How to avoid double taxation in Germany

Let’s be honest, taxes are never a fun topic. Even the word “taxes” can cause panic! They’re even less fun if you’re getting hit with the extra paperwork that comes with international finances. Now that it’s easier to live and work across the globe, there are more situations where income is earned in different countries, such as:

  • social security, unemployment or retirement payments
  • salary or work compensation from cross-border employment – especially when you’ve recently moved between countries or live in a different country from where you work (commuters, self-employed persons)
  • 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
  • rental payments or profits from selling property

If you live in Germany, you are legally obligated to report and pay taxes on your worldwide income. Things can get pretty complicated if you’re an expat in Germany, trying to figure out how to file taxes.

double taxation Germany

The thing is, you’re probably already paying taxes on the income in the country where it originated. I bet you want to avoid double taxation in Germany on the money you’ve rightfully earned! Luckily there are international rules that govern the way most cross-border income and taxes should be handled.

Don’t know what rules to avoid double taxation Germany has? I’ll explain the basics about how you can benefit from tax relief schemes through the double taxation agreements that Germany has negotiated with many countries.

What are double taxation agreements?

When it comes to double taxation Germany has negotiated some agreements to make things easier for most people. These are called bilateral tax treaties or Doppelbesteuerungsabkommen and are a negotiated deal between two countries that states the rules for how income earned in one country is treated by the tax code 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 progression

Germany generally applies the method of exemption with progression. 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.

While most countries only tax their residents and individuals who earned income in that country, there are some exceptions. One is for citizens of the US – 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. That said, if you’re earning less than $102,000 you’ll benefit from the foreign earned income exclusion. For lower annual income, check the double taxation treaty between the US and Germany.

Countries that have a double taxation treaty with Germany:

AlbaniaIranPhilippines
AlgeriaIrelandPoland
ArgentinaIsraelPortugal
ArmeniaItalyRomania
AustraliaJamaicaRussia
AustriaJapanSerbia
AzerbaijanJerseySingapore
BangladeshKazakhstanSlovak Republic
BelarusKenyaSlovenia
BelgiumKoreaSouth Africa
BoliviaKosovoSpain
Bosnia and HerzegovinaKuwaitSri Lanka
BulgariaKyrgyzstanSweden
CanadaLatviaSwitzerland
ChinaLiberiaSyria
Ivory CoastLiechtensteinTaiwan
CroatiaLithuaniaTajikistan
CyprusLuxembourgThailand
Czech RepublicMacedoniaTrinidad and Tobago
DenmarkMalaysiaTunisia
EcuadorMaltaTurkey
EgyptMauritiusTurkmenistan
EstoniaMexicoUkraine
FinlandMoldovaUnited Arab Emirates
FranceMongoliaUnited Kingdom
GeorgiaMontenegroUnited States
GhanaMoroccoUruguay
GreeceNamibiaUzbekistan
HungaryNetherlandsVenezuela
IcelandNew ZealandVietnam
IndiaNorwayZambia
IndonesiaPakistanZimbabwe

Treaty map — Blue are future agreements, the rest are from before January 2016.

Taxes are like Bonzai; a tedious and meticulous art. 🙂

So now what?

Does your country not currently have rules around double taxation Germany? It might be best to speak to a tax consultant about your specific case and how they can help you avoid paying taxes twice on your income.

But if you’re from one of the covered countries and have all the necessary financial documentation, your taxes don’t have to be difficult. Fill out the usual German tax return forms and declare your worldwide income for the time frame you were living in Germany, as well as the form for income that was earned and taxed abroad (Anlage AUS – Ausländische Einkünfte).

Sources; 1, 2, 3, 4, 5

37 Comments

  • Reply Clare Treacey 14/11/2019 at 12:18

    Hi Bastien, thanks for the excellent blog! I have a couple of questions which I’m hoping you can help with.
    I moved to Germany from the UK in April 2018 and am currently trying to fill in my tax return for 2018. I’ve been employed here since May 2018. Do I need to declare the money that I earned in the UK in January-March 2018 (before I moved to Germany)?
    Some of the money I earned while living in the UK arrived in my bank account after I moved to Germany in April. Do I declare this money?
    Thanks! Clare

    • Reply Bastien - Settle in Berlin 25/11/2019 at 11:49

      Hey Clare. You might be better off asking a Steuerberater but since you can be considered a German resident for the year 2018, you ought to declare all and any income for that year, even if the source is from abroad.

