Fundamentals of German Tax Law

German tax law is complex, and private individuals are not exempt from it. Alongside VAT, income tax represents one of the most important components of the German tax system. Depending on how you earn your income, different documents may be required for your tax return. We help you gain an overview of German tax law and prepare income tax returns at a fixed price. Please feel free to contact us by email or phone.

Income Tax Returns with Foreign Connections

In principle, anyone who earns income in Germany should submit an income tax return to the relevant tax office. Income includes not only employment income but also income from capital investments, rental income, and other sources. When foreign countries are involved, completing the tax forms becomes more complicated, since two countries may claim the right to tax the same income. This is where double taxation agreements (DTAs) come into play. These agreements regulate how taxation rights are divided between countries in order to avoid double taxation.

However, every situation must be assessed individually in order to minimize the tax burden within the limits permitted by law. We are happy to help you determine the best solution for your situation and to file your tax return with the tax authorities each year.

Living and Working in a Border Region

Cross-border commuters are employees who live on one side of a national border and regularly travel to the other side to work. These individuals are confronted with the tax systems of both countries. This often leads to many questions, such as: Which country has the right to tax which income? Where can certain expenses be claimed for tax purposes? Where must investment income be taxed and where can interest expenses be deducted?

For cross-border commuters with families, not only the individual situation but also the impact of family members on the legal and tax consequences in both countries must be considered.

If you live in Germany and work in Denmark, it should be examined whether limited or unlimited tax liability is applicable. If the situation is reversed and you live in Denmark but work in Germany, the comparatively high Danish tax rate will most likely apply. In such cases, it may be advisable to consider shifting income to Germany where possible.

More Than Just Tax Return Preparation

At first glance, these topics may sound complicated — and often they are. Our goal is to achieve the best possible outcome for you while always keeping practicality in mind. It is important that we are informed before certain transactions or decisions are implemented, so that we can optimize the tax consequences in advance. Our aim is to be more than a simple tax compliance advisor. We want to help reduce tax friction in cross-border activities. This works best when specific tax aspects are considered from the outset.

With us, cross-border commuters receive integrated advice from experts in both German and Danish tax law. If necessary, we also represent our positions before the tax authorities of both countries.

The Worldwide Income Principle in Germany and Denmark

Regardless of whether you live in Germany or Denmark, the country of residence generally has the right to tax the taxpayer’s worldwide income. At the same time, taxation rights may also depend on other factors, such as the place where the work is performed. The German-Danish double taxation agreement and national tax rules on both sides of the border aim to ensure that income is neither taxed twice nor left untaxed.

In practice, this often works, but not always. In many cases, all income must be declared in the country of residence — even income that is not directly taxed there. For example, in the case of employment income earned abroad, the income may still need to be calculated according to German tax rules for German tax purposes.

Increasing International Exchange of Information

Anyone hoping that foreign income will go unnoticed by domestic tax authorities is increasingly mistaken. Electronic and automated exchanges of information between countries are becoming more effective every year. As a result, it is becoming more likely that foreign income will be detected — even years later.

To combat tax evasion, more than 100 countries worldwide now exchange financial information with each other. This includes details such as account balances, investment income, portfolio volumes and other financial data of individuals living in another country.

In addition, national investigations are becoming more extensive. Tax authorities are increasingly requesting information from online platforms such as Amazon, eBay, or rental platforms, requiring them to disclose sellers and their revenues from previous years.

These findings are very likely shared with other countries if the individual no longer lives in Germany. For this reason, it is essential to comply with the applicable tax rules. If obligations have not been fulfilled in the past, a voluntary disclosure may often help reduce potential penalties.