Published on and written by Cyril Jarnias
Relocating, working, or investing in real estate in Germany involves navigating a complex tax system, which can sometimes be confusing for a non-resident. Between income tax, residency rules, tax treaties, and property tax, an expatriate can quickly feel lost. However, the legal framework is relatively coherent once you understand its logic: distinguishing who is a tax resident, which income is taxable in Germany, how to avoid double taxation, and how real estate assets are treated.
This article details the two main taxes in Germany for expatriates: income tax and property tax (Grundsteuer). It focuses particularly on the case of French expatriates, explaining the practical workings of tax treaties and foreign tax credit rules.
Tax Residency in Germany: The Starting Point
Before discussing rates, filings, or real estate taxes, the first question is always the same: are you a tax resident in Germany or merely taxable on a limited basis on certain income of German origin?
Under German law, the central distinction is between “unlimited tax liability” and “limited tax liability” for income tax purposes.
A taxpayer is subject to unlimited tax liability if they have a domicile (Wohnsitz) or a habitual abode (gewöhnlicher Aufenthalt) in Germany. These concepts are defined by the Fiscal Code (Abgabenordnung).
A domicile is defined as a dwelling that a person maintains under circumstances indicating an intention to retain and use it on a lasting basis. This can include a rented apartment, a house, or even a small studio. Mere ownership of a property is not sufficient; the determining criteria are the actual possibility of living there and the objective intent to maintain it as a residence, even for sporadic use.
The habitual abode, on the other hand, is based on the duration of physical presence. A stay of more than six months (more than 183 days) in the country is, in principle, considered a habitual abode from the first day, with short interruptions (vacations, business trips) not being taken into account. But even below this threshold, the nature of the stay (employment contract, long-term assignment) can lead to a habitual abode being established.
As soon as an expatriate meets one of the criteria for German tax residency, they are subject to the principle of worldwide taxation. This means all their sources of income, German and foreign, are taken into account for calculating German tax. However, international tax treaties can allocate the right to tax to another state or provide for methods of exemption or tax credit to avoid double taxation.
A non-resident, conversely, is taxed in Germany only on certain types of German-source income enumerated by law (for example, salary for work performed in Germany, rental income from a property located in Germany, profits from a German permanent establishment, etc.). This is referred to as limited tax liability.
There is, however, a gateway: a non-resident can request to be treated as a German tax resident, by election, if they derive at least 90% of their worldwide income from Germany, or if their income from outside Germany is below the basic tax-free allowance. This election grants them access to the same allowances and benefits as residents (notably the basic allowance and certain deductions), particularly for EU/EEA expatriates.
Income Tax: Rates, Surcharges, and Tax Brackets
Once tax residency is clarified, German income tax applies according to a progressive rate schedule. For the year 2025, the basic parameters give a good idea of the level of taxation an expatriate can expect.
For a single taxpayer, the basic tax-free allowance (Grundfreibetrag) is €12,096, meaning no income tax is due as long as taxable income does not exceed this threshold. Beyond that, the rate increases progressively, according to a continuous schedule starting at 14% for the first euros above the allowance, reaching 42% in the middle bracket, and then 45% beyond a high level of income.
The table presents the tax brackets for two distinct family situations: a single taxpayer and a married couple filing jointly.
| Family Situation | Taxable Income Bracket (€) | Approximate Marginal Rate |
|---|---|---|
| Single | Up to 12,096 | 0% |
| Single | 12,097 – 68,480 | 14% → 42% (progressive) |
| Single | 68,481 – 277,825 | 42% |
| Single | Above 277,826 | 45% |
| Married Couple (joint filing) | Up to 24,192 | 0% |
| Married Couple | 24,193 – 136,960 | 14% → 42% (progressive) |
| Married Couple | 136,961 – 555,650 | 42% |
| Married Couple | Above 555,651 | 45% |
In addition to this rate schedule, the “Solidaritätszuschlag” (solidarity surcharge), a fixed surcharge of 5.5% of the income tax, may apply, but now only to relatively high incomes. In 2025, a single person only pays this surcharge if their income tax exceeds €19,950, which corresponds to a taxable income of around €73,000. The surcharge is then calculated on a sliding basis, reaching the full 5.5% at higher income levels. Married couples benefit from a doubled threshold.
