Last updated April 24, 2023.
From hip Berlin to the enchanting Black Forest to the fairytale-esque Neuschwanstein castle, there’s no shortage of amazing sights to see in Germany. Combine that with a high quality of life and a lower cost of living, and it’s easy to see why hundreds of thousands of Americans currently live in Germany.
While a move to Germany is a great option for many, though, it does require some research — especially for topics as important as taxes. Fortunately, we at Bright!Tax know expat taxes inside out. Below, we’ll walk you through everything you need to know about US expat taxes in Germany.
Snapshot of Taxes in Germany:
- Primary tax forms: ESt 1
- Tax deadline: July 31
- Reporting website: ELSTER
- Administrative language(s): German
- Tax treaty: Yes
- Totalization agreement: Yes
How do German taxes work for Americans living there?
Most US expats living in Germany must pay German taxes, but the extent of their liability depends on their tax residency status. If they are German tax residents, all of their income is subject to taxation by the German government — but if they aren’t tax residents, only their German-sourced income is subject.
Who qualifies as a tax resident in Germany?
Anyone with a dwelling or habitual abode in Germany — usually defined as a home they stay in for more than six months in a calendar year — is considered to be a tax resident. Under this definition, most US expats in Germany who hold a long-term visa are tax residents.
Some common types of visas for US expats in Germany include:
For those who are applying to an institution of higher learning or professional training in Germany.
Note: Student visa holders can earn up to €520 per month without having to pay taxes.
Au Pair Visa
For those who have been hired as an au pair by a German family.
For those who have received a job offer from a German employer.
Family Reunion Visa
For family members and spouses of German nationals.
Job Seeker Visa
For highly-skilled individuals seeking employment in Germany.
Self Employment/Freelancer Visa
For freelancers, independent contractors, and other self-employed individuals wishing to live in Germany.
Voluntary Service Visa
For participants in certain German volunteer programs.
Is there a digital nomad visa in Germany?
Germany doesn’t have a digital nomad visa per se, but the Self Employment/Freelancer Visa is a popular alternative.
What’s the tax-governing authority in Germany?
Germany has two main tax-governing authorities.
Bundeszentralamt für Steuern
The first is known as the Bundeszentralamt für Steuern (BZSt), or Federal Central Tax Office in English. They are responsible for administering and executing federal taxes and tax procedures (e.g. insurance taxes, employer tax withholdings, and assigning Tax IDs).
The other is the Finanzamt, which deals with assessing, collecting, and enforcing taxes (e.g. income tax returns, VAT).
Tax rates in Germany
Many expats are curious about the rate of taxes in Germany vs. the US. Typically, taxes are higher in Germany, with individual income tax rates in 2023 coming out to:1
|Taxable Income (EUR)||Taxable Income (USD)||Tax Rate|
|€0 – €10,347||~$0 – $11,351||0%|
|€10,348 – €61,971||~$11,665 – $67,992||14 – 42%|
|€61,972 – €277,825||~$67,992 – $304,830||42%|
Note: Taxable income includes employment income as well as any other passive or active income.
Church tax in Germany
In Germany, those who officially identify as members of state-recognized churches have an 8% to 9% tax (depending on where they live) deducted from their paycheck. Even some who don’t identify as current members may be taxed if they were baptized as members (even in another country). To opt out of the church tax, you can complete a process called the Kirchenaustritt.2
Property taxes in Germany
Property owners in Germany are subject to an annual municipal tax called the Grundsteuer, or Real Property Tax, which ranges between .26% and 1% of the property’s value depending on which state it’s located in.
Real estate transfer tax
Those who purchase property must pay a transfer tax called a Grunderwerbsteuer, which ranges from 3.5% to 6% depending on the state.3
Capital gains tax in Germany
Capital gains taxes vary depending on the type of assets the gains were derived from. Gains from financial assets are generally taxed at 25% with an additional solidarity surcharge of 5.5% (plus a church tax if applicable). Gains are taxed at individual progressive rates if they’re derived from a) the sale of movable assets sold within a year of their acquisition or b) the sale of property sold within ten years of its acquisition.1
Payroll tax in Germany
In Germany, employers and employees alike must make contributions toward income, solidarity, and social security taxes, with employees’ contributions being automatically deducted from their paychecks. The breakdown is as follows:4
|Program||Employer Contribution||Employee Contribution|
|Tax on other benefits||5% – 25%||0.0%|
Do I have to pay social security in Germany?
The Germany/US totalization agreement prevents American expats living in Germany from having to pay social security taxes to both countries simultaneously.5 Which country they pay social security to depends on how long they’ll be there:
- 0-5 years in Germany: Pay social security to the US
- 5 years+ in Germany: Pay social security to Germany
Those working for German employers will have social security taxes automatically deducted from their paychecks. Self-employed individuals who choose to participate in the German social security system must make these payments proactively.
