Topics A-Z Explanations: Income tax and reporting

Abgabenordnung (AO)

The German Fiscal Code, the general statute governing tax procedure: who is resident, how assessments are made, what must be disclosed, what the limitation periods are and what happens when a return is wrong. Sections 8 and 9 define residence and habitual abode, and so decide whether an American in Germany is taxed there on worldwide income. Section 371 contains the self-disclosure that removes criminal liability for an incomplete return, and section 169 and following set the assessment periods, which run to ten years in cases of evasion.

Die Abgabenordnung regelt das Besteuerungsverfahren: Wohnsitz und gewöhnlicher Aufenthalt in den §§ 8 und 9 AO, die Anzeige- und Mitwirkungspflichten, die Festsetzungsverjährung der §§ 169 ff. AO, die bei Steuerhinterziehung zehn Jahre beträgt, sowie die strafbefreiende Selbstanzeige nach § 371 AO. Für US-Staatsangehörige mit Wohnsitz in Deutschland entscheidet bereits § 8 AO über die unbeschränkte Steuerpflicht, unabhängig von der Aufenthaltsdauer.

Anlage KAP, Anlage AUS und Anlage R

The schedules of the German income tax return that a cross-border case turns on. Anlage KAP carries investment income on which no German bank has withheld, which means all income from a United States brokerage account, together with the election for progressive taxation and the credit for foreign withholding. Anlage KAP-INV carries fund holdings where no German paying agent was involved. Anlage AUS carries other foreign income and the foreign tax credit under section 34c of the Income Tax Act, and treaty-exempt income that still affects the rate. Anlage R and Anlage R-AUS carry pensions and annuities, and an American 401(k) or individual retirement account distribution is declared on Anlage R-AUS.

Die Anlage KAP erfasst Kapitalerträge, von denen keine deutsche Stelle Abgeltungsteuer einbehalten hat, also sämtliche Erträge aus US-Depots, ferner die Günstigerprüfung und die Anrechnung ausländischer Quellensteuer. Die Anlage KAP-INV betrifft Investmentanteile ohne inländische Zahlstelle. Die Anlage AUS dient der Anrechnung nach § 34c EStG und der Erfassung freigestellter Einkünfte für den Progressionsvorbehalt. Leistungen aus einem 401(k) oder einer IRA werden in der Anlage R-AUS erklärt.

Außensteuergesetz (AStG)

The German statute that reaches across the border. Section 6 imposes the exit tax on departure. Section 15 attributes the income of a foreign family foundation or trust to a German-resident settlor or beneficiaries whether or not anything is distributed. Sections 7 to 14 tax the retained passive income of a controlled foreign company. Section 1 governs transfer pricing between related parties. For an American family with a member in Germany and structures in the United States, this is the statute most likely to produce a German charge nobody expected.

Das Außensteuergesetz enthält die Wegzugsbesteuerung des § 6 AStG, die Hinzurechnungsbesteuerung der §§ 7 bis 14 AStG und die Zurechnungsbesteuerung ausländischer Familienstiftungen und Trusts nach § 15 AStG. Der BFH hat mit Urteil vom 3. Dezember 2024, IX R 32/22, entschieden, dass der auf EU- und EWR-Rechtsträger beschränkte Entlastungsbeweis des § 15 Abs. 6 AStG unionsrechtswidrig ist und auch für Drittstaaten gelten muss. Ein Referentenentwurf vom 18. November 2025 zur Neufassung ist bislang nicht umgesetzt.

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B

Basis and the step-up at death

United States income tax gives most property acquired from a decedent a new basis equal to its value at death, under section 1014 of the Internal Revenue Code, so that the gain accrued during the decedent’s lifetime is never taxed. The rule applies to the assets of a non-resident decedent as well, to the extent they are subject to United States tax.

Germany has no step-up in basis, and it does not need one in the same way, because Germany does not generally tax the gain on privately held real estate sold more than ten years after acquisition, nor was there any German income tax charge at death. But where an heir in Germany receives securities, the acquisition cost of the decedent carries over, so a later sale is taxed in Germany on the whole historic gain at 26.375 per cent, while the United States treats the same asset as having a fresh basis. An American heir resident in Germany can therefore find a sale taxable in Germany and untaxed in the United States, with no United States tax against which to credit the German tax.

Beneficial ownership reporting

The reporting of the individuals behind a company. Under the Corporate Transparency Act this applied to United States companies from 2024, but it no longer does: FinCEN’s final rule of 11 August 2026 permanently confines the obligation to foreign entities registered to do business in the United States, exempts domestic companies and United States persons, and removes data already filed by entities that are now exempt. A foreign reporting company still reports, but no longer reports United States persons.

This is separate from the customer due diligence obligations of banks and brokers, which are unchanged, and from the German transparency register, which continues to require German companies and certain foreign companies acquiring German real estate to record their beneficial owners.

Bundeszentralamt für Steuern (BZSt)

The federal tax office that handles the international side: it receives the reports German banks make about accounts held by United States persons and forwards them to the Internal Revenue Service under the FATCA agreement, it runs the exchange of information under the Common Reporting Standard, it holds the register of church tax affiliations that banks query each autumn, and it processes refunds of German withholding tax to non-residents. An American in Germany will not usually deal with it directly, but it is the channel through which the German side of a financial life becomes visible in the United States.

