QROPS Advice: Taxation of Expatriates Living in Germany

The basis for taxation in Germany is determined by an individual’s residential status. Individuals who are residents of Germany are subject to ‘unlimited tax liability’, from the very first day of arrival in Germany, except insofar as a tax treaty assigns the right to impose tax on any income in favour of another country. An individual will be considered a resident of Germany with ‘unlimited tax liability’ under two circumstances:
• They take up residence in Germany by, for example, purchasing or renting a property for future indefinite use, or
• They have a habitual abode in Germany, i.e. a continuous presence in Germany for more than 6 months.
The German Income Tax Law offers very important deductions, which often apply to expatriates and which are unknown in other countries. These include income related expenses which are deductible from taxable income received by an employee, e.g. moving expenses, rent for a German apartment, expenses for returning to the home country, flights home under the ’double household regime‘ and telephone costs.
Inheritances and gifts are often taxable in both Germany and the expatriate’s home country. However, in some cases, national legislation allows taxes paid in one country to be deducted from the tax in the other country. Germany has an extensive network of tax treaties preventing double taxation on income signed with about 80 countries. Inheritance tax agreements are signed with a relatively small number of countries, such as Austria, Denmark, Greece, Sweden, Switzerland, and the USA. An inheritance agreement with France is currently in a discussion.
German social security contributions do not, in principle, apply to individuals who:
• are seconded to Germany for a limited period (3 to 5 years or, under some social security treaties, from 6 to 8 years), and
• work on behalf of a foreign (non-German) employer on their payroll or account, and
• have costs of the assignment charged to the host company (this is only possible with a cost-plus agreement to avoid German
social security)
The decision as to whether the provisions for a secondment are met is made, on application, by the social security authorities in the home and/or in the host country.

http://www.ailo.org/common/externalPage.asp?intURL=/publications/default.asp&extURL=/downloads/Germany_2009.pdf