QROPS Advice: Taxation of ‘Non-Residents’ Living in Germany

Individuals who are not resident in Germany will be subject to ‘limited tax liability’ only on such income from German sources that are listed in the German Income Tax Act. A non-resident taxpayer will have to file a return and receive an assessment only if their German income is not subject to withholding tax. Where income is subject to withholding tax, the income tax liability is normally
settled through the withholding system and no returns or assessments are required.
The solidarity surcharge also applies to non-residents, but non-residents are not subject to church tax.
In the case of dividends sourced in Germany and payable to non-residents, withholding tax applies at the new rate of 25% with the 5.5% solidarity surcharge added thereon. However, in practice the tax due may be less owing to double taxation treaties.
Nevertheless, the German payer generally has to withhold tax at the higher rate of the two countries. Where the withholding tax has been deducted, the taxpayer may apply for a refund of the tax withheld in excess of the withholding tax applicable under the relevant double taxation treaty. Savings interest sourced in Germany and paid out to non-residents are not subject to withholding tax at source.
In the case of inheritance tax when neither the deceased person nor the donor are resident in Germany, only certain assets situated in Germany are taxable, e.g. real estate and business assets.
Applications for more favourable treatment
Non-resident individuals who derive at least 90% of their taxable income from German sources, or where the non-German income does not exceed a certain level, may apply for more favourable taxation in Germany in a manner similar to the taxation of German
residents.
A non-resident spouse of a resident tax payer can upon application be treated as resident in Germany if this is more beneficial, provided that the resident tax payer is a citizen of an EU/EEA member state and the spouse lives in a member state of the EU or EEA.

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