Das Bundeszentralamt für Steuern nimmt die FATCA-Meldungen deutscher Finanzinstitute über Konten von US-Personen entgegen und leitet sie an den Internal Revenue Service weiter, führt den automatischen Informationsaustausch nach dem gemeinsamen Meldestandard durch, verwaltet die Kirchensteuerabzugsmerkmale für die Regelabfrage der Kreditinstitute und erstattet Kapitalertragsteuer an beschränkt Steuerpflichtige nach § 50c EStG.

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C

Center of vital interests

The second tie-breaker in Article 4(2) of the income tax treaty, applied when a person has a permanent home available in both countries. It asks where the person’s personal and economic relations are closer, weighing family, social relations, occupation, the place from which property is administered, and political and cultural activities together. It is a question of fact, decided on the whole picture, and it is where most genuinely dual cases are resolved. The order of the tests is permanent home, then centre of vital interests, then habitual abode, then nationality, then agreement between the two tax administrations.

The estate tax treaty has its own domicile rules and its own tie-breakers in Article 4, which are not the same, so a person may be resolved to one country for income tax and to the other for estate tax. See the firm’s article on determining fiscal domicile under Article 4.

Church tax (Kirchensteuer)

A tax levied by the recognised churches in Germany and collected by the state, at 8 per cent of income tax in Bavaria and Baden-Württemberg and 9 per cent elsewhere. It applies to investment income as well, where it is levied on a reduced base so that the combined burden on investment income comes to roughly 27.8 to 28 per cent. Banks and brokers query the taxpayer’s church affiliation with the Federal Central Tax Office each autumn and withhold automatically unless the taxpayer files a blocking notice, in which case the income must be declared and assessed instead.

Americans arriving in Germany are frequently registered for church tax without appreciating it, because church affiliation is recorded at the residents’ registration office on arrival. The tax is avoided only by a formal declaration of leaving the church, which has effects beyond tax and takes effect prospectively.

Die Kirchensteuer beträgt 8 Prozent der Einkommensteuer in Bayern und Baden-Württemberg und 9 Prozent in den übrigen Ländern. Auf Kapitalerträge wird sie nach § 51a EStG auf eine ermäßigte Bemessungsgrundlage erhoben. Die Kreditinstitute fragen die Kirchensteuerabzugsmerkmale jährlich zwischen dem 1. September und dem 31. Oktober beim Bundeszentralamt für Steuern ab, sofern kein Sperrvermerk vorliegt. Die Zugehörigkeit wird bereits bei der Anmeldung beim Einwohnermeldeamt erfasst.

Common Reporting Standard

The multilateral system under which more than one hundred countries exchange information on financial accounts automatically. Germany participates. The United States does not. The United States operates instead its own bilateral system under FATCA, which for Germany rests on the intergovernmental agreement of 31 May 2013.

The asymmetry is the point. German banks report the accounts of United States persons to the German Federal Central Tax Office, which passes them to the Internal Revenue Service, and Germany receives a narrower set of data in return and nothing at all through the Common Reporting Standard. An American in Germany should assume the German side of the relationship is fully visible to the American authorities, and should not assume the converse.

Covered expatriate

A United States citizen who renounces citizenship, or a long-term permanent resident who gives up a green card, becomes a covered expatriate if the average annual net income tax for the five preceding years exceeds an indexed threshold, or net worth reaches 2,000,000 dollars, or the person cannot certify five years of United States tax compliance. A covered expatriate is treated under section 877A as having sold all property at fair market value on the day before expatriation, and deferred compensation and specified tax-deferred accounts have their own rules.

The consequence that outlives the expatriation is the section 2801 tax. A United States citizen or resident who receives a gift or bequest from a covered expatriate pays a tax of 40 per cent on it, and pays it as recipient, with no time limit after the expatriation. The final regulations took effect on 14 January 2025 and Form 708 now exists, with the first returns due on 15 June 2027 for amounts received in 2025. An American in Germany contemplating renunciation should treat the position of American family members who may later inherit as part of the decision, not as a detail.

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D

Full treatment: Renouncing U.S. Citizenship from Germany: Covered Expatriate Status and the Section 877A Exit Tax →

Doppelbesteuerungsabkommen (DBA)

The German term for a double taxation treaty. Two are in force with the United States and they must not be confused: the convention on income and capital of 29 August 1989, amended by the protocol of 1 June 2006, and the convention on estates, inheritances and gifts of 3 December 1980, amended by the protocol of 14 December 1998. Each has its own residence definition and its own tie-breakers, so a person may be allocated to one country for income tax and to the other for inheritance tax.

Zwischen Deutschland und den Vereinigten Staaten bestehen zwei Abkommen: das DBA über Einkommen und Vermögen vom 29. August 1989 in der Fassung des Protokolls vom 1. Juni 2006 und das DBA über Nachlass-, Erbschaft- und Schenkungsteuern vom 3. Dezember 1980 in der Fassung des Protokolls vom 14. Dezember 1998. Beide enthalten eigene Ansässigkeitsregeln und eigene Tie-Breaker, sodass die Zuordnung für Ertrag- und Erbschaftsteuer auseinanderfallen kann.

Double-taxation treaty

There are two, and confusing them is a standing source of error. The convention on income and capital was signed on 29 August 1989 and substantially amended by the protocol of 1 June 2006, in force from 28 December 2007. The convention on estates, inheritances and gifts was signed on 3 December 1980 and amended by the protocol of 14 December 1998. They have different residence rules, different tie-breakers and different purposes.

