Tax liability in Germany

Moving to Germany brings with it many changes, which may also affect your personal tax situation. In the Q&A section below we will look at the specific circumstances likely to happen if you relocate to Germany.

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General remark

Although the UK is leaving the European Union, the convention between Germany and the UK for the avoidance of double taxation (in short: double taxation agreement) is still applicable. Persons who are “resident“ in Germany and/or the UK within the meaning of the double taxation agreement enjoy protection under the convention. A person's domicile or residency in a state is established by a permanent place of residence or periods of presence in a state. Double taxation conventions, on the one hand, assign the right to tax certain types of income to one state and, on the other hand, contain provisions how the state which does not have the right to tax, has to avoid double taxation.

Nevertheless, many tax benefits provided for in the German Income Tax Act are based on EU/EEA membership. If the UK will become a “third country”, i.e. neither a member state of the EU nor a contracting state to the EEA, there may be income tax implications for employees.

Q&A:

Will I be liable for income tax in Germany?
I am not a German citizen, why do I have to file income tax returns then?

I am a UK citizen and I plan to live and work in Frankfurt ….

… My spouse and my children will join me or will join me at a later date. Will my spouse and children be liable for tax in Germany?
… I also rent out a house in the UK. What are the tax implications?
... I also earn interest in the UK. Is this interest taxable in Germany?
... I also earn dividends from shareholdings in UK incorporated companies. Are the dividends taxable in Germany?
…. I also make profits from selling shares in incorporated companies. Will I have to pay taxes on these profits?
... I also receive directors‘ remuneration in the UK. How is this treated for tax purposes?

Will I be liable for income tax in Germany?

Anyone with a place of residence or habitual abode in Germany is subject to unlimited tax liability. Due to this unlimited income tax liability, all domestic and foreign incomes are subject to taxation in Germany. Double taxation is avoided by the application of double taxation agreements or by crediting foreign tax paid against German tax payable.

By contrast, those persons who earn income in Germany, but whose place of residence or habitual abode is not in Germany are subject to limited tax liability.

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I am not a German citizen, why do I have to file income tax returns then?

Whether you are liable for income tax or not is determined by your place of residence or habitual abode, not by your citizenship. For example, if you moved to Germany permanently, then your place of residence is in Germany and you are subject to unlimited income tax liability. That is why you may be obliged to submit tax returns. The same applies if you stayed longer than six months and had your habitual abode in Germany.

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I am a UK citizen and I plan to live and work in Frankfurt ….

… My spouse and my children will join me or will join me at a later date. Will my spouse and children be liable for tax in Germany?

As soon as your spouse and your children start living in Germany, they will be subject to unlimited income tax liability here.

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… I also rent out a house in the UK. What are the tax implications?

Under the double taxation agreement between Germany and the UK, the UK has the right to tax income from renting. In Germany, this income (both surpluses and losses) is exempt from tax. For as long as the UK is a member of the EU, this income is not included in the progression proviso (under section 32b subsection (1) second sentence number 3 of the Income Tax Act).

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... I also earn interest in the UK. Is this interest taxable in Germany?

Yes ‒ under Article 11 of the double taxation agreement, this interest is taxable only in Germany. As a rule, it is taxed at the special tax rate of 25% for purposes of section 32d subsection (1) of the Income Tax Act (withholding tax on income from capital – "final withholding tax").

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... I also earn dividends from shareholdings in UK incorporated companies. Are the dividends taxable in Germany?

Yes ‒ however, the UK may levy a withholding tax of 15% (Article 10 of the double taxation agreement). As a rule, it is taxed in Germany at the special tax rate of 25% for purposes of section 32d subsection (1) of the Income Tax Act (withholding tax on income from capital – “final withholding tax”). Tax withheld in the UK can be credited against your income tax due in Germany.

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…. I also make profits from selling shares in incorporated companies. Will I have to pay taxes on these profits?

As a rule, gains from the alienation of any property are subject to taxation in Germany (Article 13 paragraph (5) of the double taxation agreement). However, there are exceptions for business assets and incorporated companies holding real property (see Article 13 paragraphs (2) and (3) of the double taxation agreement).

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... I also receive directors‘ remuneration in the UK. How is this treated for tax purposes?

Directors‘ remuneration is subject to taxation in the UK as well as in Germany. Tax paid in the UK will, however, be credited against income tax payable in Germany (Article 15 of the double taxation agreement).

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