This article explains how the German and US tax systems interact, from filing annual US tax returns to understanding German taxes. It also outlines the role of the double tax treaty, common pitfalls such as PFICs and pensions, and provides a practical checklist to help expats stay compliant. A must-read guide for avoiding double taxation and costly mistakes.
For Americans moving to Germany, one of the biggest challenges is navigating the tax responsibilities that arise from living between two countries.
Unlike many nations, the United States continues to tax its citizens no matter where in the world they live. Combined with German tax rules, this means American expats must pay close attention to both systems to avoid unexpected bills, penalties or double taxation.
This article offers an overview of how US and German taxes interact for Americans in Germany, highlighting the main issues expats need to understand.
This article is intended as a general overview only. Tax rules are complex and subject to change. You should always seek independent, qualified advice before making any financial or tax-related decisions.
US citizens and green card holders are required to file annual US tax returns even while living overseas. This includes reporting worldwide income, not just money earned in the United States.
Key points include:
Failure to file US tax returns from abroad can result in penalties, even if no tax is ultimately owed due to exclusions or credits.
For a more comprehensive explanation of US tax obligations for Americans living abroad, please read this article: US Tax Obligations for American Expats
Germany taxes residents on their worldwide income. If you live in Germany for more than six months in a year, you are generally considered tax resident.
Key elements include:
Unlike the US, German tax returns are not automatically required for everyone. However, many expats will need to file, particularly if they have complex income streams or are claiming certain allowances.
Most investment income, including capital gains on the sale of shares or funds, is subject to a flat rate withholding tax of 25% (plus solidarity surcharge and, if applicable, church tax). However, exemptions exist, such as the sale of property held for more than ten years, which is generally tax-free.
At present, Germany does not have a general wealth tax. However, income from capital (such as dividends, interest, and gains) is taxed under the investment income rules described above. Proposals for a broader wealth tax occasionally appear in political debate, but no such tax currently exists.
Germany levies Inheritance and Gift Tax on worldwide assets if either the donor or recipient is resident in Germany. Tax rates and allowances depend on the relationship between the parties. For example, spouses and children benefit from higher exemptions than distant relatives or unrelated individuals. This can create significant obligations for American expats with assets in both the US and Germany, particularly where estate planning has not been coordinated between the two systems.
Unlike the US, Germany does not offer a universal estate tax exemption of several million dollars. Instead, exemptions are relatively modest, and transfers above these thresholds can be taxed at progressive rates up to 30% (or higher for distant relatives).
For a more comprehensive overview of the German tax system for expats, please read our German tax for expats article
The US and Germany have a bilateral tax treaty designed to prevent double taxation. It outlines where different types of income should be taxed, such as salaries, pensions, or investment income. In practice, it does not eliminate the need to file in both countries, but it can determine which country has the primary taxing right and allow the other to provide relief through credits or exemptions.
For example:
While the treaty helps, there are still areas that often cause confusion:
Before and after your move, it helps to review the following areas to stay compliant and avoid unnecessary costs:
Managing tax affairs across both the US and Germany can quickly become overwhelming. While there is no single adviser who can cover both systems in full in our trusted network, we can introduce you to a trusted US tax specialist and a German tax specialist who will work together to provide coordinated guidance tailored to your circumstances.
Your first step will be a short discovery call with our partner, which is a free, no-obligation 15-minute session designed to help you explain your situation and see how our partner(s) could help.
