Germany is the Europe’s biggest economy and one of the richest countries in Europe. It is wealthy not only in GDP per capita terms but also in terms of average personal income. The country is famous for its affluent middle class, generous welfare system, free healthcare and education, clean environment, public safety and generally fair and even distribution of wealth. Therefore, Germany is also highly regarded for its great quality of life.
Average Gross Salary
An average gross salary in Germany in 2016 was 3,660 euros a month for full time employees (self-employed, part-time jobbers and people with very low income below the taxable level were not included in these statistics). That is around 44,000 euros a year gross (before income tax and social contributions).
Major differences in income levels still exist between the East and the West. The average salary in the old federal states is about 100 euros above the national average whereas people in the former East Germany earn on average around 2,840 euros a month (excluding the city state Berlin because Berlin is not considered one of the new federal states). Employees in the southern federal states – Hessen (capital Wiesbaden), Baden-Württemberg (Stuttgart) and Bayern (Munich) – have the highest average wages whereas those in the new states – Mecklenburg-Vorpommern (capital Schwerin), Sachsen-Anhalt (Magdeburg) and Brandenburg (Potsdam) – have the lowest salaries. In fact, employees in the federal state Hessen earn on average 47% more than their counterparts in Mecklenburg-Vorpommern.
Furthermore, German men earn on average nearly 20% more than women. There are also differences in income levels between the regional capitals (and large cities in general) and rural areas but these are less significant than differences between men and women or between the old and new federal states. By far the biggest difference is in Bayern (Bavaria) where the average salary in the capital Munich is 7% above the state average.
|Who earns how much in Germany||Euros a year|
|Waiter (tips are not included)||20K|
Personal Income Tax
Germany has a rather complicated taxation system and personal income taxation is no exception. There is a progressive personal income tax rate starting from zero and ending at 45% for high-income individuals earning more than a quarter of a million euros a year. The tax rates 42% and 45% are flat within their respective brackets whereas within the 8,653-53,665 euro bracket the tax rate rises geometrically from 14% to 42% (see below).
Personal Income Tax Rates for 2016
|Singles (EUR)||Married Couples (EUR)||Tax Rate|
|0 – 8,652||0 – 17,304||0%|
|8,653 – 53,665||17,305 – 107,330||Starting at 14% and geometrically increasing to 42%|
|53,666 – 254,446||107,331 – 508,892||42%|
|Above 254,446||Above 508,892||45%|
There is also an additional type of income tax, the so-called solidarity surcharge of 5.5%, which comes on top of the regular income tax and is paid only by higher income individuals in the old federal states whose average tax rate is above 25%. Solidarity tax was introduced in 1991 as a temporary measure to help finance the costs of German unification but there are no immediate plans for removing it.
Moreover, a church tax, which is either 8% or 9% (depending on the federal state) of taxable income, is payable by all registered church members in Germany. To confuse you even more, the amount paid as church tax is fully tax deductible. A foreigner who does not wish to pay a church tax in Germany should never mention their church affiliation in any official document (e.g., in residence registration). Otherwise, Roman Catholics and Protestants will most likely need a written proof (a certificate) that they quit the church in order to avoid paying the German church tax.
The German personal income tax law allows for a number of tax deductions, both related and non-related to taxable income, such as training and commuting expenses, dual household costs, work-related insurance costs, contributions to voluntary health insurance and pension schemes, church tax and a variety of expenses related to bringing up children (e.g., childcare, school fees).
This example may give you an idea of how much you would have to pay in taxes if you lived in Germany. A person who has an average German gross salary of 44 thousand euros per year, is single and is not a registered church member (pays no church tax) earns a net salary of 27 thousand euros per year. However, if that person had a spouse who earned significantly less, their net salary would be nearly 31 thousand euros a year. Using the same example but a gross annual salary of 60 thousand euros, the person’s net income would be 35 thousand and 40 thousand euros, respectively. Likewise, at 80 thousand euros a year the difference in net salary would be 45 thousand versus 52 thousand euros. To estimate your potential net salary you can try one of many German gross-net wage calculators available on the internet (e.g., this one).