However, self-employed individuals (and those earning €66,600+ per year) may opt out of certain social security payments (e.g. health insurance, unemployment insurance, pensions) if they purchase private insurance.
VAT in Germany
In Germany, the value-added tax (VAT) — the sales taxes added to most goods and services — is referred to as the Umsatzsteuer (USt). The standard rate is 19%, although there are reduced rates for certain categories:
- 7% VAT: Certain foods, books, healthcare expenses, short-term accommodation, cultural services, etc.
- 0% VAT: Certain types of transport6
What are the filing deadlines in Germany?
In Germany, tax returns filed by individuals must be in by July 31 of the following calendar year. If filed by a certified tax preparer, however, the deadline isn’t until February 28th (or 29th, in the case of leap years) of the second following calendar year.
Taxes in Germany for expats: FAQs
What is Solidaritaetszuschlag?
Solidaritaetszuschlag refers to a solidarity surcharge applied to income, capital gains, and corporate taxes, initially launched to fund the reunification of East and West Germany.
Who is eligible for a pension in Germany?
US expats who have worked for a German employer for five years or more are eligible for pensions. Even some who haven’t made German social security contributions may be eligible (e.g. people who have a disability, parents, freelancers, and caregivers). You can start accessing your full pension between 65 and 67 years old, depending on your birth year.
When am I entitled to a partial pension in Germany?
If you’ve contributed toward the pension system for at least 35 years, you can become eligible for a pension in Germany at 63 years old, although there will be a 0.3% reduction for each month until your full retirement age.7
Do US expats living in Germany also have to file US taxes?
Yes. All US citizens and permanent residents who meet the minimum reporting requirements must file a federal tax return, even if they live abroad.
Does Germany have a tax treaty with the US?
Yes, Germany has a tax treaty with the US which, in theory, prevents double taxation. However, a savings clause allows the US to tax expats as if the treaty didn’t exist, so it’s often better to claim tax breaks instead.
Common tax breaks available for expats in Germany
Foreign Tax Credit (FTC)
The FTC gives expats US tax credits for any taxes they’ve paid to foreign governments that are legal, made out in their name specifically, income-based, and paid.
Foreign Earned Income Exclusion (FEIE)
The FEIE allows expats to exclude up to $120,000 of foreign-earned income from taxation. Those who are eligible for the FEIE may also write off qualifying housing expenses through the Foreign Housing Exclusion (FHE).
To be eligible, expats must meet one of two tests:
Physical Presence Test
The Physical Presence Test requires expats to have been present outside of the US for 330 days in a twelve-month period.
Bona Fide Residence Test
The Bona Fide Residence Test requires expats to spend at least one calendar year residing permanently outside of the US, proven through official documentation like residence cards, rental contracts, utility bills, etc.
Child Tax Credit
US expat parents can claim the Child Tax Credit just as they would in the US, for a partial refund typically worth up to $1,500 per qualifying child.
Tax implications of renting out your US residence while in Germany
Renting out your US property while abroad can help bring in extra income — just remember to record all income and expenses associated with it on Schedule E. And note that because this income is passive, it can’t be excluded via the FEIE.
Rental income while living in Germany: Frequently Asked Questions
If I own a rental property in the US or outside of Germany, do I have to report it to Germany?
German tax residents must report all of their worldwide income, which includes rental income from the foreign property. Non-German tax residents, however, would only have to report rental income from German property.
Which country do I pay taxes to on my rental property income?
Non-German tax residents with rental income from a US property would only owe taxes to the US government. However, German tax residents with rental income from a US property would owe taxes to both the US and German governments. That being said, they may avoid double taxation by taking credits for US tax paid on the German return.
US expats living in Germany may need to file an FBAR
Any expat with $10,000 or more in foreign accounts must file a Foreign Bank Account Report, while expats with foreign assets worth over $200,000 by the last day of the tax year, or over $300,000 at any point in the tax year, must report them via Form 8938.
I’m a US expat who’s lived in Germany for years. Do I owe past US tax returns?
Yes. Even if you weren’t previously aware of your US tax obligations, you still must honor them. If you realize you owe past tax returns, file them as soon as possible.
Getting caught up on your US taxes with the Streamlined Procedure
Fortunately, the IRS has an amnesty program called the Streamlined Procedure, which helps expats who have unknowingly fallen behind on their taxes catch up penalty-free. Anyone who is not currently under IRS investigation and has not yet been contacted by the IRS regarding back taxes is eligible.
Expat taxes simplified
As you can probably tell by now, expat taxes can get complicated. The good news? Bright!Tax has helped thousands of expats in hundreds of different countries get their taxes done accurately and on time while minimizing their liability as much as possible.
Interested in talking to one of our CPAs about your tax situation? Reach out today to schedule your free consultation!