the deadline is July 31, 2024).
    • If you use a tax advisor, the deadline is extended to February 28/29 of the second following year.

Local Considerations

  • Cologne has no additional city-specific income tax, but the church tax rate (9%) is higher than in some other states.

2. Value-Added Tax (VAT) / Sales Tax (Mehrwertsteuer or Umsatzsteuer)

Who Pays?

  • Businesses and self-employed individuals in Cologne must charge VAT on goods and services they provide.

Rates

  • 19%: Standard VAT rate for most goods and services.
  • 7%: Reduced rate for essential goods (e.g., food, books, public transportation).
  • 0%: Certain services, such as medical care and education, are exempt.

How to Handle VAT

  • Businesses must register for VAT with the local tax office (Finanzamt Kรถln).
  • VAT returns are filed monthly, quarterly, or annually, depending on the business's revenue.
  • Use the ELSTER platform for filing VAT returns.

Local Considerations

  • Cologne businesses must ensure compliance with federal VAT regulations. There are no city-specific VAT rules.

3. Property Tax (Grundsteuer)

Who Pays?

  • Property owners in Cologne are required to pay property tax.

Rates

  • The property tax rate is determined by a formula:
    • Tax Base (assessed value of the property) ร— Tax Rate (set by the city).
    • In Cologne, the municipal multiplier (Hebesatz) is 875% (as of 2023), one of the highest in Germany.

How to Pay

  • Property tax bills are issued annually by the city of Cologne.
  • Payments are typically made quarterly (January, April, July, October).

Local Considerations

  • Cologneโ€™s high property tax rate reflects the cityโ€™s efforts to fund public services and infrastructure.

4. Trade Tax (Gewerbesteuer)

Who Pays?

  • Businesses operating in Cologne are subject to trade tax.

Rates

  • The trade tax rate is calculated as:
    • Taxable Income ร— 3.5% (base rate) ร— Municipal Multiplier (Hebesatz).
    • Cologneโ€™s municipal multiplier is 475% (as of 2023).

How to File

  • Businesses must register with the local tax office (Finanzamt Kรถln) and file trade tax returns annually.

Local Considerations

  • Cologneโ€™s trade tax rate is relatively high compared to smaller towns, reflecting its status as a major urban center.

5. Capital Gains Tax (Kapitalertragsteuer)

Who Pays?

  • Individuals earning income from investments (e.g., stocks, bonds, savings accounts) are subject to capital gains tax.

Rates

  • 25% flat rate on capital gains.
  • Solidarity Surcharge (5.5%) and Church Tax (9%) may also apply.

Exemptions

  • The first โ‚ฌ1,000 (โ‚ฌ2,000 for married couples) of capital gains is tax-free.

How to File

  • Banks and financial institutions typically withhold this tax at the source. If not, you must declare it in your annual tax return.

6. Inheritance and Gift Tax (Erbschaft- und Schenkungsteuer)

Who Pays?

  • Individuals receiving an inheritance or gift in Cologne.

Rates

  • Rates range from 7% to 50%, depending on the value of the inheritance/gift and the relationship between the giver and recipient.

Exemptions

  • Spouses and children benefit from higher tax-free allowances.

Local Considerations

  • Cologne follows federal inheritance tax laws, with no additional city-specific rules.

7. Other Taxes

Dog Tax (Hundesteuer)

  • Dog owners in Cologne must register their pets and pay an annual tax:
    • โ‚ฌ156 per year for the first dog.
    • โ‚ฌ312 per year for each additional dog.
    • Higher rates apply for certain breeds classified as dangerous.

Broadcasting Fee (Rundfunkbeitrag)

  • All households in Cologne must pay a monthly fee of โ‚ฌ18.36 to fund public broadcasting services.

8. Filing Taxes in Cologne

Local Tax Office (Finanzamt Kรถln)

  • Cologne has several tax offices depending on your district. You can find your designated office on the official website of the Finanzamt Nordrhein-Westfalen.

Documents Needed

  • Tax ID (Steueridentifikationsnummer).
  • Proof of income (e.g., payslips, invoices).
  • Receipts for deductible expenses (e.g., childcare, medical costs).

Tax Advisors (Steuerberater)

  • Hiring a tax advisor is common in Germany, especially for newcomers. They can help you navigate the complex tax system and maximize deductions.

9. Deadlines

  • Income Tax: July 31 of the following year (or February 28/29 with a tax advisor).
  • VAT: Monthly, quarterly, or annually, depending on revenue.
  • Property Tax: Quarterly (January, April, July, October).
  • Trade Tax: Annually.

10. Tips for Newcomers

  • Register Your Address: Within 14 days of moving to Cologne, register at the Bรผrgeramt to receive your Tax ID.
  • Understand Deductions: Common deductions include work-related expenses, childcare, and health insurance.
  • Learn German: While many tax advisors speak English, most official documents and systems (e.g., ELSTER) are in German.
  • Seek Professional Help: The German tax system is complex, and a tax advisor can save you time and money.

By understanding these tax categories and procedures, you can ensure compliance and make the most of available deductions while living or working in Cologne.