German social security for expatriates

In general expatriates moving to Germany are interested in their tax situation. For people with high income this is understandable. However, foreign employees and their employers should not ignore social security obligations in Germany. There are certain issues to be considered.

German social security contributions are high. Employer and employee have to pay contributions as a percentage of the gross wage:

There are minor allocations and additional contributions.

The total burden seems high since employer and employee both have to pay about 20% of the gross wage.

However, contributions have to be paid only on certain maximum amounts (for 2015):

This results in decreasing relative levy burdens on higher incomes. The higher the income is, the lower the relative levy burden is. Income over the above mentioned maximum amounts will not be subject to social security contributions. This means that in general extra payments like performance bonuses or benefits like those from stock option plans will not be subject to social security contributions.

For expatriates another special regulation is also of importance. Often they have a health insurance in their home country. If they want to stay in it this might result in a situation of double insurance cover. They pay premiums for their domestic insurance and to German social health. However, an employee is not obliged to be in insured in Germany’s health insurance if his salary exceed € 4,575 per month (€ 54,900 per year) and he is privately insured. Expatriates with salaries exceeding before mentioned amounts can avoid German social health insurance and stay in their private insurance at home without facing double payments.

German social security insurance is obligatory for employees only. However, self-employed persons are subject to German pension insurance under certain conditions.

Every person who works in Germany is automatically subject to Germany’s social security system. This also applies for everybody regardless of citizenship or residence. However there are exceptions for employees being assigned to Germany on a temporary basis or those working in different countries. More about the exception can be found here.

Note

The German social security system is not part of the German tax system. Legally tax and social security regulations are separated from each other. Social security issues are not handled by German tax authorities but by various public or semi-official organisations. Social security payments are collected by authorised health insurance organisations while taxes are collected by local tax offices.

Various semi-official health insurance companies are responsible for the collection of social security contributions. In 2014 there were 132 different health insurance organisations in Germany! Since every employee is free to choose any of the 132 insurance organisations the employer might have to report relevant data to numerous organisations and to pay contributions to these organisations.

In special cases employees are entitled to choose a private health and nursing care insurance. Insurance premiums have to be paid to the private insurance companies.

The accident insurance has to be paid to special semi-official accident insurance organisations. Employers have to report relevant figures once a year to the organisation which is responsible for the business sector of the employer.

For special issues concerning the statutory pension insurance a central federal bureau (Federal Pension Insurance Union) is responsible. This bureau is also responsible for social security audits.

Special types of professions have their own insurance organisations such as:

• Artists insurance
• Pension organisations for professions like lawyers, chartered accountants, tax advisers

Glossary

Author: Peter Scheller, German Tax Adviser – Master of International Taxation

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