The income treaty caps American withholding on portfolio dividends at 15 per cent under Article 10, exempts interest from source taxation under Article 11, assigns gains on shares to the country of residence under Article 13, assigns pensions to the country of residence under Article 18, and assigns social security exclusively to the country of residence under Article 18(5). The estate and gift treaty determines domicile in Article 4, allocates the right to tax particular classes of property in Articles 5 to 8, and provides the pro rata exclusion and the additional marital deduction in Article 10. See the firm’s article on fiscal domicile under Article 4.

Dual residence

A person with a home available in both countries is resident in both under the domestic law of each, and the conflict is resolved by the treaty tie-breakers. Article 4(2) of the income tax treaty applies, in order: permanent home, centre of vital interests, habitual abode, nationality, and finally agreement between the two tax administrations. There is no 183-day test at this stage; the 183-day rule in the treaty sits in Article 15 and governs employment income only.

Being assigned to one country by treaty does not end the obligation to file in the other. A United States citizen remains taxable in the United States on worldwide income whatever the tie-breaker says, because of the saving clause, and a person tie-broken to the United States who still has a German dwelling remains within German reporting obligations. See determining fiscal domicile under Article 4.

Einkommensteuer

German income tax. A resident is taxed on worldwide income at progressive rates: nothing up to the basic allowance of 12,348 euros for 2026, then rising to 42 per cent from 69,879 euros and 45 per cent from 277,826 euros, plus the solidarity surcharge and church tax where applicable. Investment income is taxed separately at the flat rate. An American living in Germany files a German return on worldwide income and an American return on the same income, and relies on the treaty and the foreign tax credit to avoid paying twice.

Unbeschränkt Steuerpflichtige werden nach § 1 EStG mit ihrem Welteinkommen erfasst. Für 2026 beträgt der Grundfreibetrag 12.348 Euro, der Spitzensteuersatz von 42 Prozent beginnt bei 69.879 Euro, der Satz von 45 Prozent bei 277.826 Euro. Hinzu treten Solidaritätszuschlag und gegebenenfalls Kirchensteuer. Kapitalerträge unterliegen gesondert der Abgeltungsteuer nach § 32d EStG.

Exit tax, German (Wegzugsbesteuerung)

Section 6 of the German Foreign Tax Act (AStG) treats a person who ceases to be resident in Germany as having sold, at market value, any shareholding of at least 1 per cent in a company, German or foreign. The charge also arises on a gift or inheritance to a non-resident, and on any other event that removes Germany’s right to tax, including the operation of a treaty tie-breaker. It applies only to shareholdings in corporations: business assets, partnership interests and real estate are outside it.

Since the reform of 2022 the charge bites only where the person was subject to unlimited German tax liability for at least seven of the preceding twelve years, the tax is payable on application in seven annual instalments, generally against security, and it falls away if the person becomes resident in Germany again within seven years, extendable to twelve. From 1 January 2025 the charge also reaches investment fund units, under section 19 of the Investment Tax Act, where the investor held at least 1 per cent of a fund in the previous five years or holds units in one fund acquired for at least 500,000 euros. An American who has lived in Germany long enough, and who holds a closely held company or a large single fund position, should price this before deciding to leave.

§ 6 AStG erfasst Anteile im Sinne des § 17 EStG von mindestens 1 Prozent und fingiert bei Beendigung der unbeschränkten Steuerpflicht, bei unentgeltlicher Übertragung auf eine nicht ansässige Person oder bei Ausschluss des deutschen Besteuerungsrechts eine Veräußerung zum gemeinen Wert. Voraussetzung ist eine unbeschränkte Steuerpflicht von mindestens sieben der vorangegangenen zwölf Jahre. Die Steuer ist auf Antrag in sieben Jahresraten gegen Sicherheitsleistung zu entrichten; bei Rückkehr innerhalb von sieben, verlängerbar auf zwölf Jahre, entfällt sie. Seit dem 1. Januar 2025 erfasst § 19 Abs. 3 InvStG auch Investmentanteile.

Expatriation

Giving up United States citizenship or a long-held green card. It is a tax event as well as a status change: section 877A imposes a deemed sale of worldwide assets at market value on the day before expatriation for a covered expatriate, and the section 2801 tax then attaches to gifts and bequests that the expatriate later makes to American recipients, payable by the recipient at 40 per cent, without time limit.

For an American living in Germany the German side has to be considered in the same breath. A person who is German resident at the time already faces German taxation of worldwide income, and may face the German exit tax on any later departure from Germany. Expatriating from the United States does not simplify the German position and may complicate the position of American children who remain.

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F

Full treatment: Renouncing U.S. Citizenship from Germany: Covered Expatriate Status and the Section 877A Exit Tax →

FATCA

The Foreign Account Tax Compliance Act requires foreign financial institutions to identify accounts held by United States persons and report them. Germany implements it through the intergovernmental agreement of 31 May 2013: German banks report to the German Federal Central Tax Office, which passes the data to the Internal Revenue Service. The individual’s own obligation is separate and is discharged on Form 8938.

The practical effect on an American living in Germany is felt before any tax question arises. German banks, brokers and insurers routinely decline American customers, or close existing accounts, because the compliance burden is not worth the relationship. That is a planning constraint in its own right, and it is one reason why Americans in Germany often keep their investment accounts in the United States, which in turn raises the German reporting and Investment Tax Act questions dealt with elsewhere on this page.

FBAR

FinCEN Form 114, the Report of Foreign Bank and Financial Accounts. A United States person files it if the aggregate value of foreign financial accounts exceeds 10,000 dollars at any point in the calendar year. The threshold is on the aggregate, not on each account, it is not indexed, and it counts accounts over which the person has signature authority as well as accounts owned.

