Summary

Germany has a comprehensive social security system which provides a full range of old age, invalidity, sickness, unemployment and other social benefits, including family allowances and income guarantees. Entitlement to benefits generally derives from an individual’s contribution history, although some benefits arise due to residence in Germany.

Details

Contributions

The headline contribution rates are 19.3% for employers, and the same for employees. However there are income caps applicable to the different branches of social security (and no social taxes are payable at all on income over €85,000 per year), such that the maximum employee contribution per year is approx. €14,500, and very slightly more for employers. The contribution caps applicable to German social security can make it advantageous for high salaried employees from agreement countries to fall into Germany social security rather than continue to pay home contributions.

Treaties

Germany has social security agreements with all European Economic Area countries and 20 non EEA countries, including China, the US, Canada, Australia and India. These agreements determine which country has the right the levy social security contributions, has the obligation to provide benefits, and prevent social security being levied twice on the same income. Most inbounds expatriates to Germany therefore continue to pay home country social security rather than German contributions.

The German authorities have a relatively accommodating approach to individuals who seek to extend their home country coverage under the above agreements beyond the usual limit of five years.

Exemptions

Germany allows deductions for a variety of expenses (both work related and in connection with private insurances for unemployment, disability, accident etc). In practice because of the income cap on social security calculations these deductions only benefit lower paid employees.

Administration

Higher paid employees have the choice to pay private health insurance rather than contribute to the state health system. This adds complexity to withholding processes as although the rates are prescribed, the plan to which the employee contributes is their choice. There are more than 100 such providers. All other elements of social security contributions are calculated and withheld/paid over from payroll.

Benefits

Pension benefits can be drawn from age 65 and are based on years of contributions. Other benefits are generally dependent on the payment of premiums (eg unemployment benefit requires contributions in one out of the last five years (in Germany or anther EU state).

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