Members of recognized churches in Germany are subject to the Kirchensteuer (church tax), a tax proportional to income tax (generally 8% or 9% depending on the federal state). This tax is automatically levied if religious affiliation is declared, but it is possible to end it through an official procedure to leave the church.
Payroll withholding tax is based on a system of tax brackets (Steuerklassen) that reflect family status (single, single parent, couple with one or two incomes, etc.) and determine the amount of tax withheld monthly by the employer. For expatriate employees, the choice of bracket, particularly for a couple, has an immediate impact on net pay, but does not change the final annual tax liability.
Worldwide Income, Tax Treaties, and Foreign Tax Credit
For expatriates, a major challenge is managing income received in multiple countries. Germany applies the principle of worldwide taxation for its residents, meaning that, by default, foreign salaries, pensions, interest, dividends, or rental income from abroad are included in the calculation of taxable income.
This logic would be a source of double taxation if each state fully taxed the same income. To remedy this, Germany relies on two mechanisms: bilateral tax treaties and, in their absence or as a supplement, a unilateral foreign tax credit system governed by § 34c of the Income Tax Act (EStG).
Germany has concluded more than a hundred double taxation treaties, including a comprehensive treaty with France covering income tax, wealth tax (when it existed), local business taxes, and property tax. These texts allocate taxing rights by category of income: income from real property is taxable in the state where the property is located, salaries in the state where the employment is exercised (subject to the 183-day rule), while dividends and interest generally follow the residence of the recipient, possibly with a limited withholding tax in the source state.
Germany’s Tax Treaties
When the tax credit method is used to avoid double taxation (as is the case in many treaties), the foreign income remains taxable in Germany, but the tax paid abroad is credited against the German tax due on that same income, up to a credit limit. This limit is not a simple refund: it represents the maximum fraction of foreign tax that Germany agrees to credit.
Since 2015, the calculation of this limit has been based on the following formula:
The calculation incorporates taxable income and applies a specific rate to determine the maximum deductible amount.
This calculation method has been in force since the 2015 tax year, marking a change in legislation.
> Foreign Income × German average tax rate.
The average rate is obtained by dividing the German income tax (according to the tariff) by the total taxable income. In other words, Germany applies the average tax rate resulting from all your worldwide income, taking into account your family situation and deductions, to your foreign income. The foreign tax actually paid is then credited, but only up to this limit. If it exceeds this amount, the excess cannot be carried forward to other years or credited against tax due for another country.
The foreign tax credit in Germany is calculated separately for each country: taxes paid in one state cannot be credited against German tax due on income from another state. For capital income subject to the German final withholding tax (Abgeltungsteuer) of 25%, the specific rule of § 32d EStG applies, not § 34c EStG. This regime has its own foreign tax credit limits for capital income.
There is an alternative to the credit: upon request, foreign taxes can be deducted as operating expenses for determining taxable income in Germany. This option, provided for in § 34c para. 2 EStG, is generally less advantageous than the direct credit but may be interesting in certain specific situations (for example in the case of domestic losses). The taxpayer must choose uniformly for all income from the same country, but spouses can choose differently from each other.
Practically, expatriates declare their foreign income and the corresponding taxes using the supplementary form “Anlage AUS,” to be attached to the annual tax return. In addition, salaries earned abroad must be declared on specific forms for employment income (Anlage N and N‑AUS), while capital income is reported in the dedicated section.
The Franco-German Case: Salaries, Pensions, and Cross-Border Taxation
The tax treaty between France and Germany is a classic case study for expatriates moving between the two countries. It organizes the allocation of taxing rights for most types of income, while providing precise credit and exemption mechanisms.
