Germany: 036. Tax-Saving Tips in Brief

Last Updated: 1 December 1995
KPMG Germany Webpage
Click on the above link to visit the KPMG Germany webpage on the Mondaq website
For disclaimer and copyright see end of this article.

The following is a list of tax-saving possibilities some of which are applicable to almost everybody.

1. Office in the home
At present, all costs attributable to such an office, including depreciation if the home is self-owned, can be deducted for an office consisting of a separate room (preferably not one though which one must pass to reach another room). The office must contain only work-related furniture and objects (e.g. no beds, private books, etc.). The tax authorities are entitled to inspect the room. The 1996 Tax Act (see our articles on this subject) places tight restrictions on deductions for home offices, however.

2. Business travel using your car
Travel costs are deductible at DM 0.52 per driven kilometre without proof of actual cost. Actual cost may also be calculated and proven. For leased cars, an up-front payment in the first year may be included in full in calculating total first year cost. Proof of actual cost requires a vehicle logbook.

3. Second households
"Reasonable" rent can be deducted for a second household maintained at one's place of work in addition to the family home. A ruling by the Duesseldorf Central Tax Office holds approx. 60 m2 living space to be a "reasonably" sized second household. If your apartment is larger, perhaps part of it can be used as a home office. Deductions for second households are limited to two years under the 1996 Tax Act. The time prior to 1996 counts towards this limit.

4. Parking fees
Parking fees at your regular place of work are included in the standard deduction of DM 0.70 per kilometre of one-way distance between your place of work. Parking fees for business trips or for persons with changing places of work are in addition to the standard deduction of DM 0.52 per driven kilometre.

5. Life insurance
If an employer takes out a qualifying life insurance policy on the life of an employee, premiums paid by the employer can be taxed at a flat rate of 15 %, to rise to 20 % in 1996. The maximum premium amount is currently DM 3,000, rising to DM 3,408 in 1996. An existing employee insurance policy can be converted into an employer policy. Salary payments can in principle also be converted into insurance premium payments. The tax savings can amount to roughly as much as half of the amount converted into insurance premiums.

6. Moving costs
Moving costs are tax deductible if work-related, e.g. cost of occupying a second household near the place of work, cost of abandoning this household when the work terminates, and cost of moving the primary household to the place of work. There are a variety of standard moving deductions, but higher actual costs can always be itemised. Costs of moving to a location closer to work also qualify if commuting time is reduced by one hour or more or if working or driving conditions are materially improved by the move.

7. Employer loans
Interest-free or low-interest loans lead to no taxable benefit up to DM 5,000 per employee. For other loans, irrespective of amount, an interest rate of at least 6 % is necessary (and sufficient) to avoid a taxable benefit.

8. Tax-free employer payments
The following are examples of payments which can be made tax-free to employees:

-- Payments for attendance of pre-school children of employees in kindergartens or day-care centres, if paid in addition to regular salary.

-- Bonuses for marriage or birth of children of up to DM 700 within three months before or after the marriage or birth, if paid in addition to regular salary.

-- Bonuses for long-term service of DM 600, DM 1,200 and DM 2,400 depending on length of employment, subject to certain conditions (sec. 3 LStDV). The payment must again be in addition to regular loan. If the limits are exceeded, the excess is a payment for multiple year work and is taxed at a reduced rate.

9. Settlement payments
Settlement payments up to DM 24,000 are tax free on termination of an employment relationship if the termination is either initiated by the employer or pursuant to court judgement. The exemption limit rises depending on age and duration of employment (to DM 30,000 at age 50 after 15 years of service and to DM 36,000 at age 55 after 20 years of service). Amounts in excess of the limits are taxed at half of the average tax rate.

10. Employee-funded pension schemes
The tax authorities now permit conversion of salary into pension rights with deferred taxation, provided a number of conditions are met. The tax deferral advantages can be quite significant.

11. Home ownership benefits despite income exceeding prescribed limit
The current tax incentives under sec. 10e EStG (and in some cases still under sec. 34f EStG) are denied to taxpayers with income before personal deductions exceeding DM 240,000 for joint filers and DM 120,000 for single filers. Since, however, each spouse is entitled to benefits (though not with respect to the same house), it may be possible by electing to file separate returns for the spouse with the lower income (if under DM 120,000) to claim the benefits which would not be available at all on a joint return basis. Disadvantages from loss of marital splitting must be carefully calculated, however. The same technique may be of use under the new home ownership subsidies taking effect in 1996.

