German Tax for U.S. Citizens residing in the U.S.
Income Taxation of a U.S. Citizen Residing in the United States with German-Source Income
U.S. citizens are taxed on worldwide income, which can create overlaps when they earn income abroad. Germany, as the source country, applies its own rules and the Double Taxation Agreement (DTA) with the U.S. provides coordination. This article explains how German-source income is treated, which filing obligations apply, and how double taxation is relieved in practice.
1) Limited Tax Liability in Germany
Because the individual is resident in the United States and does not maintain a residence or habitual abode in Germany, they are not subject to unlimited tax liability in Germany. Instead, they are limitedly liable to German income tax (beschränkte Steuerpflicht). Under limited tax liability, Germany taxes only specified categories of German-source income as set out in §49 of the German Income Tax Act (EStG), including (non-exhaustive):
- Employment income for work physically performed in Germany.
- Business profits attributable to a German permanent establishment or fixed base.
- Rental income from real property located in Germany.
- Capital income (e.g., dividends from German corporations, certain interest and royalties paid by German payors).
- Pensions from German statutory or occupational schemes, subject to treaty specifics.
2) Interaction with the U.S. Tax System
As a U.S. citizen, the taxpayer is subject to worldwide taxation in the United States. German-source income must therefore also be reported on the U.S. return. Absent coordination, this can create double taxation—once in Germany (source) and again in the U.S. (residence).
3) Relief via the Germany–U.S. DTA
- Allocation of taxing rights. The DTA assigns primary taxing rights by category:
- Real estate income (Art. 6): taxable where the property is located (Germany).
- Business profits (Art. 7): taxable in Germany only if attributable to a German permanent establishment.
- Dividends, interest, royalties (Arts. 10–12): both states may tax, but Germany’s tax is typically limited via reduced withholding rates.
- Employment income (Art. 15): taxable where the work is physically performed (Germany, subject to day-count and other conditions).
- Pensions (Arts. 18, 19): treatment depends on type/source; German pensions often taxable in Germany under treaty rules.
- Relief in the United States. The U.S. generally grants a foreign tax credit (FTC) for German income taxes paid on the same income, reducing U.S. federal tax and mitigating double taxation (subject to limitation rules).
- Exclusive taxation / reduced rates. For some items the treaty grants exclusive taxing rights to one country or caps the source-state withholding rate.
4) Practical Examples
Example A: Rental Income (German Property)
- A U.S. citizen rents out an apartment in Berlin.
- Under §49 EStG and DTA Art. 6, Germany taxes the rental income as German-source.
- German filing obligations: the taxpayer must submit an annual German income tax return (Einkommensteuererklärung) to the competent Finanzamt for the property’s location.
- In the return, they report:
- Gross rents received,
- Deductible expenses (e.g., maintenance/repairs, property management, mortgage interest, depreciation),
- Net rental income.
- The tax office issues an assessment notice (Steuerbescheid) and any balance is paid/refunded accordingly.
- The same rental income is also reported on the U.S. return; the U.S. allows an FTC for German income tax paid (subject to FTC limitations).
Result: The income is taxed first in Germany via assessment, then included in the U.S. return. Double taxation is mitigated by the U.S. foreign tax credit.
Example B: Dividends from a German Corporation
- A U.S. citizen holds shares in a German company that pays dividends.
- German domestic law levies a 25% dividend withholding tax (Kapitalertragsteuer) plus solidarity surcharge.
- Under DTA Art. 10, the German withholding may be reduced to:
- 15% in most portfolio cases; or
- 5% if the shareholder holds at least 10% of voting stock (subject to conditions).
- Withholding occurs at source before payment. The dividend is also reported on the U.S. return, and the U.S. FTC generally applies (subject to limitations) for German tax paid up to the treaty rate.
5) Refund of Excess German Withholding Tax (Dividends)
German banks often withhold the full statutory 25% (plus solidarity surcharge), which can exceed the DTA-limited rate. U.S. investors can reclaim the excess from the German Federal Central Tax Office (Bundeszentralamt für Steuern, BZSt) via a refund application.
- Use the BZSt refund forms (available in English/German).
- Provide evidence of U.S. tax residence (e.g., IRS Form 6166 “Certification of U.S. Tax Residence”).
- Include documentation of dividends received and German tax withheld (broker/bank certificates).
- After review, BZSt refunds the excess withholding to the investor.
Details and forms: BZSt – Capital Income Tax Relief
Conclusion
A U.S. citizen residing in the U.S. is limitedly taxable in Germany and owes German tax only on German-source income. The Germany–U.S. DTA allocates taxing rights and, together with the U.S. foreign tax credit, prevents full double taxation. For rentals, there is no German withholding—compliance is via the annual return. For dividends, treaty-rate withholding should be applied where possible, and any excess over the treaty cap can be reclaimed from the BZSt.
