To what extent is domicile or habitual residence relevant in determining liability to taxation in your jurisdiction?
German law does not recognise the concept of domicile. In Germany, tax liability and thus taxation is determined by the concept of residence. An individual has German residence for tax purposes if he or she has either a permanent home or a habitual abode in Germany. The worldwide income and assets of individuals whose permanent home or habitual abode is located in Germany (hereinafter referred to as: “residents”) are subject to:
- income tax; and
- inheritance and gift tax (IGT).
If domicile or habitual residence is relevant, how is it defined for taxation purposes?
An individual’s habitual abode is at the place where he or she stays under circumstances that allow the assumption that the stay is not only temporary. Generally, a person is deemed to have a habitual abode in Germany if he or she spends more than six months in Germany without any significant interruptions. An individual has his or her permanent home in Germany if he or she maintains a dwelling in Germany under circumstances indicating that he or she will maintain and use such dwelling.
To what extent is nationality relevant in determining liability to taxation in your jurisdiction?
Generally, German nationality does not trigger any tax liability in Germany. However, German citizens may be subject to extended tax liability after emigration from Germany.
What other connecting factors (if any) are relevant in determining a person’s liability to tax in your jurisdiction?
Besides permanent home and habitual abode, there are no other connecting factors for an individual’s tax liability with his or her worldwide income in Germany. However, even if an individual has no permanent home or habitual abode in Germany, income tax is generally levied on his or her German-sourced income.
Have the definitions or requirements in relation to any connecting factors been amended to take account of involuntary presence in (or absence from) your jurisdiction as a result of the coronavirus pandemic?
The relevant legal definitions have not been amended. However, Germany has concluded bilateral consultation agreements with some of its neighbouring countries relating to the provisions of double taxation agreements for cross-border commuters. These agreements shall ensure that the increase in days working from home due to the pandemic does not affect the division of taxation rights between the contracting states.
Furthermore, the German Federal Ministry of Finance confirmed that the stay of fitters in Germany in the event of border closures does not constitute a permanent establishment for a foreign entrepreneur.
General Taxation Regime
What gift, estate or wealth taxes apply that are relevant to persons becoming established in your jurisdiction?
Individuals becoming established in Germany may be liable to taxes if they take up a permanent home or habitual abode in Germany. IGT applies if either the transferor or the transferee is a resident in Germany. IGT rates range from 7 to 50 per cent depending on the relationship between the transferor and the transferee and the value of the assets transferred. Spouses and descendants pay IGT at a rate of 7 to 30 per cent. Transfers between most other relatives are taxed at a rate of 15 to 43 per cent. Between unrelated persons,the applicable tax rate is 30 or 50 per cent (for more than EUR 6 million).
The following tax-free allowances apply:
- spouses receive a personal allowance of up to a maximum of EUR 500,000 and a maintenance allowance of up to a maximum of EUR 256,000; and
- descendants receive a personal allowance of up to a maximum of EUR 400,000 and an age dependent maintenance allowance of up to EUR 52,000.
In principle, a wealth tax exists in Germany. However, following a ruling of the Federal Constitutional Court, it has not been levied since 1997.
How and to what extent are persons who become established in your jurisdiction liable to income and capital gains tax?
Persons becoming established in Germany are treated as residents if they have a permanent home or habitual abode in Germany. Income tax is imposed on the worldwide income of individuals whose tax residence is located in Germany.
There are seven types of income:
- income from agriculture and forestry;
- income from trade or business;
- income from self-employment;
- income from employment (salaries and wages);
- income from capital and capital gains;
- income from letting property, especially real property and groups of assets; and
- other income (e.g., income from a pension or leases of movable assets).
The tax rate ranges from 14 to 45 per cent progressively. In addition, a solidarity surcharge of 5.5 per cent of the tax due is levied. A basic personal allowance of the taxable income is not subject to taxation (EUR 9,408 for single taxpayers and EUR 18,816 for married taxpayers for the tax assessment period 2020).
Read this article in full:
The International Comparative Legal Guide to_Private Client 2021_Chapter Germany
This article is part of The International Comparative Legal Guide to: Private Client 2021, GLG Global Legal Group, first published on 15 January, 2021