  • Reply Dafni 31/10/2019 at 14:43

    how does it work with gifts/inheritance? If I received a gift in a country with a double taxation treaty with Germany and already paid the inheritance tax in that country, do I still need to do something in Germany?

    • Reply Bastien - Settle in Berlin 23/11/2019 at 09:23

      Hey Dafni. I suggest to get in touch with a Steuerberater for this case. My opinion is that is classified as “extraordinary income” and should be accounted for also on the German side, like any other income.

  • Reply George 27/10/2019 at 11:19

    Thank you very much for the information and this seems like a great site! I actually didn’t know about filing world income in Germany….most sources emphasize how important it is to file US tax returns while residing abroad and not the other instance. Do you happen to know if there’s a specific procedure and/or what happens if you didn’t file the “Anlage AUS” in the past? Many thanks!

    • Reply Bastien - Settle in Berlin 29/10/2019 at 14:53

      Hey George. No i can’t say anything about that sorry.

  • Reply Karle Kincaid 04/10/2019 at 15:48

    Hello, I am an American citizen retired in Germany. I receive a pension from the US military and I have investment income in the states. I have no income from any sources in Germany. I just want to be clear that under the double taxation rules, it sounds like I will have no taxable income to Germany. Am I understanding this correctly?

    • Reply Bastien - Settle in Berlin 07/10/2019 at 23:04

      Hey Karle. Get in touch with an expert for more accurate answers.

  • Reply Claire Geiger 19/09/2019 at 13:33

    Thanks for this very informative site and all your help navigating a move to Germany.
    If I stay on a US contract and get paid 100% by the US, it sounds like I will still file a US tax return but will also be required to pay into German social security and other taxes. Will an accountant be able to then help with some exemptions? Or is there a suggestion on a better way to approach trying to work for a US company from here (while my husband is on a German contract)?

    • Reply Bastien - Settle in Berlin 23/09/2019 at 16:24

      Hey Claire. An accountant will be able to help you further on this specific topic.

  • Reply Benjamin Gervan 10/09/2019 at 10:50

    Hi,
    I have a specific case. I am planning to move to Germany, but I will work for a company from Estonia.
    The Estonian company won’t pay salary tax, because I work from abroad (the company is mine).
    In this situation, I can plan with the taxes of https://europa.eu/youreurope/citizens/work/taxes/income-taxes-abroad/germany/index_en.htm
    am I right? (There is an agreement between Estonia and Germany)
    Do I need to pay taxes every month/quarter or yearly?
    Do I need to pay health insurance above that, or it is included to that yet?
    Thanks.
    (In case of you can’t answer, do you have a contact who can?)
    Thanks again.

    • Reply Bastien - Settle in Berlin 10/09/2019 at 20:58

      Hey Benjamin. If you become German resident, i believe you will be liable for income tax in Germany only, and not in Estonia anymore. You will declare all your income sources, regardless of their origin. I cant really fully reply on so little details but yes, you will need a local health insurance. I suggest you get in touch with a tax advisor.

  • Reply David Hawkins 08/08/2019 at 13:10

    I am totally confused about the double taxation agreement between Germany and UK.
    I currently automatically pay tax in the UK on two pensions, an ISA and some shares.
    You talk about Exemption of foreign income with progression (Freistellungsmethode mit Progressionsvorbehalt)
    Which seems to imply that I don’t have to pay extra tax in Germany but my UK income counts towards my total income in Germany.
    But I assumed that if tax was higher in Germany I would have to pay the extra to the German authorities,
    My question boils down to this, should I keep my shares in the UK or transfer them to Germany ?

    • Reply Bastien - Settle in Berlin 09/08/2019 at 16:37

      Hey David. This is just way beyond my humble knowledge, you should get in touch with a real tax consultant.