For real estate income, the principle is clear: a property located in Germany (for example, an apartment rented in Berlin by a French tax resident) is taxable only in Germany. Germany taxes the rental income and France, the state of residence, must take this income into account, but typically by applying the tax credit method, so that the corresponding French tax is neutralized.
In principle, salary is taxed in the country where the work is performed. However, the 183-day rule allows taxation to remain in the country of residence if: the stay in the other country does not exceed 183 days within any 12-month period, the employer is not a resident there, and the salary is not borne by a permanent establishment located in that country.
There are also specific rules for cross-border commuters: a resident of a French border area working in a German border area, who normally returns home each day, is in principle taxed in their state of residence on their salary. The geographical definition of these zones (e.g., Alsatian departments on the French side, or municipalities within 20 km of the border on the German side) is specified by the treaty and its amendments, as are the tolerance margins (number of days one can not return home without losing the commuter status).
The treaty distinguishes social security pensions from private/public pensions. For income received since 2016, social security pensions are taxable in the state of residence of the beneficiary, and no longer in the paying state. France generally applies a tax credit, while Germany often uses the exemption with progression method (Progressionsvorbehalt).
More broadly, the Franco-German treaty also covers wealth tax (for periods when such a tax existed), local business taxes, and property tax, with a constant objective: to prevent the same income or the same asset from being taxed twice.
Rental Income and Real Estate Capital Gains: The Expatriate Perspective
For an expatriate, real estate often constitutes the most tangible economic link with Germany. Whether you are a resident who retains a property in France, a non-resident investing in a German city, or a cross-border commuter renting housing on both sides of the border, the question of taxing rental income and capital gains inevitably arises.
According to German law and international treaties, rental income from real property is taxable in the country where the property is located. A non-resident investor (for example, a French person owning an apartment in Munich) will be subject to income tax on a limited basis in Germany. They do not benefit from the basic tax-free allowance, unless they opt for the quasi-resident status, which is conditional upon having worldwide income that is almost exclusively of German origin.
Expenses related to the rental — loan interest, depreciation (Abschreibung or AfA) of the building — are in principle deductible for determining the net taxable income. Usual depreciation rates are around 2% per year for existing buildings, with a more favorable regime for new constructions for a given period.
In case of a sale, the taxation of the capital gain depends on the holding period of the property. If the property is held privately, a sale within 10 years of acquisition generates a taxable capital gain as income (at the progressive rate). A holding period exceeding 10 years makes the capital gain tax-exempt. Specific rules apply if the property was used as the owner’s primary residence during certain periods.
For non-residents, Germany generally retains the right to tax the capital gain on real estate located within its territory, even if the person has left the country. The treaties — including the Franco-German treaty — confirm this principle of taxation in the state where the property is situated, while then organizing the treatment in the state of residence to avoid double taxation.
Property Tax (Grundsteuer): Operation and Reform
The German property tax (Grundsteuer) is an annual local tax on real estate ownership, which concerns both residents and expatriate owners. It constitutes a stable source of funding for municipalities, intended to finance infrastructure, schools, or local services.
Its calculation is based on a three-step formula: a basic fiscal value of the real property, a federal base rate (Steuermesszahl), and a municipal multiplier (Hebesatz) set by each municipality. This gives:
Property value × base rate × municipal multiplier = annual property tax amount.
Taxation based on outdated cadastral values (1964 for the former West Germany, 1935 for the former East Germany) was deemed contrary to the principle of equality by the Federal Constitutional Court, leading to a major reform for a new valuation system and a general update of data.
Owners who owned a property on January 1, 2022 were required to file a “property tax declaration” (Grundsteuererklärung) with their tax office, between July and October 2022, to allow the determination of the new property values. The requested information included address, land area, standard land value (Bodenrichtwert), type of building, living area, year of construction, etc.