For an American in Germany this is caught by a current account, a Tagesgeld account and a German life policy with a cash value, in combination, without any of them being large. It is independent of Form 8938 and of the income tax return, and filing one does not discharge the others. Penalties for non-wilful failure are substantial and for wilful failure are measured against the account balance.

Finanzamt

The German tax office. Jurisdiction is local and it matters which one: inheritance and gift tax is handled by a small number of specialised offices, not by the office that deals with the taxpayer’s income tax, and for a decedent who lived abroad it is the office for the district where the estate assets are. The three-month notification of an inheritance or gift goes to the inheritance tax office, which is frequently not the office an American heir would think of writing to.

Örtlich zuständig für die Erbschaft- und Schenkungsteuer ist nach § 35 ErbStG das Finanzamt, in dessen Bezirk der Erblasser zuletzt seinen Wohnsitz hatte, bei Wohnsitz im Ausland das Finanzamt des Erwerbers oder des belegenen Vermögens. In mehreren Bundesländern ist die Erbschaftsteuer bei einzelnen Finanzämtern zentralisiert. Die Anzeige nach § 30 ErbStG ist an dieses Erbschaftsteuerfinanzamt zu richten, nicht an das Wohnsitzfinanzamt.

FIRPTA

The Foreign Investment in Real Property Tax Act subjects a foreign person’s gain on the disposition of a United States real property interest to United States tax, and enforces it by requiring the buyer to withhold 15 per cent of the amount realised, not of the gain. The rate falls to 10 per cent where the buyer will use the property as a residence and the amount realised does not exceed 1,000,000 dollars, and withholding is not required at all where the amount realised is 300,000 dollars or less and the residence test is met. The mechanics run through Forms 8288 and 8288-A, and Form 8288-B is the application for a withholding certificate reducing or eliminating the withholding where the actual tax will be less.

The rule catches estates as well as living sellers, and that is where it becomes difficult. An estate selling before a fiduciary has been appointed, co-owners of mixed status, a disregarded entity whose owner is the real seller, heirs without taxpayer identification numbers, and a withholding certificate application still pending at closing are all situations a settlement officer is right to pause over. An American in Germany selling a property in the United States is not a foreign person and is outside FIRPTA entirely; a German spouse or a German-resident heir on the same deed may not be.

Fiscal domicile

The treaty concept that decides which country may tax a person as a resident. It is not the same as domicile in American estate tax law, nor the same as residence in German domestic law, and the income treaty and the estate treaty each define it for themselves. Article 4(1) of the income treaty starts from liability to tax under domestic law; Article 4(2) resolves dual cases by permanent home, centre of vital interests, habitual abode and nationality, in that order.

The determination is fact-heavy and it is worth making deliberately rather than discovering after the event. The firm’s article on determining fiscal domicile under Article 4 works through permanent homes in both countries, the centre of vital interests test, and the treatment of cross-border estates.

Full treatment: Determining Fiscal Domicile Under Article 4 of the Germany–U.S. Double Taxation Treaty →

Foreign tax credit

Three different credits are meant by this phrase and they do not work alike. For income tax, Article 23 of the income treaty and sections 901 and 904 of the Internal Revenue Code allow a United States citizen in Germany to credit German tax, subject to the separate limitation categories and to the re-sourcing rule in Article 23(3)(c) that deems the income to arise in Germany so that the credit is available at all. Germany for its part credits foreign tax under section 34c EStG or exempts the income with progression under Article 23(2).

For inheritance and gift tax the credit is section 21 ErbStG, and it is narrower than it looks. It applies only on application, only to foreign tax actually paid and not refundable, only against the German tax attributable to assets Germany itself classifies as foreign property, only where the German tax arose within five years of the foreign tax, and separately for each country with no pooling. Where the treaty applies it takes priority. The result is that foreign tax on assets Germany does not regard as foreign property is simply not creditable, which is the commonest reason for genuine double taxation in German-American estates.

Form 3520 and Form 3520-A

Form 3520 is filed by a United States person who creates or transfers property to a foreign trust, is treated as the owner of one, receives a distribution or loan from one, or receives large gifts or bequests from foreign persons. The gift threshold is more than 100,000 dollars in aggregate from a non-resident individual or a foreign estate, which is not indexed, and 20,573 dollars for 2026 from foreign corporations or partnerships. Form 3520-A is the annual return of a foreign trust with at least one United States owner, and the American owner is responsible for seeing that it is filed, filing a substitute if the trustee does not.

The penalties are severe and are measured against amounts rather than against tax: the greater of 10,000 dollars and 35 per cent of a distribution or transfer under section 6677 (for a missing Form 3520-A, the greater of 10,000 dollars and 5 per cent of the trust assets), and 5 per cent a month up to 25 per cent for an unreported foreign gift under section 6039F. An inheritance from Germany is not taxable in the United States, but it is reportable, and the reporting failure costs more than the tax would have. A German family foundation, and in some circumstances a German partnership arrangement, can also be a foreign trust for this purpose.

Form 8938

The Statement of Specified Foreign Financial Assets, filed with the income tax return under FATCA. For a United States person living abroad the thresholds are more than 200,000 dollars on the last day of the year or 300,000 dollars at any time for a single filer, and 400,000 dollars or 600,000 dollars for a married couple filing jointly. For those living in the United States the thresholds are much lower, at 50,000 and 75,000 dollars single and 100,000 and 150,000 dollars jointly.

