Tax Residence - Tax Residence in Germany

Tax Residence in Germany

All tax resident individuals are taxed on their worldwide income, regardless of the source. This would include salary, dividends, etc. earned from one's limited company. Generally, individuals are deemed to be tax resident if they are physically present in Germany for more than six months in any one calendar year or for a consecutive period of six months over a calendar year-end. This ruling is applied retrospectively so presence in Germany from 1 March to 30 November, for example, would make one a German tax resident and therefore subject to German tax on the worldwide income for the entire period rather than just from the beginning of the seventh month.

An individual can also be deemed tax resident if they acquire an abode in Germany. This can include renting, as opposed to purchasing, a property but only if the duration of the lease is deemed to be more than temporary. For this reason, to avoid German tax residency, short-term (such as three months) should be taken out wherever possible.

Non-resident individuals are taxed on German-source income only. In the case of salary and benefits from your limited company, the source is German since the duties of the employment are being performed in Germany. However, dividends from your limited company (assuming this is not deemed to have a permanent establishment in Germany: see below) would be from a non-German source regardless of where the dividends are received. There is, therefore, scope for tax mitigation here if one does not become a German tax resident (although non-German taxes may also need to be considered).