Guide To Germany Expat Tax Advice
The Tax Samaritan country guide to Germany Expat Tax advice is intended to provide a general review of the tax environment of Germany and how that will impact your U.S. expatriate tax return as a U.S. Expat in Germany.
As a U.S. taxpayer, all worldwide income is subject to taxation and reporting and for most expatriates you are required to file a U.S. tax return on an annual basis due on April 15 each year (June 15 if you are residing overseas on the April 15 deadline). The tax treatment for different classes of income can vary greatly from Germany and the U.S. For example, certain benefits may be tax free or excluded from taxable income in Germany, but in the U.S. these benefits are likely to be non-qualified benefits that are subject to being included as taxable income in U.S. As such, there are a number of considerations related to Germany Expat Tax and this brief article will address a few of those considerations.
US Expat Living In Germany
Germany is a cosmopolitan place of diversity, modernity and a fascinating place to live. Germany is well known for its cuisine, beer and ales. With its powerful economy, international business hubs and notably high quality of life, Germany has long been a popular expat destination.
Below is a list of our top 10 popular Germany cities for foreigners to reside in (in no particular order):
Germany Expat Income Taxes
Who Is Liable For Income Taxes In Germany
Individuals are subject to tax in Germany on their worldwide income if they meet either of the following conditions:
- They have a domicile in Germany for their personal use, or
- They have a “customary place of abode” in Germany. This
means that they are present in Germany for an uninterrupted period of six months that may fall in two calendar years.
Germany Tax Filing
Income is taxed in Germany using a calendar year. Income tax returns must be filed by May 31 following the end of the calendar year.
Germany Expat Tax Advice For Your US Expat Tax Return
When dealing with Germany Expat Tax, there a number of preferential expat tax treatments that may benefit your U.S. expatriate tax return. In fact, for many U.S. expats it could reduce your U.S. taxes to zero.
Below is our Germany expat tax advice for your US expat tax return:
- If you are a U.S. citizen or a resident alien of the United States and you live in Germany, your Germany Expat Tax Return is based on your worldwide income and as such you must file a U.S. return for all the years that you are residing in Germany. However, as a U.S. expat you may qualify to reduce your U.S. taxable income up to an amount of your foreign earnings that is adjusted annually for inflation ($99,200 for 2014). In addition, you can exclude or deduct certain foreign housing amounts. This is known as the Foreign Earned Income Exclusion and foreign housing exclusion.
- When it comes to Germany Expat Tax, most US expatriates worry about “double taxation” – paying taxes to two different countries – the U.S. and Germany. A U.S. taxpayer working overseas in Germany may be able to reduce U.S. taxable income and “double taxation” by claiming the Foreign Tax Credit on Form 1116. Should any foreign income not be fully offset by the foreign earned income exclusion, housing exclusion or housing deduction, the foreign tax credit paid or accrued may be used as a deduction or credit on the U.S. tax return. Taxpayers can elect to either deduct the taxes as an itemized deduction on Schedule A or claim a credit against tax. In most cases, it is to your advantage to take foreign income taxes as a tax credit.
A common but dangerous mistake is the assumption that if there are zero taxes owed with these tax benefits that a US tax return while living in Germany does not need to be filed. That is not true. If you are working overseas, it is likely that you meet the filing requirements to file a tax return and must do so. It is important to note that these tax benefits, such as the foreign earned income exclusion and foreign tax credit are not applicable to the outcome of your tax liability and tax return until they are claimed on a filed tax return. So, be sure to file your US expat tax return!!!
When it comes to Germany expat tax advice there are many tax items to consider, but the above are by far the most common tax benefits. With top-notch experienced and knowledgeable expat tax preparation from Tax Samaritan, you can be assured that you are paying the minimal amount of U.S. taxes that you are legally obligated for.
U.S.- Germany Tax Treaty And Tax Relief For Germany Expat Tax
The U.S. does have a tax treaty with Germany.
