Are you in fear of paying taxes back home and simultaneously in Germany? Well, generally this is not to happen because double taxation treaties between Germany and many other countries exist. However, if you are an American, chances remain that you will still be have to pay taxes in Germany.
After moving back to my home country for a new job, I still receive some income from Germany. Where do I have to file a tax return? In Germany? At home?
You might have to file in both places. This is a question answered by Double Taxation Agreements. Consult your tax consulting attorney or accountant for more details.
What is a double taxation agreement? I bet the parties of such contracts will try to disguise their wish that I should be taxed twice.
Well, I agree that our modern politicians are far from perfect, but that goes a bit too far. Double taxation agreements decide where the acquired income is to be taxed. In such case where a) the person living in one country achieves income in another country or b) lives in two different countries. It is their prominent task to avoid and not encumber you with double taxation. The double tax treaties that Germany has signed follow the OECD model treaty. Therefore, taxation depends on type of income, the personal situation, or other circumstances.
List of Countries having a Double Taxation Agreement with Germany
The following list shows countries having at least a double taxation agreement on income tax. Special agreements for judicial assistance (“JA”) and estate tax (“E”) are also marked at the relevant country.
What does judicial assistance mean?
When an office does not have the possibility to do something by itself, it asks another office for assistance. In matters of double taxation agreements, this means they will share information with one another. When it comes to double taxation, consider one national authority asking the German authority for help – and vice versa. What information? All that you declared to one or the other office and especially all what one office found out that you did not report. In other words, do not even dream of trying to withhold information from one of the offices.
How does this double taxation effect my taxation in Germany?
The effect on your taxation in Germany can be that you either have to pay taxes exclusively in another country or in Germany. Nevertheless, some countries expect you (being a citizen of their country) to submit a tax return and maybe even pay taxes in their country. Typical examples for this are the USA, Israel, and Eritrea. Americans have to hand in tax returns on their world wide income in Germany and – just the same – in the U.S. It is yet another question if an American abroad will have to pay taxes to both countries. The most important is to submit a tax return to prevent further problems with American authorities!
I just found out that I have to pay taxes in Germany and my home country. Great deal… I thought a Double Taxation Agreement was to relieve me of paying taxes twice. My tax consultant mumbled something of “Progressionsvorbehalt”. What does this mean "subject to progression"?
This is easy to explain. You are actually not being taxed on this foreign income, however income being taxed abroad or positive income not subject to German taxation is taken into consideration for your German taxation to compute a special tax rate (§32 b EStG). This special tax rate is taxing you as if the income being taxed abroad or the positive income not subject to German taxation were normally to be taxed. If you believe this increases taxation, then you got the point. In other words, you will not be taxed on this income subject to progression, but taxation will be increased by it. This will only apply if your income in Germany is so high that it will taxed at all. Let us assume, you have earned in total € 2,000 in Germany and € 3,000 abroad. These € 5,000 will not be taxed because this amount is below the threshold of income to be taxed in Germany.