Frequently asked questions about German Tax for U.S. Citizens residing in the U.S.
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Do U.S. citizens residing in the U.S. owe German tax?
Yes—on German-source income only. As nonresidents of Germany, U.S. residents are under limited tax liability (§49 EStG), meaning only income sourced in Germany can be taxed there.
What counts as German-source income for nonresidents?
Typical categories include: wages for work physically performed in Germany, profits attributable to a German permanent establishment, rents from German property, dividends/interest/royalties from German payors, certain pensions, and gains on German real estate.
How does the Germany–U.S. tax treaty prevent double taxation?
The DTA allocates taxing rights (e.g., real estate income to the location state) and the U.S. generally grants a foreign tax credit for German taxes paid on the same income.
How are dividends from German companies taxed for U.S. residents?
Germany withholds 25% plus solidarity surcharge by default. Under DTA Art. 10, the rate is usually reduced to 15% (or 5% with ≥10% voting stock). The U.S. taxes the dividend and allows a foreign tax credit, generally up to the treaty rate.
How do I reclaim excess German dividend withholding above the treaty rate?
Apply to the Bundeszentralamt für Steuern (BZSt) for a refund (Capital Income Tax Relief). Typically needed: BZSt forms, IRS Form 6166 (U.S. residence), and broker tax vouchers. Details: BZSt – Capital Income Tax Relief.
Is there German withholding on rental income from German property?
No. There is no automatic withholding on rents. Nonresidents must file a German income tax return to report rental income, deduct expenses (e.g., maintenance, interest, depreciation), and pay assessed tax.
Which German filing obligations apply for rental income as a U.S. resident?
File an annual Einkommensteuererklärung with the Finanzamt responsible for the property’s location. You’ll need a German tax number (Steuernummer) and should attach a rental income statement (Anlage V).
Are wages for short business trips to Germany taxable there for U.S. residents?
Generally yes if workdays are performed in Germany. A 183-day rule may exempt income if strict conditions are met (no German employer/PE burden and limited presence). Keep detailed travel and employer records.
How are royalties from German license use treated for U.S. residents?
Royalties for rights used in Germany are typically German-source and may be subject to German withholding. The DTA can reduce or eliminate withholding; income remains taxable in the U.S. with FTC relief.
Do U.S. residents pay German tax on interest from German banks or debtors?
Interest from German payors can be German-source, but withholding/exemption varies by instrument and treaty. Many bank deposit interest payments are not subject to German withholding for nonresidents; confirm treatment with your bank and advisor.
Are capital gains on German shares taxable in Germany for U.S. residents?
Often not, but exceptions exist (e.g., substantial shareholdings or special cases under German law). Most portfolio gains are taxed in the U.S.; obtain advice before selling significant stakes.
How are gains from selling German real estate taxed for U.S. residents?
Germany taxes gains on German property if sold within the German speculation period (and in other specific cases). The U.S. also taxes the gain; use FTC to avoid double taxation.
How are German statutory/occupational pensions taxed for U.S. residents?
Treaty rules differ by pension type. As a rule of thumb, German social security–type pensions are often taxable in Germany, while some other pensions may be taxable in the U.S. Check the DTA articles and your plan type.
What German surtaxes apply to nonresidents (e.g., solidarity surcharge)?
Any German income tax due (including dividend withholding) may carry the solidarity surcharge (Solidaritätszuschlag). Church tax generally does not apply to nonresident individuals.
If I run a business from the U.S., when is income taxable in Germany?
Only if you have a permanent establishment (PE) or fixed base in Germany, or conduct activities that create German-source income under §49 EStG. The DTA taxes business profits in Germany only to the extent attributable to the PE.
How do I avoid over-withholding on German dividends in the first place?
Ask your broker/custodian to apply relief at source using residency documentation (often a certificate of residence). If not possible, use the BZSt refund process after payment.
Which U.S. forms are used to claim credits for German taxes paid?
Typically Form 1116 (Foreign Tax Credit) attached to Form 1040. Keep German tax assessments and withholding certificates as proof. Your broker will issue Forms 1099 for U.S. reporting.
Do I need IRS Form 8833 to claim treaty benefits on German income as a U.S. resident?
Form 8833 is required for certain treaty-based positions. Many routine cases (e.g., claiming an FTC or standard WHT reductions) may not require it. Always check the Form 8833 instructions for exceptions.
What deadlines apply for German nonresident returns (e.g., rental income)?
German deadlines can vary. As a general guide, returns are due mid-year following the tax year, with extended deadlines when represented by a tax advisor. Check your assessment notice and current rules.
What records should U.S. residents keep for German-source income?
Keep lease agreements, invoices, interest/dividend statements, German withholding vouchers, travel/workday logs, BZSt refund filings, and German tax assessments. These support treaty relief and U.S. foreign tax credits.