US Expat Taxes in Germany: A Complete Guide
- Living as an Expat in Germany
- Germany at a Glance
- What Are Germany’s Taxes like for US Expats?
- Who Has to File Taxes in Germany?
- Who Qualifies as a Tax Resident in Germany?
- What Types of Taxation Does Germany Have?
- 2023 Tax Year German Income Tax Rates
- Comparison of Tax Rates: Germany vs. US
- Does the US Have a Tax Treaty with Germany?
- Does the US Have a Totalization Agreement with Germany?
- What Tax Forms Do Americans Living in Germany Have to File?
- US Tax Forms for Expats
- What Tax Deductions Are Available for Expats Living in Germany?
- Navigating Tax Compliance for US Expats in Germany
Living as an Expat in Germany
Germany is a popular destination for expats, offering a high quality of life, a robust economy, and a vibrant cultural scene. As an expat in Germany, you’ll have access to excellent healthcare, public transportation, and educational opportunities.
However, adjusting to life in Germany can be challenging, particularly if you’re not fluent in the German language. Germans tend to be reserved in social situations, so building a network of friends may take time. Additionally, German bureaucracy can be overwhelming, especially when it comes to visa and residency requirements.
Despite these challenges, many expats find that living in Germany is a rewarding experience. The country has a rich history and a diverse population, and there are plenty of opportunities to explore its many cultural offerings. From Oktoberfest to the Berlin Film Festival, there’s always something exciting happening in Germany.
But what are Germany’s taxes like for US expats? Let’s take a look.
Germany at a Glance
- Primary Tax Form for Residents: German tax return (Einkommensteuererklärung)
- Tax Year: January 1st to December 31st
- Tax Deadline: July 31
- Currency: Euro (EUR)
- Population: 80.9 million
- Number of US Expats in Germany: Over 100,000
- Capital City: Berlin
- Primary Language: German
- Tax Treaty: Yes
- Totalization Agreement: Yes
What Are Germany’s Taxes like for US Expats?
When living abroad in Germany, many American expats wonder whether they should file taxes with the US government, Germany, or both. In most cases, the answer is both, as virtually all US citizens are required to file a US Federal Tax Return, and most expats in Germany will also need to file a German tax return.
Fortunately, thanks to the US-Germany tax treaty, expats typically won’t have to pay taxes twice on the same income. However, navigating Germany’s notoriously complex tax system can be challenging for expats.
To better understand which taxes, you may need to file and pay, here’s a breakdown of how Germany’s taxation policies impact US expats.
Who Has to File Taxes in Germany?
Expats who qualify as tax residents of Germany will be taxed on their worldwide income, while non-residents are only taxed on German-source income. In either case, if your only income is a salary or wages from a German employer, you may not have to file a tax return. This is because your employer will most likely withhold your taxes at the source.
US expats living in Germany generally only need to file a return if:
- They are self-employed
- They have multiple streams of income
- They receive income from a foreign (non-German) source
However, even if you aren’t required to file a tax return as a resident, it can still be wise. There are quite a few potential tax deductions and exemptions that aren’t automatically applied to employee tax withholdings. By filing a return, you can claim these credits and receive a refund.
Who Qualifies as a Tax Resident in Germany?
As a US expat living in Germany, your nationality and long-term intentions have no bearing on your residency status. Instead, anyone who has a domicile or “habitual abode” in Germany is considered a resident for tax purposes.
- A habitual abode means a home you’ve lived in for at least six months out of a given tax year
- A domicile is any permanent residence you own, regardless of how much time you’ve spent there during the year
If an expat doesn’t have a domicile or habitual abode in Germany, they are a non-resident.
Once you qualify as a tax resident, you can eliminate your residency by simply moving out of Germany—as long as you don’t maintain a permanent residence in Germany or have lingering financial ties to the country. Even if you’re a German national, leaving the country is sufficient to cut tax ties. There’s no exit tax involved in leaving your tax residency status, either.
