How to avoid double taxation in Germany

Double taxation situations in Germany become increasingly common, as people cross borders and settle here. The following types of income might be impacted:

• salary or work compensation from cross-border employment – especially when you’ve recently moved between countries (cross-border commuters, self-employed people)
• profits from running an international company – if it has a permanent office or shop abroad.
• alimony, inheritance or gifts
• dividends from shareholding or interest on investments
• side gig in your home country.
• rental payments or profits from selling property.
• social security, unemployment or pension.

Double taxation happens on those income sources because of 2 contradicting facts:

1. Living in Germany, you are legally obligated to report and pay taxes on income, regardless of its origin in the world.
2. The income originating from abroad might be taxed already there.

That’s where it gets complicated. As a foreigner in Germany, you want to file your taxes & reduce your income tax, making sure you are not taxed twice.

Luckily there are international treaties that govern the way most cross-border income and taxes should be handled.

At the end of this guide, you will know how you can benefit from tax relief schemes through double taxation agreements that Germany has negotiated with many countries. If there any questions left, feel free to use the comments section.

Bastien – Settle in Berlin

What are double taxation agreements?

When it comes to double taxation, Germany has negotiated bilateral tax treaties or Doppelbesteuerungsabkommen. They are a negotiated deal between two countries that states the rules for how income earned abroad is treated in the country of residence. There are three ways that foreign income is usually treated:

1. Full exemption of foreign income (Freistellungsmethode),
2. Exemption of foreign income with progression (Freistellungsmethode mit Progressionsvorbehalt)
3. Foreign income tax credit (Anrechnungsmethode).

Exemption of foreign income – with or without progression

A full exemption of foreign income (“Freistellungsmethode“) is applied under certain double taxation agreements (DTAs) when Germany agrees to exempt specific types of foreign income from German taxation. This typically applies to employment income, pensions, or business profits earned in the source country, provided the income is taxable there. The exemption ensures no double taxation, though the exempt foreign income may still affect the tax rate applied to domestic income through progression rules (“Progressionsvorbehalt“).

What does that mean? Well, while Germany won’t tax you on your foreign-earned income, the amount of your global income will affect under which tax bracket your German-earned income is taxed.

Example: You live and work in Germany, earning €60,000 annual income, while also earning €12,000 from a business you run on the side in India and €500 from an investment there. Germany will use your total worldwide income of €72,500 to calculate your annual tax bracket and then use that to tax the €60,000 you earned in Germany. The money from India will be taxed there, offset by the taxes you have paid in Germany, thanks to the double taxation treaty.

Foreign income tax credit

If your country doesn’t have a double taxation agreement with Germany or your country’s agreement states otherwise, you might be able to instead credit the foreign income tax you’ve paid against your German income tax – but then only up to the amount that the German tax code would tax that income.

Example: So, if you worked for a few months in Chile and paid tax on your income, then you might be able to credit those tax payments against your German income. If you’d usually pay €2,000 on that income in Germany, but you paid €2,200 in Chile, then you can only apply up to German €2,000 in credit.

Countries that have a double taxation treaty with Germany:

This table lists all the countries that have an agreement with Germany (as of 2025):

The important 183-day rule

The 183-day rule is a key provision in many double taxation agreements (DTAs) that determines a foreign resident’s tax obligations in Germany. If an individual resides or works in Germany for more than 183 days within a tax year, they may become liable for taxation on income earned in Germany, depending on the terms of the relevant DTA. This rule helps clarify tax residency and avoids double taxation by assigning primary taxing rights between Germany and the other country.

How are the 183 days calculated?

As a rule, the days of arrival and departure as well as all weekends and holidays are considered to be days of stay. Likewise, all vacation days spent immediately before, during and after the work in the country of employment are counted.

Depending on the double taxation treaty, the period for calculating the 183 days can refer to:

• the calendar year
• tax year that differs from the calendar year
• a period of 12 months.

The 183-day rule does not apply to cross-border commuters who travel daily or weekly from Germany to France, Austria or Switzerland (or other way around) to work there.

