German Inheritance Tax & Foreign Countries: When Both Sides Tax the Same Estate

How double taxation can arise—and how Germany’s § 21 ErbStG credits foreign inheritance tax on “Auslandsvermögen”.

For a primer on the German rules generally, see the German Inheritance Tax Guide. This article focuses on cross-border situations in which Germany and a second country both levy inheritance (or estate) tax, creating the risk of double taxation—and explains how credit relief works under § 21 ErbStG. It also outlines practical methods to prevent double taxation through early structuring.

Why Double Taxation Happens

Germany levies inheritance tax (Erbschaftsteuer) on the acquisition by each heir or beneficiary. Liability commonly arises if either the decedent or the acquirer is resident in Germany at the relevant time (worldwide reach), or if the transfer involves German-situs assets such as German real estate or certain German business or property interests.

Many partner countries also tax inheritances or estates. If both systems apply to overlapping value—whether because of residence or domicile rules, or because each state asserts situs rights—double taxation can result unless relieved by a treaty or by domestic credit rules such as § 21 ErbStG.

Countries Where Overlap with Germany Is Common

The following jurisdictions have inheritance or estate taxes that frequently interact with German rules and may trigger double taxation in cross-border estates. Including these countries in planning and research covers many typical scenarios.

Japan

Inheritance tax (Sōzokuzei), recipient-based and progressive. Overlap can arise via residence in Japan or Germany and via asset situs (for example, German real estate). § 21 credit is potentially available for Japanese tax on the foreign-assets portion included in the German base.

France

Succession duties (droits de succession), recipient-based. Overlap is frequent for French residents or French assets. Treaty coordination may apply; § 21 can credit French tax tied to the foreign-assets slice of the German assessment.

South Korea

Inheritance and gift tax, often with high marginal rates for large estates. Overlap occurs where the decedent or heir has Korean residence or where Korean or German situs assets are involved. § 21 credit may mitigate exposure on the foreign-assets share.

Spain

Inheritance and gift tax (Impuesto sobre Sucesiones y Donaciones) with regional variations. Overlap arises for Spanish residents or Spanish assets. § 21 credit can apply to Spanish tax corresponding to the foreign-assets portion of the German base.

United Kingdom

Inheritance Tax (IHT), estate-based, with domicile and deemed-domicile concepts. Overlap arises where UK IHT applies to the worldwide estate and Germany taxes the acquisition. § 21 credit can relieve the portion tied to foreign assets.

Other countries with relevant taxes include the United States, Belgium, Ireland, the Netherlands, Denmark, and others. The precise relief depends on any applicable treaty and the mechanics of § 21 ErbStG.

How Germany Credits Foreign Inheritance Tax: § 21 ErbStG

§ 21 ErbStG (Anrechnung ausländischer Erbschaftsteuer) allows foreign inheritance or comparable estate taxes to be credited against German inheritance tax, but only within specific limits and only insofar as the German assessment includes foreign assets (Auslandsvermögen).

Core Mechanics

There must be a German inheritance tax charge; the overseas levy must be an inheritance or estate tax comparable in nature to the German levy; the foreign tax must be duly assessed and, as a rule, paid; timing must align with German assessment rules; and the credit is capped at the portion of German inheritance tax attributable to the relevant foreign assets.

Credit Ceiling Principle

The credit may not exceed the amount of German inheritance tax that is attributable to the foreign-assets slice included in the German base. Practically, one isolates the foreign portion, calculates the German tax on that portion, and then credits the lower of the qualifying foreign tax or the German tax attributable to that same slice.

What Counts as “Foreign Assets” (Auslandsvermögen) – § 21(2) ErbStG

Under § 21(2) ErbStG, Auslandsvermögen are the assets located outside Germany that are part of the taxable acquisition. If assets are spread across several foreign states, the statute envisages a separate calculation per country, so that the credit reflects the German tax attributable to each foreign portion individually.

The foreign asset must be of a type that would be taxable if situated in Germany. Location or situs follows German connecting factors, for example immovable property by physical location and certain movables or claims by specific conflict-of-laws concepts.

Practical Calculation (High Level)

First, determine the German taxable acquisition per beneficiary, including foreign and domestic assets, and apply allowances and the appropriate tax class. Second, isolate the foreign-assets slice by country pursuant to § 21(2) and compute the German tax attributable to each foreign slice. Third, identify qualifying foreign inheritance or estate taxes paid on the same slice in each country. Fourth, credit the lower of the qualifying foreign tax or the German tax attributable to that foreign slice, observing documentation and timing requirements.

