Is legal expenses insurance tax deductible in Germany?

Guide figures from published German tariff examples and provider statements, so you can set the saving against the premium.

Many people assume an insurance premium is deductible simply because it is insurance. That only holds for two groups. Provision expenses under section 10 of the Income Tax Act (Einkommensteuergesetz) are premiums that protect life, health and earning capacity: health, long term care, pension, accident and liability insurance. Income related expenses under section 9 are outlays that serve to earn income. Private legal cover is neither: it protects your money in private disputes, and for tax purposes that is private living.

From this follows a simple rule for your policy: the word Rechtsschutz does not matter, the purpose of each single module does. Whatever relates to income is deductible. Whatever relates to private life is not. And since almost every policy mixes modules, it is the split of the premium that decides what actually reaches you.

If your policy bundles private, employment, traffic and tenancy cover, the invoice usually shows one figure. That is not enough for the tax office. You need the share in euros, and you get it from your insurer: many German insurers issue a certificate on request that states the employment or business share separately. Ask for it in writing and file it with your records. Without that figure the tax office does not estimate in your favour, it strikes the item.

For scale: providers put the employment share of a package at roughly 20 to 40 percent of the total premium, and one published example showed EUR 137 out of an annual premium of about EUR 320. Those are guide values, not a rule, because the real figure depends on the tariff. For the self employed it is simpler: anyone who can plausibly show the business purpose needs less paperwork, but still has to split a mixed policy on a defensible basis.

Here is the uncomfortable part that comparison sites tend to skip. As an employee you receive a standard allowance of EUR 1,230 under section 9a of the Income Tax Act without any proof at all. Income related expenses therefore only bite to the extent that they exceed that figure. If your only item is EUR 137 of employment cover, you gain exactly nothing. Only together with commuting allowance, training, work equipment and professional body fees does the sum start to move.

Once you are above the allowance, the saving is the share multiplied by your personal tax rate. EUR 137 is worth about EUR 41 at an assumed 30 percent and about EUR 58 at 42 percent. A landlord share of EUR 250 is worth about EUR 105 at 42 percent, and there no allowance swallows it: in annex V every euro counts from the first one. The same applies to a business expense. That is why the effort almost always pays for landlords and the self employed, and often not for employees.

Employees with a simple return, a short commute and no other income related expenses can save themselves the trouble: the employment share vanishes inside the allowance. Anyone holding only private and traffic cover can skip the certificate too, because nothing there is deductible. And private tax cover gives you nothing in tax terms, despite what the name suggests.

Conversely it is almost always worth a look for three groups: landlords, the self employed, and employees who are above the allowance anyway. One more point that saves money without touching tax: the premium for landlord legal cover is not a service charge you can pass on to tenants. It stays with you, and that is exactly why you claim it against your rental income.

This is orientation, not tax advice, and it cannot replace any. How a module is classified may come out differently in your case, for example with a vehicle used both privately and for work, or a property partly let and partly lived in. The tax office then decides on actual use, and that is open to argument. In such cases ask a tax adviser (Steuerberater) or an income tax help association (Lohnsteuerhilfeverein) before you enter a figure.

What we can take on is the step before: telling you which modules your policy actually contains, obtaining the insurer's certificate of the premium shares, and making sure the next quote states those shares separately. NAMMERT is an underwriting agency and handles that correspondence. Filling in the return stays with your tax adviser.