All Americans pay taxes

Double taxation treaties: USA and Germany

A double taxation agreement (DTA) serves to protect taxpayers from double taxation. The agreement is a treaty under international law between two states.

This is to avoid natural or legal persons who receive income in two different countries from being taxed twice, i.e. also having to pay taxes in both countries.

The most important thing about the double taxation treaty

A double taxation agreement basically regulates how cross-border commuters have to pay tax on their income. In order to protect taxpayers from double taxation, Germany has concluded double taxation agreements with many countries. Although these agreements generally follow the same principles, they differ in detail.

In general, a double taxation agreement provides that you are exempt from taxes in Germany if you are considered to be taxable in another country. Conversely, no taxes have to be paid in another country if the taxpayer is already paying tax on his income in Germany.

The double taxation agreement is only intended to avoid double taxation; bringing about zero taxation is prohibited by law. Four principles are generally used to design double taxation agreements: the country of residence principle, the source country principle, the world income principle and the territoriality principle.

The double taxation agreement between the USA and Germany

There is a double taxation agreement between the USA and Germany. First of all, employees have to pay taxes in the country in which they work.

However, the double taxation agreements have a number of detailed regulations, so it is advisable, as a taxpayer, to seek advice from an expert.

Double taxation agreement: Germans who work in the USA

All Germans who live, work and invest in the USA are generally subject to the tax laws there. In the United States, income tax is generally much lower than in Germany. However, there are two main types of income tax in America.

Firstly, the “federal tex”, which is levied by the federal government, and secondly, the “state income tax”, which is levied by the respective domestic federal state. In 7 American states you don't have to pay any income tax at all. That is the case in Alaska, Florida, Nevada, South Dakota, Texas, and Wyoming.

Green Card holders and people with a so-called “substantial presence” in the USA are taxed like US citizens. However, the double taxation agreement also applies, so that green card holders should usually file a tax return in the USA, but do not necessarily have to pay taxes.

Double taxation treaty: Americans who work in Germany

With regard to the 4 principles, there is a basic regulation of tax payment. For residents who are subject to German tax law, the country of residence principle and the world income principle apply.

The country of residence principle states that a person is liable for tax in the state in which they are domiciled. According to the world income principle, taxpayers are taxed on their world income. For non-residents under German income tax law, the source country principle and the territoriality principle apply.

According to the source country principle, a person is liable for tax in the country from which they draw their income. The principle of territoriality states that the taxpayer is only taxed on the income that he has earned on the territory of the state in question.

Adapted to the pattern: DTA between Germany and Poland GeVestor informs you about what is hidden behind the double taxation agreement between Poland and Germany. > read more

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