Illustrative Scenarios

Japan ⇄ Germany

A Japanese-resident heir receives German real estate and a Japanese securities portfolio from a German-resident decedent. Germany taxes the acquisition; Japan taxes the heir’s worldwide receipt. Foreign tax paid in Japan on the Japanese portfolio may be creditable under § 21 against the portion of German tax attributable to the portfolio, while German real estate remains primarily a German-situs item.

France ⇄ Germany

A French-resident child inherits a French apartment and a German brokerage account from a German-resident parent. Germany taxes the acquisition on a worldwide basis; France taxes the French apartment. German law credits French succession duties under § 21 up to the German tax attributable to the French apartment.

UK ⇄ Germany

A UK-domiciled decedent leaves assets to a German-resident heir. UK IHT applies to the estate; Germany taxes the heir’s acquisition. UK IHT borne on UK-situs assets can be credited against the German tax attributable to those foreign assets, subject to ceilings and documentation.

Documentation & Compliance Tips

Collect formal assessments and proof of payment for foreign death duties in each relevant country. Substantiate situs and valuation of foreign assets with appraisals, portfolio statements, and corporate share valuations. Track allowances and exemptions used abroad to reconcile the taxable base credited in Germany. Check treaty priority where a bilateral convention exists to determine allocation of taxing rights and method of relief. Model timing to align assessment windows and avoid interest or surcharges across jurisdictions.

Methods to Prevent Double Taxation Through Early Structuring

Although § 21 ErbStG provides a mechanism to credit foreign inheritance taxes, proactive structuring of cross-border estates is often more effective in reducing or even preventing double taxation. By planning ahead, families can optimize exemptions, allocate assets strategically, and avoid overlapping tax liabilities.

Foundations (Stiftungen)

Establishing a private or charitable foundation can be a powerful succession tool. Properly designed foundations—domestic or foreign—may centralize asset management, create intergenerational continuity, and, in certain cases, reduce inheritance tax exposure across jurisdictions. Cross-border coordination ensures that contributions to, and distributions from, the foundation are treated consistently to avoid double taxation. Because treatment varies by jurisdiction, careful analysis of recognition, transparency, and beneficiary taxation is essential.

Choice of Asset Location

Reviewing where real estate, securities, and business holdings are situated can align assets with favorable treaty allocations and minimize dual claims. Rebalancing portfolios between jurisdictions can reduce conflict of laws and situs overlaps.

Lifetime Gifts

Structured lifetime transfers, coordinated under both German and foreign rules, may leverage recurring allowances and lower marginal rates, thereby shrinking the taxable base at death in both systems.

Trusts and Holding Structures

While German tax law treats foreign trusts cautiously, coordinated planning with local advisors can ensure appropriate recognition and mitigate unexpected German tax effects. Corporate or partnership holding vehicles may also streamline situs and valuation issues.

Domicile and Residence Planning

Clarifying or restructuring residence and domicile positions well in advance can determine which state has the primary taxing right over worldwide assets, thereby reducing overlap at death.

Coordinated Wills and Succession Agreements

Drafting instruments that integrate German and foreign inheritance tax rules helps ensure optimal use of allowances, avoids forced-heirship conflicts, and reduces inadvertent dual taxation triggers.

Conclusion

When Germany and another country both levy inheritance or estate taxes, double taxation risks are real—but relief is available. Understanding how § 21 ErbStG credits foreign taxes on Auslandsvermögen, and how treaty rules allocate taxing rights, is essential for efficient planning and compliant filings. Even more importantly, early structuring can prevent many conflicts from arising at all. Foundations (Stiftungen) in particular can provide robust, long-term frameworks for asset stewardship and tax efficiency when properly designed and coordinated across jurisdictions. Complementary measures—such as strategic asset location, lifetime gifts, trust and holding structures, residence and domicile planning, and coordinated wills—further reduce overlap and risk.

Need tailored cross-border advice? Our team advises families and executors on German inheritance tax, treaty coordination, and § 21 credit claims across multiple jurisdictions—including Japan, France, South Korea, Spain, and the UK—and designs preventive structures such as foundations to minimize double taxation. Contact us for tax advice.