The form reaches more than bank accounts: foreign pension entitlements, interests in foreign entities, foreign insurance with cash value and foreign securities held outside a financial account are all specified assets. It does not replace the FBAR, which has a different threshold, a different filer and a different authority, and both are commonly required from the same person in the same year.

Form W-8BEN and Form W-9

Form W-9 is given by a United States person to a paying institution to certify that status and avoid backup withholding at 24 per cent. Form W-8BEN is given by a foreign individual to certify foreign status and to claim treaty benefits, and it is the instrument that reduces United States withholding on dividends paid to a German resident from 30 per cent to the treaty rate of 15 per cent, and to nil on interest.

Two errors recur. An American who moves to Germany does not become a foreign person and must not file a Form W-8BEN; United States citizenship governs, wherever the person lives, and the correct form remains the W-9. And a Form W-8BEN without a taxpayer identification number, or one allowed to lapse at the end of its third following calendar year, produces withholding at the full statutory rate on income where the treaty had promised relief, recoverable only by filing a United States return.

Freistellungsmethode

One of the two ways a treaty removes double taxation. Germany exempts the income and taxes only the rest, but takes the exempt income into account in fixing the rate on what remains. The other method is the credit, under which Germany taxes the income and sets the foreign tax against its own. Germany applies exemption to United States rental income and to salary for work performed in the United States, and the credit to most investment income.

Bei der Freistellungsmethode nach Art. 23 Abs. 3 Buchst. a DBA-USA nimmt Deutschland die Einkünfte von der Bemessungsgrundlage aus, berücksichtigt sie aber nach § 32b EStG beim Progressionsvorbehalt. Bei der Anrechnungsmethode werden die Einkünfte erfasst und die US-Steuer nach § 34c EStG angerechnet. Freigestellt sind insbesondere Einkünfte aus in den Vereinigten Staaten belegenem unbeweglichem Vermögen und dort ausgeübter nichtselbständiger Arbeit.

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G

Habitual abode (gewöhnlicher Aufenthalt)

One of the two German connecting factors for tax residence, in section 9 of the German Fiscal Code (AO). A person has a habitual abode in Germany where the circumstances show the stay is more than temporary, and a continuous stay of more than six months always qualifies, short interruptions being disregarded and the finding applying retroactively from the first day.

The other factor, section 8 AO, is a dwelling kept in circumstances indicating it will be retained and used, and it has no minimum number of days at all. Either alone produces unlimited German tax liability on worldwide income. An American who keeps an apartment in Germany while spending most of the year in the United States can therefore be a German tax resident under domestic law without approaching any day count, and will depend on the treaty tie-breakers rather than on a headcount of nights.

Den gewöhnlichen Aufenthalt hat nach § 9 AO, wer sich unter Umständen aufhält, die erkennen lassen, dass der Aufenthalt nicht nur vorübergehend ist; ein zusammenhängender Aufenthalt von mehr als sechs Monaten gilt stets als gewöhnlicher Aufenthalt, wobei kurzfristige Unterbrechungen unberücksichtigt bleiben. Die Feststellung wirkt auf den Beginn des Aufenthalts zurück. Wohnsitz nach § 8 AO und gewöhnlicher Aufenthalt begründen jeweils für sich die unbeschränkte Steuerpflicht.

Income in respect of a decedent

Income the decedent had earned but not received at death: a final salary payment, accrued interest, and above all the balance of a traditional individual retirement account or a 401(k). It does not receive a step-up in basis, and the recipient pays United States income tax on it as the decedent would have done, with a deduction for the estate tax attributable to it under section 691(c).

For a German-resident beneficiary this is the point at which the two systems press hardest. The same retirement account is subject to United States income tax on distribution only if the beneficiary is a United States citizen, the treaty otherwise allocating the distributions to Germany (Articles 18(1) and 21), is in the United States estate tax base if the decedent was a United States citizen or domiciled there within the meaning of the estate tax treaty, is in the German inheritance tax base if either the decedent or the beneficiary was German resident, and is taxed again in Germany as other income when it is drawn. The credits available do not line up, because they operate between different taxes in different years.

Jahressteuergesetz

The annual German tax act, which is where most of the changes that matter in a cross-border case have arrived. The 2022 act raised German real estate values for inheritance tax with effect from 2023. The 2024 act made distributions from foreign retirement accounts funded with pre-tax contributions fully taxable in Germany from 2025, extended the exit tax to investment fund holdings, and repealed the cap on losses from derivatives. A glossary entry is only ever accurate as at a date for this reason.

Die Jahressteuergesetze enthalten die laufenden Änderungen des Steuerrechts. Das JStG 2022 hat die Grundbesitzbewertung für Zwecke der Erbschaftsteuer ab dem 1. Januar 2023 deutlich verschärft. Das JStG 2024 hat § 22 Nr. 5 Satz 2 EStG dahin geändert, dass Leistungen, die auf im Ausland steuerlich freigestellten oder begünstigten Beiträgen beruhen, nicht mehr unter Satz 2 fallen und nach Satz 1 voll besteuert werden, die Wegzugsbesteuerung auf Investmentanteile erstreckt und die Verlustverrechnungsbeschränkung für Termingeschäfte rückwirkend aufgehoben.

Kirchensteuer

See Church tax. The point to note for an American arriving in Germany is that church affiliation is recorded on registration at the residents’ office, that banks query it automatically each autumn, and that the tax is levied on investment income as well as on employment income unless a blocking notice is filed with the Federal Central Tax Office.

