Taxes in Germany vs UK: Let’s Compare!
Germany and the UK are arguably the best places to work in Europe! Yet, they have very different tax systems and rates, where an unaware person might accept the job offer without knowing how much they will take home. Thus, a similar income in both countries can bring different results.
You pay higher taxes in Germany than in the UK. An employee earning 70,000 EUR annually before taxes owes 29,219 EUR in Germany and 19,857 EUR in the UK in taxes. Hence, living in the UK will save a significant amount on taxes.
Whether you are a UK employee working in Germany, a German employee in the UK, or just curious about which country has the lower taxes, this article is for you. Here, we explain & compare what taxes and how much people pay in both countries.
Are taxes higher in UK or Germany?
The latest survey has found that someone with a salary of £100,000 pays 34.3% in taxes in the UK and 38% in Germany. These include income taxes, social security, and all other obligation an employee has. However, this data is quite subjective, and the factual tax rate depends on a case-by-case basis.
Married taxpayers with children can significantly reduce their tax burdens in Germany by filing their income under an appropriate tax class.
Considering high social taxes in Germany, most employees end up paying higher taxes there.
The big difference by far is that German residents who follow their religion pay extra 8-9% in taxes just to contribute to the church.
Only a few countries in the world have church tax and, in particular, that high. Yet, there is a way to avoid paying this tax, but the procedure might be somewhat challenging and risky. In the UK, you can save your money on that.
What country is better for living, the UK or Germany? Read in this article!
Taxes in Germany vs UK
Here are examples of how much a single taxpayer without children will pay in both countries:
| Salary | After-tax | Tax rate |
|---|---|---|
| Germany | ||
| £25,000 | £18,923 | 24.3% |
| £40,000 | £27,256 | 31.8% |
| £100,000 | £61,740 | 38.3% |
| The UK | ||
| £25,000 | £20,279 | 18.9% |
| £40,000 | £30,480 | 24.8% |
| £100,000 | £65,780 | 34.3% |
Consequently, higher earners, in particular, pay lower taxes in the UK than in Germany.
Taxes in Germany
Germany isn’t known to be tax heaven, opposite of that; German taxes are pretty high compared to the world’s rates.
Basic income tax rates range from 14% to 45%. Employees also have to pay extra taxes for social benefits, including pension, healthcare, unemployment, and care.
Together, taxes and social contributions take away around 30% – 42% of the employee’s gross salary.
Income tax in Germany is progressive. Very high-income levels are taxed at 45%.
Who is tax-liable in Germany? German residents are taxed on their worldwide income and assets. In contrast, German non-residents are only taxed on income generated in Germany.
Generally, you become a tax resident when spending more than 6 months or intending a permanent establishment in Germany.
As a single with no kids and being 28 years old, making a 70,000 EUR a year, you will pay the following taxes while working and living in Germany (EUR):
- Income tax: 14,968
- Church tax: 1,197
- Pension: 6,510
- Unemployment: 840
- Health insurance: 4,614
- Care: 1,088
- Total tax: 29,219
- Net income: 40,780
- Rate: 41,74%
Consequently, you just paid 29,219 EUR in total in taxes on your gross income of 70,000 EUR, which is a very substantial amount. Your tax rate is 41,74%, which is higher than if it were in the UK.
German income taxes
Income taxes will take up a significant part of your salary in Germany. They are deducted from your gross monthly pay automatically by the employer.
The German income tax rate is between 14% and 45% of the gross amount. The rate is increasing with the increase in earnings. You can claim some amount back by submitting a tax return at the end of the year.
There is also a tax-free amount, where you don’t have to pay any taxes at all. In 2022, it’s 10,347 EUR. You can see the income brackets and applicable tax rates in the table below.
Personal income tax rates in Germany in 2023:
| Income (EUR) | Tax Rate |
|---|---|
| up to EUR 10,347 | 0% |
| EUR 10,347 – EUR 61,971 | 14% rising progressively to 42% |
| EUR 61,971 – EUR 277,825 | 42% |
| from EUR 277,825 | 45% |
Taxes are calculated linear progressively, which means different percentages apply for different amounts. Hence, the rate of 18%, 25%, or 30% is also possible.
Overall, income taxes and social security contributions take up about 35% – 50% of the employee’s gross salary in Germany.
Hence, the annual gross salary of 50,000 EUR will leave you around 30,891 EUR per year or 2,560 EUR per month. You pay about 38,4% of your income in taxes. This tax rate applies to a 26-year-old single without children.
You can easily calculate your net salary by using this tool.
As an employee in Germany, you will pay between 35% and 45% of your monthly income, depending on your marital status. Where:
- Income taxes – between 14% to 45% linear calculated
- Health insurance – 14,6% of your gross salary in total (paid half by you and half by the employer)
- Retirement insurance is levied at 19,6% of gross salary, of which half is paid by the employer and half by the employee
- Church tax – between 8% and 9%
- Solidarity surcharge – 5,5%
- Unemployment insurance – 3% (paid half by you and half by the employer)
- Nursing insurance for disability and old age – 3%
German social taxes
In Germany, besides income taxes, employees and employers must pay social security or payroll taxes. These lie in the responsibility of the employer. They will automatically make monthly deductions, so as a worker, you don’t have to do anything.
