Deducting donations from taxes in Germany
If you are paying revenue tax in Germany, the German federal government can support you financially with your donations, in the form of reductions in your revenue tax. The process is not particularly complicated, but not well documented in English on the Internet. Here is how it works, based on my readings online, my understanding, and my own experience.
(I am not a lawyer. I share this information in good faith. It may not be accurate.)
Which donations are eligible?
Donations to non-profit organizations working for the public good in the European Union are eligible for tax deductions in Germany. Either the organization is eligible, or it is not; there is no grid or graduation. The government must consider every donation you declare for eligibility; it may then accept or refuse them.
Membership fees to non-profit organizations working for the public good are considered as a donation. In general, if you receive a donation receipt from the receiving organization, it is safe to assume the donation is eligible. If in doubt, contact the receiving organization to check their eligibility status with them.
How much help will you get?
The sum of your donations is subtracted from your yearly taxable income. The donations will therefore result in a decrease in both your income tax (Lohnsteuer) and solidarity tax (Solidaritätszuschlag).
For relatively small donations (e.g. 100 euros), this means that the amount of help received from the Government corresponds to your marginal tax rate (the tax rate at which the last 100 euros were earned). As a researcher in a public university, my marginal tax rate reaches up to about 35% when working full-time. For my first donation of 200 euros, I get approximately 70 euros back as a tax deduction.
Determining your marginal tax rate (Grenzsteuersatz) is not particularly easy. The German marginal tax rate depends on the taxable income, an amount which is neither indicated in your pay slips, nor on your yearly tax bulletin (the Lohnsteuerbescheinigung). The taxable income (zu versteuerndes Einkommen) is your gross income minus a number of social contributions (retirement pensions, social security), minus a standard threshold sum. As a researcher in a public university, my taxable income is close to 80% of my gross income when working full-time.
The marginal tax rate varies continuously with the taxable income, which has two interesting consequences. First, the more you earn, and the larger the amount of support you receive from the government. If your income varies with time, then it is in your interest to make those donations on the years when you earn the most. Second, the more you donate, the smaller the amount of support you receive (successive donations are subtracted from slices of your income which are progressively less taxed, e.g. the first donated 5000 euros were taxed at 35%, the next 5000 euros at 32%, and so forth).
Ultimately, donations can only be deducted up to 20% of your taxable income for any one given year. Donations over that amount are carried forward to the following years without any limit in time (this process is automatic).
How is the deduction carried out in practice?
Wait until the fiscal year is over. During this time, your employer declares and pays your taxes for you, assuming no donations took place.
Once the year is over, connect to Elster, the German federal tax website. Note that your “Steuerliche Identifikationsnummer”, which is sufficient to login, is not your “Steuernummer”, which is not always given to you by the German administration. Carry out a modification to your tax declaration. Donations are entered in the rubrics “zur Förderung steuerbegünstigter Zwecke an Empfänger im Inland” and “zur Förderung steuerbegünstigter Zwecke an Empfänger im EU- / EWR-Ausland”.
For donations prior to 2017, once your declaration is complete, you must send the original donation receipts to your local tax office (if you only send copies, they will write back asking for the originals). For all donations over 200 euros, you must also sent a proof of payment (e.g. an excerpt from a bank statement). A short letter with your personal information and a sentence similar to “Anbei finden Sie die Belege, die zu meinen Steuererklärungen für 2015 und 2016 gehören” suffices. In the case of donations outside of Germany, I like to include a short, half-page description of the organization to which the donation was made, to help officials assess whether the organization qualifies for a tax reduction.
For donations made after January 1st, 2017, you must be ready to send donation receipts and proofs of payment in case the tax office requests them. There is no obligation to send those documents spontaneously.
If your donations exceed 20% of your taxable income, the part of donations beyond that amount (called the Verbleibender Zuwendungsvortrag) is carried forward into the following years. The calculation is carried out automatically by the federal tax office. The following year, you simply need to check the tick box that says “Es wurde ein verbleibender Spendenvortrag festgestellt” in your declaration.
The Government is prompt to act and will issue a refund, together with a complete tax bill sent by paper mail, within a few weeks following your declaration. You can work on tax declarations for the past five years, declaring any donations for which you have kept receipts. The German government will treat them equally quickly, and even provide interest on the refunds from former years.
The support provided by German government when you make charitable donations is really substantial. It is in practice hard to predict exactly the amount of support you will receive. Nevertheless, the amount of required paperwork is small. I hope this can encourage you to increase donations correspondingly!