Germany is an economic powerhouse of Europe that has always attracted expats from different parts of the world. American expats in Germany mostly reside in Frankfurt, Munich, Berlin, Hamburg and Dusseldorf. German income tax law has been modified multiple times and corresponding treaty provisions must be reviewed to ensure that the taxpayer is not double taxed by two countries. We can multiple questions from clients in Germany. Specifically, whether we provide US expatriate tax services to American expats Germany. Do expats Germany owe any US expat taxes after filing German tax returns? What are foreign income tax rates? Let’s review the key questions.
Expatriate Tax Requirements for Expats Germany
Since the US citizens and green card holders are subject to worldwide taxation, American expats Germany must file US expatriate tax returns and pay US expat taxes even if they do not live in the USA. However, the USA signed multiple treaty agreements to ensure that Americans living abroad can avoid double taxation.
To avoid double taxation, expats Germany can utilize several provisions under IRC section 911 but they have to file US expatriate tax return.
- Foreign earned income exclusion. American expats Germany can exclude up to $101,300 for 2016 on US expatriate tax returns if they earned foreign income.
- Foreign housing exclusion. Additionally, American expats Germany can exclude foreign housing expenses if they are eligible to claim the foreign earned income exclusion.
- Foreign tax credit. Expats Germany are required to file a tax return and pay German taxes. However, they can take a foreign tax credit for income taxes paid in Germany.
Additionally, American expats Germany may be required to file the FBARs if they have foreign financial accounts and the aggregate value of these accounts exceeds $10,000.
Tax system in Germany – FAQ
I am an American expat living abroad in Germany. Is my worldwide income taxed in Germany?
American expats Germany who reside in Germany are taxed on a worldwide income unless exempt under the provisions of a tax treaty. Non-residents are subject to limited income tax liability on income from German sources. However, expats can take a foreign tax credit on US expatriate tax returns for income taxes paid in Germany.
Who is considered a tax resident in Germany?
As a general rule, American expat in Germany is considered a tax resident if s/he has spent more than 6 months in Germany. Further guidance from an expatriate tax practitioner is required.
What is the tax year in Germany?
Germany has a calendar tax year. This is similar to the US expatriate tax preparation system.
What is an income tax rate in Germany?
Personal income tax rate for residents is based on a progressive scale. The maximum tax rate is 45%. A taxpayer may be subject to a solidarity surcharge of 5.5% and 8%-9% church tax.
Similar income tax brackets are applicable to non-residents but non-residents are generally not allowed to file as married filing jointly (however, there are some EU exceptions).
Which income is considered a taxable income in Germany?
Generally, all types of remuneration and benefits are subject to income tax: salary, cost of living allowances, expatriate premiums, school tuition reimbursement, housing allowances, benefits in kind etc. Some benefits are excluded like unemployment benefits, payments from health or accident insurance, kindergarten fees. Some other benefits like meal allowance, home trips might be excluded pending certain requirements.
Can expats Germany file a tax return on overseas taxes with a spouse?
Spouses have a choice to file joint or separate returns. Usually it is more advantageous to file a joint tax return. Income earned by dependent children is not included. However, children have to file a separate tax return if their income exceeds a certain threshold.
When is the deadline to file a German tax return?
American expats in Germany have to file a tax return by May 31. A late filing penalty in the amount of 10% can be assessed. An extension until Dec 31 is available if a tax professional prepares a tax return.
Does Germany have a tax treaty or social security agreement with the USA?
There is a tax treaty and totalization agreement between the USA and Germany. American expats in Germany must consult an expatriate tax professional to minimize the effect of double taxation and overseas taxes as well as to review social security payments.
Germany has one of the most comprehensive social security systems that includes unemployment insurance, pension insurance, accident, health and nursing insurance.
The above questions provide an overview of expatriate tax rules for expats Germany.
Americans expats with additional questions about US expatriate tax preparation and different treaty positions should seek help of an expatriate tax CPA that provides international tax services. International tax experts at Artio Partners will be pleased to assist you with a full range of expatriate tax services.