  • Reply Lara 06/08/2019 at 15:11

    Hello,, I am lara , and i am working in germnay Munich from last one year and i am holdin work permit but i am not EU citizen, I am planing to continue this job from india but i will come back in germany within five months and i will stay in germany one month to keep my house to be register to my name so in one yeat i will be in germnay for two months and rest 10 months i will be in india .So i need to pay tax in germany and also in india. ??

    • Reply Bastien - Settle in Berlin 09/08/2019 at 16:24

      Hey Lara. You need to check the agreements between India and Germany, if any. In most cases, you’d need to pay income tax where you are resident. It seems that you would be an Indian resident for that time period right`?

  • Reply Duarte 06/07/2019 at 23:41

    Thank you for the useful information.
    Do you, by any means, know which form to use to declare foreign income? I worked in Sweden for several months before coming to Germany last year, but I have no idea where in the forms to declare my earnings… Same thing for some investments that I have. Any idea?

    • Reply Bastien - Settle in Berlin 13/07/2019 at 21:34

      HEy Duarte. As mentioned in the last paragraph: Anlage AUS.

  • Reply chinna 03/07/2019 at 13:07

    Thanks for the great post. Very useful.
    I have a question. I have one NRE account in one of the Indian banks. I opened it 6 years back and i use to send money to that account from Germany (tax paid amount) I will also get some interest on my fixed deposit from that account. Since its an NRE account if i want i can bring that entire amount back to Germany. Indian banks say on income generated from NRE accounts had no TAX. As per your post i should disclose my interest amount in Germany in my tax declaration. I did not know this before and came to know only after reading your post. Shall i disclose all the interest that i earned so for in next tax returns?. How much percentage of that interest will be taken as TAX by German authorities?. Do you think i should show my interest earned from NRE account now or when i bring that money back to Germany in future? I appreciate your helpful information. many thanks.

    • Reply Bastien - Settle in Berlin 06/07/2019 at 09:27

      Hey Chinna. This is a bit beyond my humble knowledge, better ask a professional. sorry.

  • Reply Michael 21/06/2019 at 19:20

    Bit of a different topic but surely relevant to people who have paid voluntary National Insurance Contributions in the UK to top up their pension there but are now / permanently resident in the BRD:
    I paid11 years’ worth of voluntary NI contributions to top up my UK old age pension last- Slowprocess butitwentthrouhj. Now receiving an increased UK pension. WIthaGerman peniosn, other sources of income and such I coulld / will be taxed in BRD on my total income. Is there any way off off setting the one-off voluntary NI contriutions against German tax? (I am after all potentially liable for more tax here). If so. How do you go about it? Which German tax form and which line on the tax form? Any experience out there?

  • Reply Carrie 12/06/2019 at 17:04

    Hi,

    I’d welcome some advice please on our family tax position. We are both earning salaries from UK employers, whilst working in Germany. Both our jobs are civil service, so we both fall under s18 of the Dual Taxation arrangements (ie tax is only due on that income in the UK). What I don’t know is how we go about informing the German authorities of this income, along with the exemption on it? I assume we have to file a german tax return in any event, but how do we declare this on our forms?

  • Reply Giorgio 30/05/2019 at 01:42

    Hi, I have a question. As I was working in Australia in first part of 2018, and then moved to germany in october, as Australia has a different taxation period )starts on july 1 and ends june 30), what income I should declare in germany, the one of the year 3017-2018 or 2018-2019? Otherwise, how would I be supposed to know exactly the taxable income for the period 01.01.18 to 31.08.18? The calculation of the taxable income is done by emplayer and taxation office from the payslips, it is calculated based on the Australian fiscal year, not the german one.

    • Reply Bastien - Settle in Berlin 01/06/2019 at 15:00

      Hey Giorgio. This is a great question. It’s out of my league i’m afraid. You need to ask a pro. Can’t you find a Facebook group of Australians living in Germany? Maybe they could help?