The German property tax reform is designed to be broadly revenue-neutral, but it has redistributive effects depending on the location and characteristics of the property. Some owners will pay more, others less. Although the basic principle (an annual tax calculated on an updated value and a local multiplier) is national, states like Bavaria or Baden‑Württemberg apply their own calculation models, creating a diversity of methods.
To give an order of magnitude, before the reform, effective property tax rates generally ranged between 0.26% and 1% of the property’s fiscal value. With the new system, these effective percentages may shift, but the logic of a moderate tax relative to the property value remains. In many cases, landlord owners pass on the property tax to tenants via recoverable operating costs, to the extent permitted by German law.
For expatriate owners of property in Germany, resident or non-resident, the property tax therefore represents a recurring cost to be factored into the net return on investment, in addition to income tax on rental income and, where applicable, capital gains tax upon resale.
Property Tax and Treaties: Coordination with Other States
Double taxation treaties generally cover, beyond income tax, certain taxes on capital, including property tax, when it exists in both countries. The Franco-German treaty thus includes taxes on income, on wealth, as well as local business taxes and property tax.
For a French resident who owns real estate in Germany, the German property tax (Grundsteuer) is due in Germany. There is no direct tax credit in France for this tax, as it does not have a strictly symmetrical equivalent in the French tax system. However, for more global taxes on wealth, like the former wealth tax or future capital taxes, the Franco-German tax treaty may provide specific tax credit or exemption mechanisms.
On the German side, there is currently no general wealth tax in force. But some mechanisms, such as inheritance and gift tax, take into account the location of assets: a building located in Germany can trigger German inheritance tax, even if the heir is an expatriate. Specific treaties, like the one signed between France and Germany concerning inheritances and gifts, also organize the allocation of taxing rights to prevent the inheritance from being fully taxed twice.
Non-Residents, German-Source Income, and Filing Obligations
For an expatriate who does not meet the conditions for tax residency but has income in Germany, the logic is that of limited tax liability. This is the case, for example, for a property owner residing abroad who receives rental income in Germany, an artist or athlete performing in Germany, or an employee who carries out assignments in the country without establishing their habitual residence there.
German-source income (according to § 49 EStG) is taxable in Germany. Non-residents generally must file a local tax return, unless the tax is fully withheld at source and no return is legally required. For rental income, a return is necessary because taxation is based on net income (rent minus expenses). For certain capital income, the final withholding tax at source may be sufficient.
Non-resident taxpayers can nevertheless, as mentioned above, request to be treated as residents under certain conditions, in order to benefit from the same allowances and deductions, which can be particularly interesting for EU/EEA taxpayers whose income almost exclusively comes from Germany.
The tax return is filed, as for residents, per calendar year, with a standard deadline of July 31 of the following year, automatically extended if a tax advisor is engaged. Expatriates who hold real estate in Germany must also pay the annual property taxes, often via quarterly installments.
Progression, Exempt Income, and Side Effects for Expatriates
A point often misunderstood by expatriates is the impact of foreign income that is nonetheless exempt from tax in Germany. The “Progressionsvorbehalt” (progression clause) mechanism plays a key role here. When a double taxation treaty provides that certain income — salaries, pensions, real estate income — is exempt from tax in Germany because it is taxable in another state, Germany often retains the ability to take it into account for determining the tax rate applicable to other income taxable in Germany.
For an expatriate in Germany whose salary is taxed in France, this income is added to the other income to calculate an average tax rate. This rate is then applied only to the income taxable in Germany. Thus, the gross German tax does not increase directly because of the French salary, but the marginal tax rate on German income can be higher. This mechanism, often a source of surprises, particularly concerns binational couples and cross-border workers.
Local Taxes, Ancillary Taxes, and the Overall Tax Environment
Beyond income tax and property tax, the German tax environment includes other levies which, while not central to our topic, are part of the landscape for an expatriate.
