Basic Principles of German Tax Law

German tax law is complicated, and private individuals are not exempt from it. Together with VAT, income tax occupies an important and major position in the German tax jungle. Depending on how you earn your income, different documents are required for the tax return. We help you gain an overview of German tax law. In addition, we prepare income tax returns for you at a fixed price. Feel free to contact us by email or give us a call.

Income Tax Return with a Foreign Connection

As a basic principle in Germany, everyone who earns income should submit an income tax return to the competent tax office. Income is understood to include not only employment income, but also income from, among other things, capital assets as well as renting and leasing. If a foreign country is involved, completing the forms becomes increasingly complicated. Now there are two countries that want to deduct taxes from the income.

This is where the double taxation agreements with the respective countries help. These agreements regulate double taxation in great detail. However, it should not be forgotten that every situation should be considered individually in order to minimise tax within the legally permissible framework. We are happy to help you develop the solution that is right for you and submit your tax return to the tax office every year.

Living and Working in the Border Region

Cross-border commuters are employees who live on one side of the border and regularly travel to the other side to work there. These people are always confronted with the tax law of both countries. Therefore, more questions often arise than in unilateral tax situations. Which country may tax which income? Where can which expenses be claimed for tax purposes? Where must which investment income be taxed and where can I claim interest expenses?

Cross-border commuters with families must take into account not only their own situation but also the effects of family members on the legal consequences in both countries.

If you live in Germany and work in Denmark, consideration should be given to whether limited or unlimited tax liability is appropriate. However, if the situation is reversed and you live in Denmark and work in Germany, the high Danish tax rate will most likely apply. In this case, consideration should be given to shifting income to Germany.

More than a Tax Return Advisor

Although this sounds complicated at first, and often remains so, we want to achieve the best possible outcome for you. At the same time, we always keep practicality in mind. It is important that we are informed before certain circumstances are realised so that, from a tax perspective, we can achieve the best possible result. Our goal is to be more than a pure tax return advisor – we want to help reduce tax-related friction in bilateral activities. And this can be particularly successful if certain special features are taken into account from the outset.

With us, cross-border commuters receive income tax advice from experts in German and Danish law under one roof. And if it should become necessary – for example in the area of tax law – we will also represent our views before the tax authorities of both countries.

The Worldwide Income Principle Applies in Germany and Denmark

Regardless of whether you live in Germany or Denmark, the principle is that the country of residence generally has the right to tax all of the taxpayer’s income from all over the world. In addition, the right to tax may also be linked to other circumstances – for example, the place where the work is carried out. The double taxation agreements and national regulations on both sides of the border are intended to ensure that no income remains untaxed and that no income is taxed twice.

In practice, this often works, but not always. In many cases, all income must be declared in the country of residence – including income that is not subject to direct taxation domestically. In some cases, for example in the case of employment income, the income from other countries must be determined according to the rules of German tax law for the purposes of German tax law.

Communication Between Countries is Becoming Better and Better

Anyone who hopes that their income from abroad will go unnoticed in their home country because the domestic authorities will not find out about it is increasingly mistaken. The electronic and automated exchange of information where tax relevance is suspected in the other country is working better and better. As a result, it is becoming increasingly likely that a country will uncover such “forgotten” foreign income. And this also applies to many years in the past.

In order to uncover possible tax fraud, more than 100 countries around the world have joined together and share account balances, investment income, portfolio volumes and other information about citizens who live in another country.

In addition, national investigations by individual countries are being intensified. Whether Amazon accounts, eBay accounts or rental platforms, the tax authorities are currently becoming involved in all cases and are requesting that the platform operators disclose the providers/sellers together with their turnover from recent years.

These findings will, with great certainty, also be communicated to other countries if the provider no longer lives in Germany. It is therefore important to comply with the measures laid down in the law. However, if you have not done so, a voluntary tax disclosure can often reduce a possible penalty.