Please click on the link to the U.S. – Germany Tax Treaty.
Germany Foreign Bank Account Reporting – The FBAR (FinCen Form 114)
Another important tax deadline that frequently applies to US expat tax in Germany is in regards to the disclosure of foreign assets on the FBAR (Foreign Bank Account Report – Form 114 – formerly known as TD F 90-22.1).
The FBAR filing deadline is June 30th (or the preceding business day if June 30th falls on a weekend). Unfortunately, requesting an extension on your individual return does not extend the FBAR due date – there is no extension available for the FBAR deadline. Any reports filed after this date are considered a delinquent FBAR. In addition, the FBAR is different than many other tax forms in that it must be received by the deadline date (and not postmarked by the deadline date).
The FBAR must be filed with the Treasury Department (it is not filed with your federal income tax return) whenever you meet the FBAR filing requirements, which in a nutshell is whenever a U.S. person has a financial interest in, or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account (including an insurance policy with a cash value such as a whole life insurance policy) maintained with a financial institution, with an aggregate value of over $10,000 at any time during the calendar year based on the highest value of each foreign account during the tax year.
If you have bank accounts at Deutsche Bank, Commerzbank, KfW Group, HypoVereinsbank, Landesbank Baden-Wurttemberg, Bayerische Landesbank or at another bank in Germany or any other foreign country, you may meet the filing requirement to disclosure your foreign accounts on the FBAR. Please don’t hesitate to contact Tax Samaritan to learn more about your filing requirements.
Qualified Dividends In Germany For Your Foreign Corporation or Investment
Since 2003, dividends paid to individual shareholders from either a domestic corporation or a “qualified foreign corporation” are subject to tax at the reduced rates applicable to certain capital gains. A qualified foreign corporation includes certain foreign corporations that are eligible for benefits of a comprehensive income tax treaty with the United States. German foreign corporations are eligible for this lower “qualified” dividend rate and can be a significant benefit for reduced Germany Expat Tax.
U.S. – Germany Social Security Totalization Agreement
Social security taxes comprise the following five elements:
- Old-age pension
- Unemployment insurance
- Health insurance
- Nursing care insurance
- Accident insurance
Old-age insurance, unemployment insurance, health insurance and nursing care insurance contributions are required for all employees, unless they are otherwise exempt under EU regulations or a social security totalization agreement. The same rule applies to accident insurance contributions, which are required to be paid by the employer only.
The United States has entered into agreements, called Totalization Agreements, with several nations for the purpose of avoiding double taxation of income with respect to social security taxes. These agreements must be taken into account when determining whether any alien is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country.
As of this time, Germany has entered into a Totalization Agreement with the United States thus there is opportunity to avoid double taxation of social security income for Germany Expat Tax.
Click here to read more on the US – Germany Totalization Agreement .
Testimonial Of Clients Residing In Germany
We have many expat tax preparation clients that live and work in Germany. Below are a few tax preparation testimonials of clients in Germany for your review, however we encourage you to view recommendations left for us on our LinkedIn page. These are independent tax preparation testimonials from real customers, with tax situations just like “yours”. If you are unable to view our testimonials, please “connect” with us on LinkedIn for access. Otherwise, please view our Tax Testimonial snapshot.
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Read our tax preparation testimonials and BBB Rating and Reviews to see what our clients have to say about working with Tax Samaritan for their income tax preparation and tax problem resolution needs.
Our goal at Tax Samaritan is to provide the best counsel, advocacy and personal service for Germany Expat Tax. We are not only tax preparation and representation experts, but strive to become valued business partners to American expatriates in Germany. Tax Samaritan is committed to understanding our client’s unique needs; every tax situation is different and requires a personal approach in providing realistic and effective solutions.
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Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on Germany Expat Tax and other countries throughout the world. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.
When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts) that is experienced and knowledgeable about Germany Expat Tax. If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).
Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals and experienced with Germany Expat Tax. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional Germany Expat Tax advice based on your individual needs.