12. Home tax subsidies and home offices
Since the subsidies are calculated based on the cost of the residential parts of the home, costs attributable to home offices are not counted. If this leads to lower benefits, this can be avoided in the first year by not setting up the home office until e.g. one month after first occupancy, since use of the future home office for residential purposes during part of the year is sufficient to obtain its inclusion in the calculation base for the whole year. Be sure to document the residential use (e.g. photographs).

13. Pre-occupancy costs and repair costs in connection with personal home ownership
Deduction in full is possible for certain costs (e.g. interest) incurred in the period between purchase (end of construction for self-built homes) and first occupancy (pre-occupancy costs). Repair costs in the pre-occupancy period can also be deducted (but not improvement costs). Deductible repair cost is limited to DM 22,500 or 15 % of acquisition cost, whichever is lower.

14. Cable connection costs in home qualifying for sec. 10e subsidies
These costs can be deducted as pre-occupancy costs.

15. Improvement vs. repair/maintenance
Recent decisions of the Federal Tax Court treat work in different stories of a building to be improvement in full (cost must be depreciated), not repair (entire cost deductible year incurred) if the work includes improvements and is interrelated, even if, taken in isolation, some of it would otherwise have been repair work. Another decision holds any enlargement of usable space, no matter how slight, to constitute an improvement.

16. Church tax ceiling agreements
Taxpayers will receive upon request (but not otherwise) a limitation of their church tax to 3 % - 4 % of taxable income from the Catholic and Evangelical Churches in most States (but not in Bavaria and Mecklenburg-Vorpommern). The request should be addressed to the diocese (Catholic) or State church organisation (Evangelical) after receipt of the income tax assessment notice, a copy of which should be included.

17. Spouses employing each other
Interspousal employment relationships for reasonable compensation will be recognised if the subject of a clear and unequivocal advance written agreement as long as they involve services relating to the other spouse's income-earning activities. Aid which can be expected from family members without remuneration (washing clothes, answering telephone, etc.) does not qualify. Typing manuscript or proofreading for an author-spouse are examples of qualifying services. For joint filers, such employment yields an additional standard deduction for the employee-spouse (DM 2,000).

18. Transfer of deduction for dependent children of divorced parents
The spouse paying all of the support payments to a child having reached the age of majority can obtain the full deduction for the child and the associated education cost deduction even if the child lives with the other spouse provided this spouse has no income of his or her own and pays no support to the child. The child must also have a legal right of support against both spouses, which is generally the case for children still completing their education.

19. Damage to cars from storm and flood
Such damage is deductible as an extraordinary personal expense if the loss is high enough in relation to income to constitute an objective hardship.

20. Outside activities
Outside activities (e.g. painting, renting oldtimer cars) can lead to tax deductible losses if the intent to earn a profit can be established.

21. Amendment to non-appealable assessment notices
Assessment notices which have become final can be changed if "new circumstances" are discovered not known at the time the assessment was issued. If these new circumstances favour the taxpayer, they can lead to issuance of a revised assessment provided the taxpayer was not grossly negligent in failing to disclose the matter in the first place. A possibility thus exists to claim a benefit which one forgot in filing the return even after the assessment notice is no longer appealable.

Disclaimer and Copyright
This article treats the subjects covered in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. Specialist advice must be sought with respect to your individual circumstances. We in particular insist that the tax law and other sources on which the article is based be consulted in the original, whether or not such sources are named in the article. Please note as well that later versions of this article or other articles on related topics may have since appeared on this database or elsewhere and should also be searched for and consulted. While our articles are carefully reviewed, we can accept no responsibility in the event of any inaccuracy or omission. Any claims nevertheless raised on the basis of this article are subject to German substantive law and, to the extent permissible thereunder, to the exclusive jurisdiction of the courts in Frankfurt am Main, Germany. This article is the intellectual property of KPMG Deutsche Treuhand-Gesellschaft AG (KPMG Germany). Distribution to third persons is prohibited without our express written consent in advance.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions