International Tax Law: What U.S. Persons Need to Know

International tax law is becoming increasingly important in a world where people live, work, and invest across borders. For U.S. persons—that is, U.S. citizens, green card holders, and tax residents—the topic is especially complex. Unlike most countries, the United States taxes its people on worldwide income, no matter where they live or where their income is earned. This creates situations where two countries may claim the right to tax the same income, assets, or even an inheritance.

Understanding the rules of international taxation is therefore not only about compliance but also about avoiding unnecessary double taxation and structuring cross-border affairs efficiently.

What Does International Tax Law Cover?

International tax law touches many areas that affect individuals, families, and businesses with connections in more than one country:

Worldwide income taxation: U.S. persons must report and pay tax on income earned anywhere in the world.
Cross-border employment and business income: How salaries, self-employment income, or company profits are treated when earned abroad.
Investment income: Rules for dividends, interest, and capital gains from foreign sources.
Reporting obligations: Forms such as FBAR and FATCA require disclosure of foreign bank accounts and financial assets.
Estate and inheritance tax: Determining which country has the right to tax inheritances, gifts, and estates.
Double taxation agreements (DTAs): Treaties that allocate taxing rights and reduce conflicts.

For U.S. persons with connections to Germany or Switzerland, these areas are particularly relevant. Both countries are major destinations for Americans working abroad, investing, or maintaining family ties.

Inbound vs. Outbound Transactions

International taxation often distinguishes between inbound and outbound transactions:

Inbound transactions involve money flowing into the United States. For example, a German investor buying U.S. real estate or a Swiss company doing business in New York is subject to U.S. tax rules. The U.S. may impose withholding taxes on interest, dividends, or rents, but tax treaties can reduce these rates.
Outbound transactions involve U.S. persons earning money outside the United States. For example, an American engineer working in Munich or an entrepreneur investing in Zurich faces taxation both locally and in the U.S. Outbound situations are more complex, because they require navigating two (or more) tax systems at once.

A common challenge arises when a U.S. citizen living in Germany pays German taxes on employment income. The U.S. still requires a U.S. tax return, and while relief mechanisms exist, careful planning is essential to avoid paying more tax than necessary.

The Role of Foreign Tax Credits

To reduce the risk of double taxation, the United States allows U.S. taxpayers to claim foreign tax credits (FTC) for taxes paid to another country. For example, if a U.S. person living in Switzerland pays Swiss income tax, they may offset that tax against their U.S. tax liability.

However, the foreign tax credit is not unlimited:

It only applies to income tax, not to wealth tax or social security contributions.
The credit is capped at the U.S. tax liability on the same income.
Complex rules apply when income is earned in more than one foreign country.

This means the foreign tax credit is a useful tool, but it does not eliminate all risks. Strategic planning is often required to maximize the benefit and avoid losing credits due to timing differences or income classification rules.

U.S.–Germany and U.S.–Switzerland Treaties

Both Germany and Switzerland have negotiated tax treaties with the United States to coordinate taxing rights and prevent excessive double taxation.

U.S.–Germany Treaty

The U.S.–Germany tax treaty covers a wide range of income, including salaries, pensions, dividends, and royalties. It helps determine which country has primary taxing rights and provides reduced withholding tax rates.

What makes this treaty especially important is the U.S.–Germany Estate and Gift Tax Treaty. Very few countries have such agreements with the U.S. This treaty coordinates inheritance and estate taxation, ensuring that assets are not taxed twice in full when passing from one generation to the next. For families with property or heirs in both countries, this treaty is invaluable.

U.S.–Switzerland Treaty

The U.S.–Switzerland treaty focuses mainly on income taxation. It reduces withholding taxes on dividends and interest and clarifies how pensions are taxed. Unlike Germany, Switzerland does not have a separate estate tax treaty with the U.S. This means estate planning between the U.S. and Switzerland requires extra care, as both countries may claim the right to tax worldwide assets.

A key point to remember is the saving clause included in most U.S. treaties. While the treaty grants tax relief, the saving clause allows the U.S. to continue taxing its citizens as if the treaty did not exist. For U.S. persons, this means that filing U.S. tax returns is almost always required, even when income is exempt in the host country.

Why International Estate Planning Matters

For many families, estate and inheritance issues are as important as income tax. Without proper planning, cross-border inheritances can trigger unexpected taxes. For example:

A U.S. citizen with property in Germany may face both German inheritance tax and U.S. estate tax.
An American with heirs in Switzerland may face double reporting obligations and no treaty protection for estate matters.

Understanding these rules in advance allows for planning that protects family wealth and avoids surprises.

Conclusion: Get Professional Advice for Peace of Mind

International taxation is not something most people can handle on their own. The combination of U.S. worldwide taxation, local rules in Germany or Switzerland, and the detailed provisions of tax treaties makes cross-border tax planning highly technical. Mistakes can lead to double taxation, penalties, or missed opportunities for tax savings.

Our firm specializes in exactly this area. We advise U.S. persons on U.S. tax law as well as German and Swiss tax law, ensuring coordinated solutions that cover all relevant jurisdictions. Whether you are working abroad, investing internationally, or planning your estate, we can help you navigate the rules with clarity and confidence.

Contact us today to discuss your situation. With professional guidance, you can protect your income, your assets, and your family’s future—on both sides of the Atlantic.