Körperschaftsteuer

German corporation tax, at 15 per cent plus the solidarity surcharge, with municipal trade tax on top, giving a combined burden of roughly 30 per cent depending on the municipality. It matters in a cross-border estate because an American structure interposed between a family and German assets, or a German company holding American ones, is taxed here, and because a corporation that is managed from Germany is German-resident whatever its place of incorporation.

Die Körperschaftsteuer beträgt nach § 23 KStG 15 Prozent zuzüglich Solidaritätszuschlag; zusammen mit der Gewerbesteuer ergibt sich je nach Hebesatz eine Gesamtbelastung von etwa 30 Prozent. Unbeschränkt körperschaftsteuerpflichtig ist nach § 1 KStG eine Gesellschaft mit Sitz oder Geschäftsleitung im Inland. Eine nach US-Recht gegründete Gesellschaft, die tatsächlich aus Deutschland geleitet wird, ist daher in Deutschland unbeschränkt steuerpflichtig.

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L

Limitation on benefits

Article 28 of the income tax treaty, comprehensively rewritten by the 2006 protocol. It denies treaty benefits to persons who are resident in one country only in order to obtain them, through a series of tests: qualified person status, publicly traded companies, pension funds, the conduct of an active trade or business, derivative benefits, and discretionary relief from the competent authority.

It rarely troubles an individual, who is normally a qualified person by residence alone. It troubles structures. A company or trust interposed between a German family and American assets, or the reverse, may find the treaty rate on dividends denied and the statutory 30 per cent applied, and the failure is usually discovered when the withholding appears rather than when the structure is set up.

Lohnsteuer

German wage tax, withheld by the employer and credited against the income tax finally assessed. It is not a separate tax. An American employed in Germany is within it from the first day of residence, and the withholding takes no account of American tax, so the foreign tax credit has to be managed through the two annual returns rather than at source.

Die Lohnsteuer ist nach den §§ 38 ff. EStG eine Erhebungsform der Einkommensteuer; sie wird vom Arbeitgeber einbehalten und auf die festgesetzte Einkommensteuer angerechnet. Die Höhe richtet sich nach den elektronischen Lohnsteuerabzugsmerkmalen und der Steuerklasse. Eine Berücksichtigung ausländischer Steuern findet beim Lohnsteuerabzug nicht statt.

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M

Nonresident alien

A United States tax term with two different meanings that are often conflated. For income tax it means a person who is neither a citizen nor a lawful permanent resident and who fails the substantial presence test, and it decides whether the person is taxed on worldwide income or only on United States source income. For estate and gift tax the question is not residence but domicile, and the two can diverge: a person may be a resident for income tax and not domiciled for estate tax, or the reverse.

The consequences of the estate tax classification are severe. A non-domiciled decedent has an exclusion of 60,000 dollars against United States situs assets rather than 15,000,000 dollars, and while the estate treaty with Germany substitutes a pro rata share of the full figure, that relief must be claimed on Form 706-NA and requires disclosure of the worldwide estate.

Offshore account disclosure and correction

An American who has lived in Germany without filing United States returns, or without reporting German accounts, has routes back. The Streamlined Foreign Offshore Procedures are available to a taxpayer whose failure was not wilful and who meets a non-residency requirement, and they carry no miscellaneous offshore penalty; delinquent international information return procedures cover a taxpayer who has filed returns but missed forms; and a voluntary disclosure practice exists for wilful cases. Each has conditions, and eligibility must be established before anything is filed, because a filing made in the wrong programme cannot be withdrawn.

The German side has its own institution, the self-disclosure under section 371 of the Fiscal Code, which exempts from punishment only if it is complete for all relevant years and made before discovery, and only if the tax and interest are paid within the period set. Partial disclosure fails entirely. The two corrections must be coordinated, because information flows between the two authorities under FATCA and a disclosure on one side can close the window on the other.

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Progressionsvorbehalt

Where Germany exempts foreign income under a treaty, section 32b EStG nevertheless takes that income into account in fixing the rate applied to the income Germany does tax. The exempt income is not taxed, but it pushes the rest into a higher band. Rental income from an American property, and salary for work performed in the United States, are the usual examples, and they are declared on the Anlage AUS or Anlage N-AUS. In the year of a move to Germany, foreign income received before arrival, such as a lump-sum distribution from a 401(k) or IRA, is taken into account in the same way (section 32b(1) sentence 1 number 2 EStG).

It does not apply to American social security received by a German resident, because Article 18(5) gives Germany the exclusive right to tax that income, so there is nothing for Germany to exempt. It is also worth noting that the effect runs only one way: the exempt income raises the German rate and can never reduce it below what German income alone would produce.

Nach § 32b EStG werden nach einem Abkommen steuerfreie Einkünfte bei der Ermittlung des auf das übrige Einkommen anzuwendenden Steuersatzes berücksichtigt. Erfasst werden insbesondere in den Vereinigten Staaten belegene Vermietungseinkünfte und dort ausgeübte nichtselbständige Arbeit. Im Jahr des Zuzugs gilt dasselbe für ausländische Einkünfte aus der Zeit vor der Ankunft, etwa eine Kapitalauszahlung aus einem 401(k) oder IRA (§ 32b Abs. 1 Satz 1 Nr. 2 EStG). Auf US-amerikanische Leistungen der social security findet der Progressionsvorbehalt nicht statt, weil Deutschland nach Art. 18 Abs. 5 DBA-USA das ausschließliche Besteuerungsrecht hat und die Einkünfte nicht freistellt.

