US Expat Taxes in Germany: A Complete Guide (2024)

Living as an Expat inGermany

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 AreGermany’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 inGermany?

Expats who qualify as tax residents of Germanywill be taxed on their worldwide income, while non-residents are only taxed on German-source income.In either case, ifyour only income isa salary or wages from a German employer, you may not have to file a tax return. This is becauseyour employer will most likely withhold your taxes at the source.

USexpats living in Germanygenerally 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 claimthese credits and receive arefund.

Who Qualifies as a Tax Resident inGermany?

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 thereduring the year

Ifan expatdoesn’t have a domicile or habitual abode in Germany,they are a non-resident.

Once you qualify as a tax resident, youcan eliminate your residency by simply moving out of Germany—aslong as youdon’tmaintaina 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 DoesGermanyHave?

Income Tax

In Germany,taxable income includes:

• Wages
• Salary
• 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 ofincomeare taxed atprogressiverates.

Below, you can see the most recent German income tax ratesfor singleand marriedresidents. (All amounts are given ineuros(EUR).

2023 Tax Year German Income Tax Rates

Capital GainsTax

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.

Selling real estate that was held for less than a decade can also incur a tax.The sale of private assets isalsotaxable if the assets were held for less than one year.(Standard tax rates apply in both of these instances.)

Inheritanceand GiftTax

Germany levies atax oninheritancesand gifts, with the rate ranging between7% and 50%. (Exemptions are available in certain circ*mstances.)

ChurchTax

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%.

DogTax

This unusual tax is for pet owners whobuy apet insteadof adopting a rescue. These taxesare intended tohelpcover waste pickup and keep pet numbers low.

Property Tax

Property is taxed at the municipal level, with the exact ratevarying basedon your location.

Real Estate Transfer Tax

Real estate transfers are also taxed. The rate ranges from 3.5%–6.5%.

Solidarity Surcharge

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 earnersaresubject to this fee.

For those who are subject, the rate is 5.5% of whatever tax payment the fee is attached to.

Value-Added Tax

Because Germany is part of the EU, services and sales are subject to a value-added tax (VAT).Thestandard ratefor this tax is 19%, but certain items,such as food and books,are taxed atarate of7%.

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.

Social Security

Like the US,Germanyhas 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 inGermanyshould contribute to. Fortunately, the US-Germanytotalization agreement establishes rules for social security contributions.

• If a US company assigns you to work inGermanyfor less than five years, you will pay into US Social Security
• If the assignment exceeds five years, you will pay intoGermansocial security
• If you are working for aGermanemployer inGermany, you will pay intoGermansocial security

Self-employed Americans living abroad inGermanymay choose to contribute to either social security system.

Pension

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 toretirethere.(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 yourUS tax returnwhen 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%.

Every expat should know these 25 things about US expat taxes. Find out for yourself.

Doesthe US Have a Tax Treaty withGermany?

Yes—the US has a formal tax treaty withGermany. This US-Germanytax treaty helps US expats avoid double taxation while living inGermany.

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 circ*mstances.

What Tax Forms Do Americans Living inGermanyHave 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 onyourpersonal situation.

• Mostresidentexpatswith only German-sourcedemploymentincome can use the simplified tax return,MantelbogenESt1V
• Resident expats with multiple sources of income, foreign income, or other forms of income not derived from employment in Germany will likely need to useMantelbogenESt1A
• Non-residents will need to useMantelbogenEst 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.Additionalextensions arealsoavailable in extenuating circ*mstances at the discretion of the tax authority.

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 aFATCA report. The specific threshold for your finances will depend on your filing status and whether you qualify as a bona fide resident ofGermany.

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 asFBAR. (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. Thestandard due datefor 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 inGermany?

Because of the US-Germanytax treaty, most Americans living inGermanyarealready 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.

Contact us, and one of our customer champions will gladly help. If you need very specific advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts.

Knowledge is power. Get personalized advice from one of our expat expert accountants.

Whether you need tax advice to prepare for a move abroad, to buy property or even retire, Greenback can help. Consults upfront can help avoid costly mistakes and stress later.

Book a Consult