Taxes in Germany

Taxes are payments set by law, without a direct personal benefit in return. They fund public administration, education, infrastructure, security, and social services, among other things. Income tax applies to the taxable income of individuals. For employees, part of it is withheld directly from wages by the employer as wage tax and paid to the tax authorities. Wage tax is not an additional tax on top of income tax. It is a way of collecting tax and is taken into account in a later income tax assessment. VAT is included in the price of many goods and services. People often call it sales tax, while businesses generally have to account for it in their invoices and tax filings. Other taxes are linked to particular transactions, types of ownership, or activities. Examples include trade tax on commercial businesses and property tax in connection with land and buildings. The tax office handles many personal tax matters. The tax identification number is used to identify a person on an ongoing basis and should be distinguished from tax numbers that can change. A tax return brings together tax-relevant income and information for a given period. It may result in a refund, an additional payment, or no significant change. Not every personal expense reduces tax. Only matters recognized under the law can be deducted, and their treatment may vary depending on the expense and personal circumstances. Self-employed people and businesses usually have more extensive record-keeping, invoicing, and filing obligations than employees with no other income. Keeping records in order and getting professional advice early can prevent many practical mistakes.