The Grunderwerbsteuer (real estate transfer tax) is levied upon the purchase of a property above a certain amount. Its rate, varying from 3.5% to 6.5% depending on the federal state, applies to the purchase price. These costs, plus notary fees and land registry entry costs, are not deductible from income tax. They must absolutely be included in the calculation of the profitability of a rental investment.
There is also a range of smaller-scale taxes not to be overlooked: dog tax (Hundesteuer), broadcasting fee (Rundfunkbeitrag) per household, motor vehicle tax (Kraftfahrzeugsteuer), not to mention mandatory social security contributions (health, pension, unemployment, long-term care), shared between employer and employee.
Expatriates engaged in self-employed activity or operating a business in Germany are subject to trade tax (Gewerbesteuer), a local business tax calculated on the company’s profit. Sole proprietorships and partnerships benefit from a specific allowance, while corporations are fully subject without a basic allowance. The effective rates of this tax vary by municipality.
Finally, on the international level, Germany is not limited to its bilateral treaties: it also participates in the multilateral framework to combat base erosion and profit shifting (BEPS), and applies automatic exchange of financial account information standards (CRS). For an expatriate, this means that bank accounts opened in Germany are likely to be reported to the tax administration of their country of origin, and vice versa, according to the agreements in place.
A Heavy but Structured Tax System, to be Mastered
For an expatriate, German taxation can seem heavy: a progressive schedule with high rates for high incomes, substantial social security contributions, property tax, local taxes, etc. However, the system also offers a wide range of deductions and allowances, notably for professional expenses, family-related costs, and savings income up to certain thresholds. Above all, the overall architecture is based on clear principles: tax residency, the distinction between German-source and foreign-source income, the systematic application of treaties to avoid double taxation, and, as a last resort, the internal tax credit mechanism.
The Franco-German tax treaty is an essential framework for expatriates. It regulates the taxation of salaries, pensions, dividends, interest, real estate income, and local taxes like property tax. It establishes clear rules for allocating taxing rights between the two countries, which is particularly useful in cases of multiple income sources or cross-border statuses (e.g., cross-border employee and property owner in both countries). It does not remove all complexity but provides an important safety net.
In this context, understanding the fundamental mechanisms — tax residency, worldwide taxation, foreign tax credit, Progressionsvorbehalt, treatment of real estate income, and the workings of property tax — constitutes the best protection against unpleasant surprises, de facto double taxation, or penalties for non-filing. As German tax forms (Anlage N, Anlage AUS, real estate forms, etc.) incorporate these rules, guidance from a professional familiar with cross-border issues is often advisable, especially for the first year of relocation or during major transactions like buying or selling a property.
For expatriates in Germany, mastering income tax and property tax is essential. It is advisable to familiarize oneself with the tax rules, applicable texts (domestic law and treaties), and relevant case law. This knowledge allows for managing one’s situation with confidence and integrating these aspects into an international wealth planning strategy.
A 62-year-old retiree, with a financial portfolio exceeding one million euros well-structured in Europe, wanted to change his tax residency to Germany to optimize his tax burden and diversify his investments, while maintaining a link with France. Budget allocated: €10,000 for comprehensive support (tax advice, administrative formalities, relocation, and wealth structuring), without forced asset sales.
After analyzing several attractive destinations (Germany, Greece, Cyprus, Mauritius), the chosen strategy was to target Germany for its legal and tax stability, its network of tax treaties, direct access to the EU market, a high-performing healthcare system, and a moderate cost of living outside major metropolitan areas (Leipzig, Dresden…) compared to Paris. The mission included: pre-expatriation tax audit (exit tax or not, tax deferral), obtaining residency with rental or purchase, enrollment in the German healthcare system, transfer of banking residency, plan to sever French tax ties (183 days/year outside France, center of vital economic interests…), introduction to a local network (lawyer, Steuerberater, bilingual support), and wealth integration (analysis and restructuring if necessary).
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Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