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Saving clause

Article 1(4)(a) of the income tax treaty preserves the right of the United States to tax its citizens and residents as if the treaty had not come into force, and Article 1(4)(b) extends that to former citizens and long-term residents for ten years. It is the reason a treaty that appears to assign income to Germany does not relieve an American citizen living there of American tax on it.

Article 1(5)(a) lists the provisions that survive the clause even for citizens, and the list matters: it includes Article 18(3), (4) and (5), Article 18A(1) and (5), and Articles 23, 24 and 25. Because Article 18(5) is in the list, a United States citizen resident in Germany is not taxed by the United States on American social security. Because Article 23 is in the list, the re-sourcing rule that makes the foreign tax credit work remains available.

Selbstanzeige

The German voluntary disclosure that removes criminal liability for an incomplete or false return. It works only if it is complete for all relevant years, only if it is made before the matter is discovered or an audit begins, and only if the tax and interest are paid within the period set. Partial disclosure fails entirely. For an American in Germany it has to be coordinated with the American correction routes, because information flows between the two authorities under FATCA and a filing on one side can close the window on the other.

Die Selbstanzeige nach § 371 AO führt zur Straffreiheit, wenn sie für alle unverjährten Steuerstraftaten einer Steuerart vollständig erfolgt und kein Sperrgrund nach § 371 Abs. 2 AO vorliegt, insbesondere keine Prüfungsanordnung bekannt gegeben und die Tat nicht entdeckt ist. Die hinterzogenen Steuern und die Zinsen sind fristgerecht zu entrichten. Eine Teilselbstanzeige ist unwirksam.

Solidaritätszuschlag

A surcharge of 5.5 per cent calculated on the income tax itself, not on income. Since 2021 it has been abolished for most wage and income taxpayers by an exemption threshold, 20,350 euros of assessed income tax for a single taxpayer for 2026, but it continues to apply in full to investment income taxed at the flat rate, which is what produces the familiar combined figure of 26.375 per cent.

Der Solidaritätszuschlag beträgt 5,5 Prozent der festgesetzten Einkommen- oder Körperschaftsteuer. Seit 2021 entfällt er durch die Freigrenze des § 3 Abs. 3 SolZG für den überwiegenden Teil der Steuerpflichtigen; sie beträgt 2026 für Alleinstehende 20.350 Euro festgesetzter Einkommensteuer. Auf die Abgeltungsteuer wird er unabhängig von der Freigrenze erhoben, woraus sich der Satz von 26,375 Prozent ergibt.

Sonstige Einkünfte

The residual category of German income, which is where cross-border retirement money lands. Annuities and pensions from foreign schemes, distributions from an American 401(k) or individual retirement account, and gains on private disposals all fall here, and they are taxed at the ordinary progressive rate, up to 45 per cent, not at the flat investment rate. See IRA and 401(k) distributions.

Die sonstigen Einkünfte des § 22 EStG umfassen Leibrenten und Leistungen aus Altersvorsorgeverträgen nach § 22 Nr. 1 und Nr. 5 EStG sowie private Veräußerungsgeschäfte nach § 23 EStG. Leistungen aus US-amerikanischen 401(k)-Plänen und IRAs werden nach § 22 Nr. 5 EStG erfasst und unterliegen dem progressiven Tarif, nicht der Abgeltungsteuer.

Sperrvermerk

The notice an investor files with the Federal Central Tax Office to stop banks and brokers being told the investor’s church affiliation, so that church tax is not withheld automatically on investment income. It does not remove the tax; it moves it into the assessment, where the income must then be declared. Leaving the church altogether is a separate step with effects beyond tax, taking effect prospectively.

Mit dem Sperrvermerk nach § 51a Abs. 2e EStG widerspricht der Steuerpflichtige der Übermittlung des Kirchensteuerabzugsmerkmals an die Kreditinstitute. Der Abzug unterbleibt dann; die Kirchensteuer auf Kapitalerträge ist stattdessen im Rahmen der Veranlagung zu erklären. Der Sperrvermerk ist bis zum 30. Juni für das Folgejahr beim Bundeszentralamt für Steuern zu beantragen.

Steuerbescheid

A German tax assessment. It becomes final if not appealed within one month of notification, and an assessment that has become final is very difficult to reopen. The appeal is the Einspruch, filed with the office that made it, and it costs nothing. For a taxpayer abroad the month is short and it runs from notification, which is presumed to occur three days after posting within Germany and one month after posting abroad.

Der Steuerbescheid wird nach § 355 AO bestandskräftig, wenn nicht binnen eines Monats nach Bekanntgabe Einspruch eingelegt wird. Die Bekanntgabe gilt nach § 122 Abs. 2 AO im Inland am dritten Tag, bei Übermittlung ins Ausland einen Monat nach Aufgabe zur Post als bewirkt. Eine spätere Änderung ist nur unter den engen Voraussetzungen der §§ 172 ff. AO möglich.

Steueridentifikationsnummer

The permanent eleven-digit number assigned to every person registered in Germany, used for income tax, wage tax and the church tax query. It is not the same as the Steuernummer, which is issued by the local tax office for a particular file and changes, nor the same as the VAT identification number. An American arriving in Germany receives it automatically after registering at the residents’ office, and every German bank will ask for it.

Die Identifikationsnummer nach § 139b AO ist eine dauerhaft zugeteilte elfstellige Nummer, die jeder in Deutschland gemeldeten Person nach der Anmeldung beim Einwohnermeldeamt vom Bundeszentralamt für Steuern zugeteilt wird. Sie ist von der vom Finanzamt vergebenen Steuernummer und von der Umsatzsteuer-Identifikationsnummer zu unterscheiden. Kreditinstitute benötigen sie für den Steuerabzug.

