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 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.
This Q&A ist part of the global guide to Private Clients and was first published in: International Comparative Legal Guides (ICLG), Private Client 2023, pp. 74-82, 15 February 2023
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ICLG_Private Client 2023_Chapter Germany