What Types of Taxation Does Germany Have?
In Germany, taxable income includes:
- Trade or business income
- Rental income
- Investment income
- Profit received from independent personal services
- Income from royalties, agriculture, or forestry
- Gains from personal transactions (such as alimony or annuities)
The various forms of income are taxed at progressive rates.
Below, you can see the most recent German income tax rates for single and married residents. (All amounts are given in euros (EUR).
2023 Tax Year German Income Tax Rates
|Taxable Income (EUR)||Tax Rate (%)|
|Less than 10,908 euros||0%|
|10,909 – 62,809 euros||14-42%|
|62,810 – 277,825 euros||42%|
|More than 277,826 euros||45%|
Capital Gains Tax
Germany taxes capital gains, with the rate depending on the nature of the gain.
- If an expat held a direct or indirect interest of 1% or more in a domestic or foreign corporation within the last five years, 60% of the capital gain from the subsequent sale of shares is taxable.
- If an expat held less than 1%, the entire capital gain from the sale of privately held shares is subject to a flat tax rate of 26.375% (25% flat rate plus the solidarity surcharge), irrespective of the amount of time the shares have been held.
If your individual tax rate is lower than the options above, you have the option of being taxed at your customary rate instead.
Selling real estate that was held for less than a decade can also incur a tax. The sale of private assets is also taxable if the assets were held for less than one year. (Standard tax rates apply in both of these instances.)
Inheritance and Gift Tax
Germany levies a tax on inheritances and gifts, with the rate ranging between 7% and 50%. (Exemptions are available in certain circumstances.)
If you are a registered member of an official church, you may be subject to a church tax on your income. The exact rate varies, but usually hovers around 8%–9%.
This unusual tax is for pet owners who buy a pet instead of adopting a rescue. These taxes are intended to help cover waste pickup and keep pet numbers low.
Property is taxed at the municipal level, with the exact rate varying based on your location.
Real Estate Transfer Tax
Real estate transfers are also taxed. The rate ranges from 3.5%–6.5%.
The German solidarity surcharge (Solidaritaetszuschlag) isn’t a tax per se. It’s an additional fee attached to the income tax, capital gains tax, and corporate tax. However, only about the top 10% of earners are subject to this fee.
For those who are subject, the rate is 5.5% of whatever tax payment the fee is attached to.
Because Germany is part of the EU, services and sales are subject to a value-added tax (VAT). The standard rate for this tax is 19%, but certain items, such as food and books, are taxed at a rate of 7%.
Business owners are required to submit electronic quarterly VAT (value-added tax) returns by the 10th day of the subsequent month and pay any amount of VAT that is due. A refund may apply if the input tax exceeds the VAT. If the tax for the prior year exceeds EUR 7,500, once-a-month preliminary returns are an additional requirement.
Expats can typically deduct the VAT charged on inputs from VAT that are payable on related output.
Like the US, Germany has a social security system in place to provide for its citizens and residents. This could lead to confusion over which system a US expat living in Germany should contribute to. Fortunately, the US-Germany totalization agreement establishes rules for social security contributions.
- If a US company assigns you to work in Germany for less than five years, you will pay into US Social Security
- If the assignment exceeds five years, you will pay into German social security
- If you are working for a German employer in Germany, you will pay into German social security
Self-employed Americans living abroad in Germany may choose to contribute to either social security system.
If you pay into a German pension system for at least 60 months, you are entitled to a partial pension. You can also transfer a foreign pension to Germany if you plan to retire there. (The German retirement age is 65–67, depending on your birth year.)
Comparison of Tax Rates: Germany vs. US
When you look at Germany’s tax rate vs. the US, Germany’s tax rate is relatively high in comparison. Though you pay more to German tax authorities up front, the benefit you gain is savings on your US tax return when filing with the IRS as an American expat living in Germany.
