German Inheritance Tax for Foreign Citizens – Double Taxation & § 21 ErbStG Relief

How double taxation arises and how Germany grants credit relief under § 21 ErbStG for foreign inheritance or estate taxes (“Auslandsvermögen”).

Foreign heirs, residents, or property owners often face double taxation when both Germany and another country impose inheritance or estate tax on the same assets. This guide explains how such overlap occurs and how § 21 ErbStG (foreign tax credit rule) provides relief. For general background, see our German Inheritance Tax Guide or the German Inheritance Law Overview. If you need help with filings, cross-border coordination, or § 21 ErbStG relief, visit our German Inheritance Tax Service.

1. Why Double Taxation Happens

Germany’s inheritance tax (Erbschaftsteuer) applies to each heir’s acquisition. Liability arises when either:

• the decedent or the heir is resident in Germany at the time of death (worldwide taxation), or
• the inheritance includes German-situs assets such as German real estate, business interests, or property rights.

Many partner countries (e.g., the UK, Japan, South Korea, Switzerland, Spain, or the United States) also levy inheritance or estate taxes. When both sides apply tax to the same assets—through residence, domicile, or situs conflicts—double taxation can arise unless a treaty or § 21 ErbStG provides relief.

2. Countries Commonly Overlapping with Germany

The following jurisdictions frequently create inheritance tax overlap with Germany, requiring careful coordination under domestic credit rules or double-tax treaties:

Japan

Japan’s inheritance tax (Sōzokuzei) is progressive and recipient-based. Overlap occurs when heirs or assets are located in both Germany and Japan. See our Germany–Japan Cross-Border Inheritance Tax Guide. § 21 ErbStG can credit Japanese tax paid on assets included in the German taxable base.

France

France levies succession duties (droits de succession) on recipients. Overlap is common for French residents inheriting German assets or vice versa. Germany may credit French inheritance tax on the relevant foreign-asset portion under § 21 ErbStG.

South Korea

Korea’s inheritance and gift tax regime often causes overlap through residence or asset situs. See our Germany–South Korea Inheritance Tax Guide for examples and treaty coordination.

Spain

Spain applies inheritance and gift tax (Impuesto sobre Sucesiones y Donaciones) with regional variations. German residents inheriting Spanish property often qualify for § 21 ErbStG credit relief on the Spanish portion.

United Kingdom

The UK’s Inheritance Tax (IHT) is estate-based and linked to domicile. Overlap arises when UK IHT applies to worldwide estates while Germany taxes the heir. See our Germany–UK Cross-Border Guide for § 21 coordination examples.

Switzerland

While Switzerland has no federal inheritance tax, several cantons levy such taxes. Cross-border estates with mixed German–Swiss assets often face situs conflicts. The Germany–Switzerland Inheritance Tax Guide explains how treaties and § 21 interact.

3. § 21 ErbStG – Credit for Foreign Inheritance Tax

Section 21 of the German Inheritance and Gift Tax Act (ErbStG) allows crediting of foreign inheritance or estate tax paid on foreign assets (Auslandsvermögen) included in the German assessment. If you need to file such claims or structure a compliant estate plan, our German Inheritance Tax Service assists with § 21 credit applications, cross-border filings, and communication with German tax authorities.

Key Conditions for Credit

• German inheritance tax liability must exist.
• The foreign levy must be comparable (inheritance or estate tax).
• The foreign tax must be duly assessed and paid.
• The credit cannot exceed the German tax attributable to those foreign assets.

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

Foreign assets (Auslandsvermögen) are those located outside Germany and included in the taxable acquisition. If multiple foreign jurisdictions are involved, separate calculations per country are required. Typical connecting factors include:

• Immovable property → physical location
• Business interests → management or registration location
• Movable assets and claims → according to German conflict-of-law rules

5. Practical Calculation

The § 21 credit computation involves these steps:

1. Calculate the total taxable acquisition under German law (including foreign assets).
2. Isolate the foreign-assets slice by country.
3. Determine German tax attributable to each slice.
4. Identify foreign inheritance tax paid on those assets.
5. Credit the lower of the two (German vs. foreign tax on that slice).

For a simplified overview, you can use our German Inheritance Tax Calculator.

6. Real-World Scenarios

Japan ⇄ Germany

A Japan-resident heir inherits German real estate and Japanese securities from a German-resident decedent. Germany taxes the acquisition; Japan taxes the worldwide receipt. Japan’s tax on the securities may be credited under § 21 against German tax on that portion.

France ⇄ Germany

A French-resident child inherits a French apartment and German securities from a German-resident parent. Germany taxes the entire acquisition; France taxes the French property. French tax may be credited under § 21 up to the German tax on the apartment.

UK ⇄ Germany

A UK-domiciled decedent leaves assets to a German-resident heir. UK IHT applies to the estate; Germany taxes the heir. Germany credits UK tax on UK assets, subject to the § 21 ceiling rule.

7. Documentation & Compliance Tips

• Keep certified copies of foreign tax assessments and payment proofs.
• Substantiate valuation and situs of foreign assets.
• Track allowances and exemptions claimed abroad.
• Check bilateral tax treaties for priority allocation and credit method.
• Synchronize assessment timing to avoid mismatched reporting periods.

8. Preventing Double Taxation – Planning Methods

While § 21 ErbStG provides relief, proactive cross-border structuring is often more efficient than claiming credit after the fact. Typical planning tools include:

Foundations (Stiftungen)

Family or charitable foundations can manage intergenerational assets while reducing exposure across jurisdictions. Cross-border recognition and transparency rules must be carefully coordinated.

Asset Location & Rebalancing

Reviewing where real estate, business shares, and securities are located helps align with treaty allocations. For examples, see the Germany–Switzerland and Germany–U.S. inheritance tax pages.

Lifetime Gifts

Coordinated gifts under both systems can use recurring allowances and lower rates, reducing taxable exposure at death.

Trusts & Holding Structures

Foreign trusts and holding companies require careful German tax analysis but can simplify situs allocation and administration.

Domicile & Residence Planning

Adjusting residence or domicile well before succession can clarify primary taxing rights and prevent double taxation at death.

Coordinated Wills & Succession Agreements

Integrated testamentary planning ensures allowances and treaty benefits are used efficiently across systems.

9. Conclusion

When Germany and another country both impose inheritance or estate tax, double taxation risks are real—but § 21 ErbStG allows credit for foreign taxes on foreign assets. Combined with treaty coordination and proactive structuring, this ensures efficient, compliant, and fair outcomes. For expert support with filings, relief claims, or estate planning, visit our German Inheritance Tax Service or use our Inheritance Tax Calculator to estimate liabilities. Contact us for tailored cross-border advice.