  • Reply Alex Jones 19/05/2019 at 00:19

    Hello Bastie, very nice post regarding tax for expats. My situation is the other wat round , I left germany to France and the accoutant in germany says that it is needed in my case to do a tax return. I have left germany on the end of May 2018 (abgemeldet) and started my new job on the 1 June 2018 but now the accountant is saying that in order to complete my tax return I need to provide my french payslips from June to December 2018 to be presented to finanzamt in germany for the tax return. Is this correct? I understand that once I left germany and logged off I have no longer any risk of tax liability. WHat do you think?

    • Reply Bastien - Settle in Berlin 22/05/2019 at 09:48

      Hey Alex. I’m in no way qualified to overrule the advice of a paid professional. You should probably trust them.

  • Reply lavida 18/05/2019 at 23:54

    I would love to know how to handle my current tax situation. I am Australian- German. Have lived in Australia but now since a year in Germany. I am now filing as non resident in Australia for tax purposes. Actually that scares me as I prefer paying tax there. My income is only in Australia although I work online from Germany atm. I feel in Germany I get taxed a lot more than in Australia plus the currency exchange rate is so bad that I pay from Australia to Germany loosing money and overpaying. All my income goes to Australia. anyway my situation is unique. Are there forums, international tax advisors or people you know that are in the same situation, I’d love to know what to do and how to be able to act right in this situation without loosing money.

  • Reply Dorothy joy Fuchs 18/05/2019 at 13:34

    Hi,
    I am resident in Germany but not German Citizen
    I work in United Arab Emirates
    Do i need to pay income tax in Germany?
    What is the basis of income tax? Is it only from your basic salary?
    My total salary consisting of:
    For example
    Basic Salary: 2000 euro
    Transportation allowance:1000 euro
    Housing allowance: 1000 euro
    TOTAL EURO received monthly 4000

    Should i declare only 2000 euro?

    • Reply Bastien - Settle in Berlin 22/05/2019 at 09:25

      Hey Dorothy. As a German resident, you ought to declare all income, regardless of their nature.

  • Reply Dan 14/05/2019 at 09:13

    Hi, Thank you for all the information, it is very useful.
    I just have a concern for our case. I moved and started to work in Germany in December of last year. Before that we leaved in France and I was working in Switzerland. All our incomes from there were declared to the TAX office in France and everything was in order.
    Should I include those incomes from Switzerland also in the TAX declaration in Germany even though they have been declared in France?
    Thanks

    • Reply Bastien - Settle in Berlin 17/05/2019 at 14:24

      Hey Dan. I can’t be sure because i am no expert, but i would stick to country of residence which is the same anyway.

  • Reply Swagnik Chatterjee 11/05/2019 at 23:36

    Hello,

    Thanks for the article but needed some further clarification. I am in Germany on a reunion visa for a period of about two months during which I will be receiving salary from my employer back in India. In Germany I am dependent on my wife who works with Daimler.
    1. What amount should be considered taxable in Germany?
    2. What tax declaration should I have to do?
    3. What tax return forms should I have to fill and submit?

    Looking forward to your reply.

    Regards,
    Swagnik Chatterjee

    • Reply Bastien - Settle in Berlin 17/05/2019 at 14:08

      Hey Swagnik. 1. Will you be considered a German resident for that year? If yes, then all income is taxable.
      2. If you are a German resident, you will need to do it in Germany
      3. Have you looked at this post?

  • Reply Lil-Eric 04/11/2018 at 23:48

    Hi, I wonder if you could consider this? If you sell a flat abroad (country with a treaty with Germany) and make capital gains taxed there, based on their rules – is that considered to be ‘global income’ for the year in Germany, and affect your tax bracket here? I mean, often capital gains on property is just whatever has been sunk into the place to make it more liveable, rather than ‘income’. Very curious.
    Thanks.

    • Reply Bastien - Settle in Berlin 07/11/2018 at 09:48

      Hey Lil-Eric. I see this is connected to your other comment. I think you’d need to check with a Steuerberater on this one to be sure. The extra lump-sum made from selling property won’t be taxed (or less taxed – income tax) if it’s reinvested somewhere else in a relative short amount of time (same year i think). So typically, selling something to buy something else is more lenient, as far as income tax is concerned. Again, just an educated guess, get in touch with a steuerberater to be sure.

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