Cost of Living in Germany
Germany’s price level is generally in line with the EU average. That is, life in Germany is less expensive than in the neighbouring Luxemburg, Switzerland, Denmark, Belgium and even France and Netherlands, or in the Nordic states (Norway, Sweden and Finland), but it is more costly than in Spain, Portugal or Greece. Monthly living costs in Germany are usually estimated at 800 euros (sometimes at 725 euros for international students). This is approximately the monthly amount you will need to prove you have for the duration of your stay when applying for a certain type of visa (e.g., study visa, jobseeker’s visa).
Rent is the single biggest cost, which is not surprising considering the density of population in Germany. Home ownership in Germany has been traditionally relatively low in the past as most people used to live in rental apartments. This has changed recently as many Germans fearing stability of their currency and encouraged by low interest rates bought properties. In addition, Germany has experienced a sharp increase in net immigration since 2010 which lead to an increased demand for properties. As a result, property prices have seen a steady growth over the past five years. The good news is that rents have risen less than property prices.
However, rents vary wildly depending on the location. A small studio flat can cost as little as 350 euros a month including utility bills in a small town but it can be over 1,000 euros in central Munich. Likewise, rent for a two bedroom apartment can be as low as 600 euros a month (including utilities) but as high as 2,000 euros. Generally, 650 euros a month should be enough money to rent a studio flat (including utility bills) and 1,150 euros a month to rent a mid-sized two bedroom flat (85 square metres) in a decent location in most parts of Germany. Currently, the average apartment rent in Germany is eight euros per square meter (excluding utilities). Read this report for a lot more information on the residential rental market in 29 major German cities.
When renting a flat, it is necessary to factor in further expenses other than simple rent. A tenant will be typically asked for a security deposit (usually worth one month’s rent but it can be up to three months) and a broker fee equal to one month’s rent if they use a real estate agent. In addition, rent is usually paid in advance (always at the beginning of each month) and it is not uncommon to be asked to pay Ablöse (compensation for investment made by the previous tenant). This can be up to several thousand euros if the previous tenant made significant improvements in the flat. Hence, the new tenant pays Ablöse to the outgoing tenant rather than to the landlord. It is common that tenants make small improvements in the rented apartment such as installing lighting and buying their own furniture (sometimes even the whole kitchen including a cooker, fridge, dishwasher and sink).
Just like rents, German property prices vary significantly between regions and towns. For example, the average apartment price per square meter in the formerly heavy-industrial Dortmund (the eighth largest German city with a population of 600 thousand located in Western Germany) is below 2,000 euros. Compare this with 5,400 euros per square meter in notoriously expensive Munich (the capital of Bavaria and the third largest German town with a population of 1.5 million located in Southern Germany). It goes without saying that a new or newly renovated apartment in one of Munich’s prime locations will cost you a lot more than 5,400 euros per square meter. However, in general, 3,000 euros per square meter should buy a decent apartment in most other parts of Germany.
Germany’s public transportation system in and around towns is extremely reliable, efficient and reasonably priced, especially if you buy discounted monthly, quarterly or yearly travel cards. Commuting costs are tax deductible and that is also true when using one’s own car. When doing a tax return, people driving their own car to work can deduct 30 cent per kilometre whereas one litre of gasoline and diesel cost between 1.30-1.40 and 1.10-1.20 euros, respectively (March 2017). Used cars in Germany are among the least expensive in Europe.
Food, Clothing and Other Costs
Your monthly expenses on food will largely depend on your lifestyle, whether you like eating out or making your own meals. In general, food prices in supermarkets are very reasonable in Germany. In addition, large German employers offer meals at a reduced price in their own canteens. Likewise, clothes can be bought very cheap in Germany. However, some foreigners may find prices of certain services such as private childcare, dry cleaners, hairdressers or residential parking quite high when compared with prices in their home country.