11th January 2021
The situation in each country, regarding travelling and contracting, is changing almost on a daily basis, mainly as a consequence of Covid, and the information contained in this blog may not be as accurate at the time of reading as it was at the time of writing. Please check with an expert before committing.
Germany is certainly a hub of activity and interest for contract professionals – in fact, even during a global pandemic, demand for independent experts increased. But contracting in Germany isn’t without its challenges. As we mentioned in an earlier blog post, operating compliantly in the country is a real compliance nightmare and we highly recommend that anyone seeking contract work in Germany does so under the guidance of an expert.
But with the European destination presenting a wealth of opportunities for many professionals, it’s certainly a location to keep your eye on. In our latest blog, we take a look at some of the latest developments in Germany that contractors should be aware of.
Solidarity surcharge changes
The solidarity surcharge (Solidaritaetszuschlag) – Soli for short – is a 5.5% supplementary rate on income tax that was initially introduced to contribute towards the costs of reunification in the country.
According to recent news, though, the threshold for this tax is being drastically changed to ensure that fewer people fall into the payment bracket. As of January 2021, parents with two or more children will only be subject to this tax if their combined earnings are over 151,000 euros each year. Those who are single taxpayers are only required to pay this fee if their annual income is in excess of 611,700 euros.
This is the latest move in abolishing Soli in Germany, with reports from November 2019 revealing that some people – including self-employed individuals that met a specific criteria – would either be exempt or not have to pay the full amount.
Home office tax rebates
With the pandemic impacting everyone, the German government has revealed plans to offer a new tax bonus this year. The move – designed to offset the additional costs that some professionals have faced in running an office from their own home, will see individuals able to claim up to five euros in tax deductions for every full day worked from home in 2020.
This rebate will be available from 2021 onwards and will be capped at 600 euros per year – certainly welcome news for those still facing an extended period of remote working.
Social security contributions
While the social security requirements of contractors in Germany will vary depending on how you are contracted, it is worth knowing that there are a number of planned changes to social security this year. Of particular note is the fact that the contribution thresholds will change which means that anyone currently paying social security could see the amount increase. The limit for statutory health insurance threshold will increase to 58,050 euros per year – which means that contributions will increase for anyone earning over 4,837.50 euros each month.
There are also plans to increase the compulsory health insurance limit to 64,350 euros a year. For anyone who could face larger payments as a result of this, it may be worth looking into private health insurance options instead. However, as always, you should seek expert advice to ensure you are claiming the right insurance that is relevant for you and your circumstances – particularly if you are an international contractor.
Transport taxes
While there are limited travel options in and around the country at the moment due to Coronavirus restrictions, for anyone thinking of contracting in Germany in the near future it is worth noting that there have been some changes to vehicle taxes if you’re planning an extended stay.
In a bid to support green energy initiatives, authorities have extended tax exemptions for anyone who owns an electronic vehicle. So, if you own an electric or fuel-cell car – that’s not a hybrid – you do not have to pay vehicle tax until the end of 2030.
VAT increase planned, but some utility costs to drop
If you intend to relocate to Germany for a set time, there are also some planned changes which could impact the cost of living. Following a cut in VAT rates last year that was originally designed to encourage consumer spending, VAT returned to 19% as of 1st January 2021. For items that are subject to the reduced rate, including some foods and everyday consumer items, the rate has also now returned to the original 7% – up from the 5% last year.
While VAT is increasing, the cost of electricity could potentially drop if electricity providers pass on savings to the consumer that these firms are set to make themselves due to the reduction in the renewable energy surcharge. While there’s no confirmation that these businesses will do this, if they choose to, each household could save around 30 euros each year.
Contracting in Germany – find an expert
The above are just a handful of examples of developments which could impact contractors in the coming year. However, this is by no means an exhaustive list and with the compliance landscape in Germany incredibly complex and highly regulated, we strongly advise contractors to seek expert guidance.
Why not contact the team today to find out how they can support you, no matter where in the world you’re operating?