Which taxes are relevant when returning from abroad to Germany, we consider in the following article. The technical answer is basically very simple. After returning to Germany, the same taxes apply that all other taxpayers in this country have to pay. In this respect, there are no special features – actually. Indeed, there is a need for clarification regarding the division between domestic and foreign income. Only if one returns to the turn of the year, such a division is unnecessary. In addition, the inheritance and gift tax also requires a differentiation.

1. Taxes in Germany after returning from abroad – Introduction

You are certainly all familiar with the exit tax according to § 6 AStG. Among other things, it occurs if you move from Germany to abroad as a GmbH shareholder or GmbH shareholder. Therefore, we have often been asked if it is similar in the opposite direction. In other words, do taxes also apply when returning to Germany? In other words, it raises the question we put in the heading of the next chapter.

2. Is there an influx tax on a return from abroad?

The short answer to the question of the existence of an influx tax is, fortunately, no. Anyone who returns to Germany from abroad does not have to pay a separate tax at the time of regaining unlimited tax liability. To be honest, there is no such tax in the vast majority of other countries in the world. Nevertheless, the idea in itself is by no means completely absurd – at least at first glance. But such a tax is basically superfluous, because Germany levies taxes according to the world income principle. Taxation of foreign assets would also be perceived as very unfair. This also applies to the exit tax, but the reason behind this tax is another, namely the prevention of tax evasion abroad.

3. Taxes on return to Germany: which ones are there?

Nevertheless, we would like to take this opportunity to give an overview of taxes to all those people who are thinking about returning to Germany.

3.1. Tax liability in Germany

First of all, there is the general question of tax liability. If you are resident or use a residence in Germany, you are subject to unlimited taxation in Germany. This also applies if you take up residence with family members or friends and acquaintances. A residence is any residential area for which you have your own key.

The situation is similar with regard to unlimited tax liability if there is no residence in Germany, but the so-called ordinary residence. Unrestricted tax liability thus also applies if there is no residence in Germany, but you are still practically permanently in Germany. This is the case, for example, if you consistently check in to hotels.

A further connecting feature is the so-called center of life interests. If you have close family members who live in Germany, for example, the Treasury assumes that the unlimited tax liability is given in Germany. The tax liability extends to all types of income.

3.2. Income tax in Germany

Thus, we have already arrived directly at the most important income tax in Germany, the income tax. It is progressive, so that the tax rates are different in certain stages. This means that there is no linear increase in tax rates. At 45%, the maximum rate in Germany is reached (so-called rich tax rate). It is still three percentage points above the top tax rate and applies to income above EUR 277,826.

Inheritance and gift tax in Germany

Another important tax that becomes relevant after a return from abroad is the inheritance and gift tax in Germany. The Inheritance and Gift Tax Act uses three criteria, of which only one has to be fulfilled in order to become subject to inheritance and gift tax in this country. Either the transferring or the receiving person is resident in Germany. And thirdly: tax liability also exists if the object transferred by inheritance or donation is located in Germany.

3.4. Double taxation agreements

In both cases, income tax on the one hand and inheritance and gift tax on the other, it is necessary to examine more closely where taxes are incurred in international situations. After all, at least Germany taxes both domestic and foreign capital increases, i.e. income, inheritances and gifts. However, in the field of income taxes, there are double taxation agreements with well over 150 countries worldwide. In this regard, Germany and the other Contracting States determine which country should have sole taxation rights in certain situations. As a result, the contracting parties avoid that taxpayers in two or more states have to pay taxes in full at the same time.

4. Return to Germany: how to pay taxes in the first year?

Let us now consider a very practical question that always arises in connection with a return to Germany: where do you pay taxes when you return to Germany during the year?

In such a rather typical case, one draws a date line. It coincides with the return to Germany and marks when taxes are incurred in Germany. This means that income or capital gains accrued shortly before returning abroad are tax attributable to the respective foreign country. Everything else that arose in income or assets after returning to Germany is then subject to German tax law.

However, the German Treasury also takes into account the amount of income incurred abroad when determining the applicable tax rate. This special feature in income tax law is called progression reservation. If, for example, you have allowed yourself a lavish profit distribution shortly before returning abroad, then the German tax office determines the tax rate for the income earned in Germany according to the sum of domestic and foreign income.

5. Taxes with a view to a return to Germany – Conclusion

Finally, our conclusion: Anyone who returns to Germany from abroad does not pay a separate tax here. But what you should of course pay attention to is whether the foreign country from which you return collects an exit tax or comparable taxes.

Once you have arrived in Germany, you have to look at the time you return, what income you earned abroad beforehand and what you earned in Germany afterwards. Because it depends on whether and, if so, to what extent taxes are incurred in Germany after the return. Therefore, it is certainly easier to put the return on a turn of the year, so that when the income is divided into domestic and foreign income a clear separation by years takes place. Incidentally, double taxation agreements are, of course, of great importance in tax distribution. Without double taxation agreements, however, taxation threatens both at home and abroad.

In addition, inheritances and gifts are also important tax topics that are relevant in the context of a return to Germany. Here, too, the tax liability is often determined by the time of return to Germany. But unlike income tax, very few double taxation agreements exist in the area of inheritance or gift taxes. In this respect, there is a considerable need for tax arrangements.