Tax residence

Germany treats a person as resident who keeps a dwelling in Germany in circumstances indicating it will be retained and used, under section 8 of the Fiscal Code, or who has a habitual abode there under section 9, which a continuous stay of more than six months always satisfies. Either produces liability to German tax on worldwide income. The United States treats citizens as resident wherever they live, and others under the green card test or the substantial presence test.

A person resident in both under domestic law is assigned to one by Article 4(2) of the income tax treaty: permanent home, then centre of vital interests, then habitual abode, then nationality. The 183-day rule that readers expect to find here is not part of that test; it governs employment income under Article 15. See determining fiscal domicile under Article 4.

Tax treaties

Two are in force between the United States and Germany and they do different work. The convention on income and capital of 29 August 1989, as amended by the protocol of 1 June 2006, allocates the taxing rights over dividends, interest, gains, employment income, pensions and social security, contains the limitation on benefits article and the saving clause, and provides the credit and exemption mechanisms in Article 23. The convention on estates, inheritances and gifts of 3 December 1980, as amended by the protocol of 14 December 1998, determines domicile, allocates the right to tax classes of property, and provides the pro rata exclusion and the additional marital deduction in Article 10.

Neither treaty overrides Germany’s right to tax by reference to the residence of the acquirer, and neither removes the American right to tax its citizens. What they do is prevent the same item being taxed twice without relief, and they do that imperfectly, because they operate only where both countries are taxing the same thing in the same period.

Taxes (which ones actually arise)

A German-American family with wealth on both sides is potentially within six separate charges, and they are frequently confused with one another. United States federal estate tax falls on the estate at death. United States gift tax falls on the donor during life. German inheritance and gift tax is a single tax falling on the acquirer, in both cases. United States federal income tax falls on citizens wherever they live, and on others on American source income. German income tax falls on residents on worldwide income, and on non-residents on German source income. The generation-skipping transfer tax is a further American charge on transfers that skip a generation.

They have different taxpayers, different bases, different years and different reliefs, and there is no single credit that reconciles them. Two treaties exist, one for income and one for estates, inheritances and gifts, and each relieves only within its own field. Most of the real cost in these cases arises where a charge in one system has no counterpart in the other, so that the credit machinery has nothing to bite on.

Transparenzregister

The German register of beneficial owners. Since 2022 every German company, partnership and foundation must be recorded in it, and foreign companies acquiring German real estate must register as well. It is separate from the American beneficial ownership regime, which since FinCEN’s rule of August 2026 no longer applies to United States companies, so an American family that was relieved of reporting at home may still face it in Germany.

Das Transparenzregister nach den §§ 18 ff. GwG erfasst die wirtschaftlich Berechtigten. Seit dem Transparenzregister- und Finanzinformationsgesetz von 2021 ist es ein Vollregister; die Mitteilungsfiktion für im Handelsregister eingetragene Gesellschaften ist entfallen. Auch ausländische Gesellschaften, die inländischen Grundbesitz erwerben, sind nach § 20 Abs. 1 GwG mitteilungspflichtig. Die Pflicht besteht unabhängig von der US-amerikanischen Rechtslage.

Wegzugsbesteuerung

See Exit tax, German. The German exit tax treats a departure from German residence as a sale of any shareholding of at least 1 per cent in a company, and since 1 January 2025 also of substantial investment fund holdings. It is the reason an American who has spent several years in Germany holding a closely held company, or a single large fund position, should price the cost of leaving before deciding to leave.

Withholding tax on United States source income

The United States withholds at a statutory 30 per cent on fixed or determinable annual or periodical income paid to a non-resident alien, under sections 871 and 1441. The treaty reduces that to 15 per cent for portfolio dividends and to nil for interest, and the portfolio interest exemption reaches most interest in any event. The reduction is obtained only by lodging a valid Form W-8BEN with the payer before payment; recovering over-withheld tax afterwards means filing Form 1040-NR and waiting.

Two adjacent charges are worth naming. Backup withholding of 24 per cent applies where a United States person has not certified a taxpayer identification number on Form W-9. And FIRPTA withholding of 15 per cent applies to the gross proceeds, not the gain, on a foreign person’s sale of American real property. The reported amounts appear on Form 1042-S for foreign recipients and on the 1099 series for United States persons, and the German return requires the figures from whichever applies.

Wohnsitz

Residence in the German tax sense. A person has one where a dwelling is kept in circumstances indicating it will be retained and used, and there is no minimum number of days at all. Either this or habitual abode produces unlimited German tax liability on worldwide income. An American who keeps an apartment in Germany while spending most of the year in the United States can therefore be a German tax resident without approaching any day count, and will depend on the treaty tie-breakers rather than on a headcount of nights. See Habitual abode.

Einen Wohnsitz hat nach § 8 AO, wer eine Wohnung unter Umständen innehat, die darauf schließen lassen, dass er sie beibehalten und benutzen wird. Auf eine Mindestaufenthaltsdauer kommt es nicht an; auch eine jederzeit verfügbare Ferienwohnung kann genügen. Wohnsitz oder gewöhnlicher Aufenthalt begründen nach § 1 EStG die unbeschränkte Steuerpflicht; die Zuordnung bei doppelter Ansässigkeit richtet sich nach Art. 4 Abs. 2 DBA-USA.

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