Many of the clients we work with to get German dual citizenship ask how the tax policy in Germany works with regard to holding dual citizenship. It is often the first time they could owe taxes in two different countries. That leads to questions about the best ways to avoid double taxation on their income.
Our clients often come to us asking these exact questions. To answer them, we created this guide.
First, to address the most common question, an expansive set of tax treaties means that most German dual citizens will NOT be double-taxed on their income, though they will sometimes need to report it to both countries.
Let’s look over the details in depth.
Do I owe taxes in Germany as a dual citizen?
To know if you even owe German taxes in the first place, you need to determine if you qualify for resident taxation.
There are two ways to fall under resident taxation:
- If you spent 183 or more days in Germany last year
- If your permanent home is here in Germany
If you fall in either category, you report all of your income in your German taxes, though you might not have to pay on all of it. (More on that in the section below.)
Non-residents only need to pay taxes on German-sourced income.
What countries does Germany have a tax treaty with?
When calculating your German taxation as a dual citizen, you should always start by finding any relevant tax treaties. These documents exist to avoid double taxation—so they are your ally here.
If you are a German dual citizen, then you’ll be happy to hear that Germany has tax treaties with 96 other countries.
Let’s look at how many of them work by examining the US-Germany Tax Treaty:
- Tax Credits: The taxes you pay in Germany can be used as a credit on your US tax return using Form 1116.
- Exemptions: These are based on your residency. For instance, you only need to pay Social Security in the country you are a resident in.
- Tie-Breakers: Your permanent home address and “center of vital interest” will factor into the country that you pay taxes to in the event that both countries have a good claim on taxing specific income.
You’ll also file a Foreign Bank Account Report (FBAR) with your US taxes if you hold more than $10,000 in a foreign bank. And whether or not you pay taxes on it in the US, you still report all your income to the IRS.
As you might imagine, determining which country gets taxes on which income isn’t always easy. That’s why we almost always recommend that our clients get the help of a tax professional to make the most out of tax treaties. Given that these rules can cut your tax income by half, they are well worth getting right.
How does German income tax work?
To determine your German income tax, you need to add up your taxable income and subtract allowable deductions. Then, you’ll apply the appropriate tax rate to get your final number.
Taxable Income
- Wages and salary
- Self-employment income
- Business income
- Rental income
- Investments
- Pensions
- Other benefits
Deductions
- Tax-free allowance (on your first €11,604 in 2024)
- Work expenses
- Social contributions
- Charitable donations
- Childcare and dependent costs
Tax Rates
It’s important as you calculate the following tax rates that you don’t apply the highest one you qualify for to all of your money. Only the money you earn above a certain amount is taxed at the higher rate.
- Up to €12,096: 0%
- €12,096 to €68,480: 14% to 42%
- €68,481 to €277,825: 42%
- Over €277,826: 45%
Are there any other common German taxes for dual citizens?
Income tax is always the major part of what you owe. However in Germany, there are a few other common taxes that you might end up owing at the end of the year.
- Solidarity Surcharge: You’ll pay an added 5.5% on income above a certain amount. This was added after German reunification, and it routinely comes under attack. That means it could vanish in the coming years, but as for now, you’ll pay it on all income (personal and corporate) above €16,956.
- Value-Added Tax (VAT): Businesses pay a VAT tax on the sale of goods and services, imports, and exports (even to and from other EU countries). While individual customers don’t have to pay this, they are likely a major part of the tax burden for any businesses you run.
- Church Tax: If you are a registered member of Jewish, Catholic, or Protestant churches, you’ll pay 8-9% in Church Tax (depending on where you live in Germany). This money goes to the church you are a member of.
How do I file my German taxes as a dual citizen?
Filing German taxes means submitting your annual income tax return (Einkommensteuererklärung) to the Federal Central Tax Office (Bundeszentralamt für Steuern).
You can file German taxes online through ELSTER.
When do I need to file my German taxes?
Luckily, German taxes have one of the latest dates in the world. They aren’t due until July 31.
Enjoying Your German Dual Citizenship (Even at Tax Time)
Filing taxes as a dual citizen of Germany isn’t the simplest process. But at the same time, it doesn’t have to be overly difficult. If you keep track of what you’ll owe to what country through the year, you’ll have a very manageable last few steps at tax time.
For dual citizens, the single most important thing is to learn about the relevant tax treaty that covers your situation. This is how you avoid double taxation!
You can learn more about German dual citizenship—including how to get it—by checking out our other resources.
In all events, it is always necessary to seek the counsel of a lawyer or tax accountant to determine the best pathway for you depending on your personal needs and circumstances.
Disclaimer: This article is intended for general information. It is essential to consult with a qualified lawyer or tax professional to assess the best course of action based on your individual tax needs and circumstances as these laws often change.
This page was last updated with help by Marco Permunian