Deducting social contributions is the employer’s job if you are an expat, but business owners and freelancers have to deal with it on their own. Social security in Germany includes:
- Pension insurance (Rentenversicherung) – 9,3%
- Unemployment insurance (Arbeitslosenversicherung) – 1,2%
- Public health insurance (Krankenversicherung) – 7,3%
- Nursing insurance for disability and old age (Pflegeversicherung) – 1,525%
These contributions are shared by the employer and employee equally. Those percentages indicate only the amount that the employee is paying. Your company pays another half. However, self-employed will have to cover the entire levy on their own.
The total contribution for social security generally amounts to around 20 – 22% of your salary up to a specified maximum limit.
In addition, everyone in Germany has to pay a solidarity surcharge of 5,5%, and those attending the church – a church tax. Church levy varies depending on the region; for example, in Bavaria, it’s 8% of your gross income.
Since you are paying social taxes, you can also use the social benefits provided by those funds. For example, a foreign employee will be able to claim an unemployment benefit of 60% of their net salary after working in Germany for at least 12 months.
Employees and self-employed can choose between paying social taxes for health insurance or taking out a private coverage instead. The premium of private health insurance doesn’t depend on income. That often makes premiums cheaper, especially for high earners.
For private insurance, we recommend Ottonova and Feather. Their policies are tailor-made for expats, freelancers, and business owners in Germany.
Simplify your taxes in Germany
If you want to make German taxes easier for you we recommend using the app Sorted. As a freelancer or self-employed, you can manage all your taxes, invoices, expenses & income, and submit all papers to the German tax office.
It’s a free app that makes our lives easier. Check it out.
Taxes in the UK
The UK is pretty lucrative regarding taxes, including business and personal rates. You will pay significantly fewer taxes than in many other European countries – just about 24,90%. Taxes and social security contributions take around 25% of the employee’s gross salary.
With an average annual salary of £35,000, you will take home £27,464. Hence, you just paid around 22% in taxes.
At the same time, the most common income tax rate is 20%, and the social security levies vary between 0% and 13,25% of the gross salary, depending on the level and class of income. Employers also pay a share.
British social insurance includes unemployment, sickness, disability, occupational accidents, occupational diseases, maternity, widowhood, and pensions.
So how much do Brits pay in taxes?
Let’s take the same 70,000 EUR or £59,519 as an example of how much an average employee pays in taxes in the UK.
As a single with no kids and being 28 years old, making a £59,519 a year, you will pay the following taxes while working and living in the UK:
- Income Tax: £11,236
- National Insurance: £5,652
- Total tax to pay: £16,888
- Net income: £42,630
- Rate: 28,37%
Consequently, you only pay £16,888 from an annual salary of £59,519. Taxes are significantly lower in the UK than in Germany.
UK income taxes
In the UK, the so-called “pay as you earn” (PAYE) system applies when it comes to income taxes. The tax-free amount is £12,570 per year, which is higher than in most other countries.
UK income tax – between 20% and 45% (20% is the most common). Yet, most people pay 20% in income tax and 13,25% in social security.
Generally, there are three income tax rates (slightly different rates apply in Scotland). You can see rates for 2022 – 2023 below.
| England/Wales/Northern Ireland tax band | Taxable income | Income tax rate |
| Personal allowance | Up to £12,570 | 0% |
| Basic rate | £12,571–50,270 | 20% |
| Higher rate | £50,271–150,000 | 40% |
| Additional rate | £150,001+ | 45% |
UK social taxes
UK residents pay social taxes (NICs) in addition to income tax. For employees, National Insurance is deducted from the gross salary by the employer through PAYE. Self-employed people will need to submit a self-assessment tax return.
National Insurance contributions (NICs) consist of certain state benefits, e.g., healthcare, pension, Employment Support Allowance, and bereavement benefits.
An employee pays 13,25% of all income to the National Insurance fund. The rate applies to earnings in the basic rate, and an additional 3,25% is changed for higher earners (above £4,189 per month).
At the same time, the employer contributes another 15,05% (2022) to the national insurance on behalf of the employee. Expats can sign up for private health insurance, saving them money.
For example, if you earn £4,000 a month or £48,000 a year, you pay:
- nothing on the first £9,568
- 13,25% on the next £38,432
- total in social tax: £5,092
| Your annual salary | Class 1 National Insurance rate |
|---|---|
| Less £9,568 | 0% |
| £9,568 – £50,270 | 13,25% |
| Over £50,270 | 3,25% |
From 6 July 2022, the national insurance threshold will increase from £9,568 to £12,570, the same as with income tax.
Social taxes for self-employed
In the 2022-2023 tax year, self-employed pay 10,25% to national insurance on earnings between £9,880 and £50,270. An additional rate of 3,25% applies to the income above that level.
Alternative to the national insurance in the UK
Read more about healthcare in the UK in this article.
VAT or Sales Tax
Germany
In Germany, VAT is 19% on most goods and services. For some items like groceries, hotel accommodation, or books, a reduced rate of 7% applies.
The UK
VAT in the UK applies to most goods and services. The standard rate is 20%. A reduced VAT rate of 5% applies to some goods and services, e.g., children’s car seats and home energy.
Many items are VAT exempt or have a 0% rate, including most food and children’s clothes, postage stamps, and financial and property transactions.
VAT also doesn’t apply to insurance, health care, and education.