Taxable income in Germany is employment income, post allowable and standard deductions. The tax threshold is currently EUR 9,408 for a single individual and EUR 18,816 for those married and filing jointly. The progressive tax rate is based on income, and the first cap is 42% at EUR 57,051. This rate will then be applied until the second threshold, EUR 270,500, is reached. Any income surpassing EUR 270,500 will be taxed at 45%.
Does the US Have a Tax Treaty with Germany?
Yes—the US has a formal tax treaty with Germany. This US-Germany tax treaty helps US expats avoid double taxation while living in Germany.
Under the treaty, US citizens living in Germany may be able to claim certain tax credits and deductions, such as the foreign tax credit, which can help to reduce their overall tax liability. In addition, the treaty also outlines rules for determining residency status and provides guidance on social security contributions for individuals who work in both countries.
Does the US Have a Totalization Agreement with Germany?
Yes, the US and Germany have a totalization agreement that helps to coordinate social security benefits for individuals who work in both countries. The agreement ensures that individuals who pay into both the US and German social security systems can receive benefits from both programs without being subject to double taxation.
Under the agreement, individuals may be able to count periods of coverage under one country’s system towards meeting eligibility requirements for benefits in the other country. In addition, the agreement also provides rules for determining which country has the primary responsibility for providing social security benefits, which can vary depending on an individual’s specific circumstances.
What Tax Forms Do Americans Living in Germany Have to File?
German Tax Forms for Expats
Annual Income Tax Return
Most Americans living abroad in Germany will have to file an annual income tax return with the German government. The form you use will depend on your personal situation.
- Most resident expats with only German-sourced employment income can use the simplified tax return, Mantelbogen ESt 1V
- Resident expats with multiple sources of income, foreign income, or other forms of income not derived from employment in Germany will likely need to use Mantelbogen ESt 1A
- Non-residents will need to use Mantelbogen Est 1C
Regardless, the deadline for filing your German annual income tax return is July 31. However, if your taxes are prepared professionally, that deadline automatically extends to December 31. Additional extensions are also available in extenuating circumstances at the discretion of the tax authority.
Germans who have their taxes taken out automatically by their employer have up to four years to submit tax returns.
US Tax Forms for Expats
IRS Form 1040: Individual Income Tax Return
Form 1040 is the standard US individual income tax return. Every US citizen is required to file this form regardless of where they live in the world.
Typically, taxpayers must file Form 1040 by April 15th every year. However, the IRS automatically extends expats’ due date to June 15th every year. Taxpayers can also request a further extension to October 15th
IRS Form 8938: Statement of Specified Foreign Financial Assets (FATCA)
As an expat, if you own non-US financial assets above certain thresholds, you must file a FATCA report. The specific threshold for your finances will depend on your filing status and whether you qualify as a bona fide resident of Germany.
If you are required to file a FATCA report, attach it to your Form 1040 once you’ve completed it and file them together.
FinCEN Form 114: Report of Foreign Bank and Financial Accounts (FBAR)
If you have a total of at least $10,000 in a non-US bank account, you’ll have to report it by filing FinCEN Form 114, better known as FBAR. (This applies whether the money is in a single account or spread out over multiple.)
You should file the FBAR electronically using the FinCEN BSA E-Filing System. The standard due date for the FBAR is April 15, but if you miss that deadline, there’s an automatic extension until October 15.
What Tax Deductions Are Available for Expats Living in Germany?
Because of the US-Germany tax treaty, most Americans living in Germany are already exempt from double taxation. However, the IRS also provides several other potential tax credits and deductions for expats, such as:
- Foreign Earned Income Exclusion
- Foreign Tax Credit
- Foreign Housing Exclusion (or Deduction)
Navigating Tax Compliance for US Expats in Germany
We trust that this guide has provided you with a comprehensive understanding of how Germany’s tax policies impact US expats. However, if you require further information or assistance, our team of experienced tax experts is available to provide you with additional guidance. Please don’t hesitate to contact us if you have any further questions or concerns.
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