International tax matters & DTA
Tax advice on cross-border matters, foreign income, double tax treaties, withholding tax, moving to Germany, leaving Germany and activities with a foreign connection.
International tax matters require a careful review of unlimited or limited German tax liability, the relevant income categories and the applicable double tax treaty.
When does an international tax matter arise?
A foreign connection may already exist if income, assets, residence, habitual abode, employer, client, real estate, bank account or activity has a cross-border element.
Moving to Germany, leaving Germany and tax residence
If a person has a residence or habitual abode in Germany, unlimited income tax liability under section 1 EStG generally has to be reviewed. In cross-border cases, treaty residence may also have to be assessed.
Foreign income
Foreign income may be taxable in Germany, exempt in Germany or taxable with a credit for foreign tax. The treatment depends on the income category, the other state involved and the applicable double tax treaty.
Double tax treaties
Double tax treaties allocate taxing rights between states. They do not automatically eliminate every tax burden. In particular, they regulate exemption, credit mechanisms and documentation requirements.
Filing obligations and evidence
International tax matters often require additional information in the German tax return, for example in Anlage AUS or in connection with the progression clause.
Typical advisory areas
Activities for foreign employers, working days abroad, home office situations, secondments, cross-border commuter cases and allocation of taxing rights.
Foreign custody accounts, dividends, interest, withholding tax, credit for foreign tax and German filing obligations.
Rental income or disposal of foreign real estate, foreign tax assessments, treaty classification and progression clause.
Services supplied to foreign clients, permanent establishment risks, place of supply, VAT and cross-border invoicing.
Start of German tax liability, foreign income, assets, German tax identification number, advance payments and first German tax return.
End or continuation of German tax liability, documentation requirements, German-source income after departure and possible tax consequences.
Classifying double tax treaties correctly
Double tax treaties are not a general tax exemption. The first step is to classify the income correctly. The next step is to allocate the taxing right. Finally, the result has to be implemented under German domestic tax law and in the German tax return.
Personal allocation
If a person has several homes or cross-border living arrangements, it may be necessary to determine in which state the person is resident under the relevant treaty.
Substantive allocation
Employment income, business profits, dividends, interest, pensions, real estate income and capital gains may fall under different treaty articles.
Exemption or credit
Depending on the treaty and the income category, foreign income may be exempt in Germany subject to the progression clause, or foreign tax may be creditable against German tax.
Documentation
Foreign tax assessments, payslips, residence certificates, contracts and payment records are often decisive for the German tax treatment.
Required documents
For a reliable assessment of international tax matters, both German and foreign documents must be available completely and for the correct periods.
Residence and stay
Information on residences, habitual abode, relocation, duration of stays, centre of vital interests, family and professional activity.
Foreign income
Payslips, tax certificates, rental statements, custody account documents, contracts, invoices and payment records.
Foreign tax documents
Foreign tax assessments, withholding tax certificates, tax returns, residence certificates and refund notices.
German tax documents
Prior-year assessments, German tax returns, letters from the tax office, advance payment notices and previous tax classifications.
Advisory process
-
Clarify the facts — Identification of the countries, periods, residences, income categories, persons involved and taxes already paid.
-
Review tax liability — Review of unlimited or limited German tax liability and possible foreign tax liabilities.
-
Classify the DTA position — Allocation of the income to the relevant treaty article and review of the method for avoiding double taxation.
-
Implement the result — Implementation in the German tax return or preparation of a tax statement, where commissioned.
Important limitation
No comprehensive advice on foreign tax law
The advice relates to the German tax classification and the application of relevant double tax treaties from a German perspective. Binding advice on foreign tax law can only be provided by appropriately qualified advisors in the respective state.