US exception to the residence-led rule

While most countries only tax their residents and individuals who earned income in that country, there are some exceptions.

US citizens – regardless of your country of residence and source of your income, you are required to file an annual tax return and potentially pay taxes on your income. You don’t have to have ever lived in the US or earned money there to fall under these requirements.

You may qualify for the Foreign Earned Income Exclusion (FEIE), which allows to exclude up to $130,000 (as of 2025) of foreign earned income from U.S. taxation if you meet either the physical presence test or the bona fide residence test. However, any income above this limit is subject to U.S. taxes. Additionally, the exclusion does not apply to other income, such as investment or rental income.

How to file taxes with or without a DTA

Filing your taxes when a DTA is in place

If you get income from one of the countries covered by a double taxation agreement, doing your taxes are not necessarily difficult. 

• Fill out the usual German tax return forms for your German income.
• Fill out the form Anlage AUS for the income earned abroad.

Filing your taxes when no DTA is in place

If you earn income from a country with no double taxation agreement (DTA) in place, you may face double taxation since both Germany and the source country might tax the same income. To mitigate this, you can claim a foreign tax credit (if applicable) on your German tax return by filing the necessary documentation (e.g., proof of taxes paid abroad). Consult a tax advisor for assistance in ensuring compliance and minimizing your tax burden.

Common mistakes when dealing with double taxation in Germany

1. Assuming the 183-day rule always applies: Many expats think staying under 183 days abroad means no foreign tax is due. But if your employer is in that country, or you work for a local entity, taxes may still apply.
2. Not declaring foreign income in Germany: Even if it’s exempt under a treaty, you usually must declare it on your German return. Omitting it can cause problems.
3. Misunderstanding the progression clause: People often think “exempt” means Germany ignores the income entirely. In fact, it may push your other German income into a higher tax bracket.
4. Forgetting about investment and rental income: Dividends, interest, or property rental abroad are often overlooked. Germany usually wants to see them declared.
5. Not collecting proper proof of tax paid abroad: To claim a credit, you need certificates or official documents from the foreign tax authority or employer. Bank statements or payslips may not be enough.
6. Double claiming deductions: Some try to deduct the same expense in two countries. That’s a dangerous game! Tax offices coordinate and can disallow these.
7. Missing deadlines: Foreign tax assessments can take time. If you wait too long to gather documents, you risk late filing penalties in Germany.
8. Assuming all treaties work the same: Each treaty has unique terms. The rules for the USA are not the same as for the UK or India. Always check your country’s specific treaty.

I hope this overview was useful to avoid double taxation in Germany. Don’t hesitate to ask questions in the comments.

Sources and references

• Federal Ministry of Finance. “Double Taxation.” Accessed September 30, 2025. https://www.bundesfinanzministerium.de/Web/EN/Issues/Taxation/Double-taxation/double-taxation.html.
• Steuerliches Info-Center. “Double Taxation.” Accessed September 30, 2025. http://www.steuerliches-info-center.de/EN/SteuerrechtFuerInvestoren/Allgemeine_Informationen/Doppelbesteuerung/doppelbesteuerung_node.html.
• European Commission. “Double Taxation.” Accessed September 30, 2025. https://europa.eu/youreurope/citizens/work/taxes/double-taxation/index_en.htm.
• Lohnsteuer kompakt. 2025. “Was ist steuerfreier Arbeitslohn nach Doppelbesteuerungsabkommen (DBA) oder Auslandstätigkeitserlass (ATE)?” Accessed February 26, 2026. https://www.lohnsteuer-kompakt.de/fag/2025/452/was_ist_steuerfreier_arbeitslohn_nach_doppelbesteuerungsabkommen_dba_oder_auslandstaetigkeitserlass_ate.
• PwC. “Germany – Individual – Foreign Tax Relief and Tax Treaties.” Last modified June 30, 2025. http://taxsummaries.pwc.com/germany/individual/foreign-tax-relief-and-tax-treaties.