Foreigners moving to Germany have to clarify their tax and social security situation; this is even more important for people with a high income. As an owner of a company or as an employee everyone should be very much aware of the social security obligations in Germany. There are some issues that need to be pointed out:
The German social security costs (financial contributions) are in the list of the top five in Europe. Half of the contributions have to be paid by the employer and the other half by the employee. The rates of the social security costs are determined by percentage of the gross wage:
- Health insurance (Krankenversicherung): 7,3% – employer/ 7,3-8,5% – employee
- Nursing care insurance (Pflegeversicherung): 1, 275 % – employer/1,275-1,525 % – employee
- Pension insurance (Rentenversicherung): 9,35 % – employer/ 9,35 – employee
- Unemployment insurance (Arbeitslosenversicherung): 1,5% – employer/ 1,5%- employee
- The approx. 1,25 % of accident insurance is paid only by employer
There are possibly federal and local additions that can affect the costs.
It might seem high with total costs of around 20% of the gross wage for employer and employee, but the contributions are capped at a certain amount (for 2017):
- Maximum income base for the health and nursing care insurance: € 52.200 (in the year) resp. € 4.350 (per month)
- Other parts of social security: € 76.200 (in the year) resp. € 6.350 (per month) in the west part of Germany and € 68.400 (in the year) resp. € 5.700 (per month) in the east part.
The outcome of this is to decrease the burden of high incomes in a sliding scale. Any extraordinary income i.e. bonuses, stock options, tantiem or similar will usually not be subjected in total to social security contributions, once the maximum limit is reached.
If you, as an expatriate, already are insured in your home country and your monthly salary in Germany exceeds EUR 4,575 per month (EUR 54,900 yearly) you get qualified for a special condition in German social security regulations: You can choose to keep your home coverage and avoid double insurance costs or you choose to be privately insured in Germany.
Employees are required to have social security insurance in Germany. Entrepreneurs (self-employed) need to fulfill certain conditions for German pension insurance.
Everyone working in Germany is automatically a subject to the German social security system, regardless of citizenship or residence. There are some exceptions to the rule for employees with a temporary employment or those working in different countries.
There is a clear separation between the German social security system and the German tax system. Both systems handle their own operations. Payments to the social security insurance are collected and authorized by health insurance companies regulated by German law.
In 2014 there were 132 different health insurance companies in Germany! Every employee can choose freely amongst them. Therefore the employer might have to report to more than one social security company and maybe even to a great number of them or all.