If you are subject to unlimited tax liability in Germany, not only your domestic (German) income but also your non-German income is taxable in Germany. Whether and how non-German income is taxed in Germany depends on the type of income and the period in which you received it. We explain the details.

When is non-German income taxed in Germany?

If you have a residency or habitual stay in Germany, you are subject to unlimited tax liability. This applies regardless of your origin or nationality. This is based on the so-called country of residence principle, which is applied by most countries in the world.

Unlimited tax liability means that you have to pay tax in Germany not only on your domestic income but also on your non-German income (the so-called world income principle). According to this principle, all income is taxable, regardless of where you earned the income. Like other countries, Germany follows this world income principle for persons with unlimited tax liability.

However, the principle of worldwide income can lead to your income being taxed twice. This is because according to the so-called source country principle, all sources of income located on the territory of a state are subject to taxation. For example, your foreign income could be taxed in Germany according to the world income principle, although it was also taxed abroad according to the source country principle.

In order to avoid this double taxation, Germany has concluded so-called double taxation agreements (DTAs) with many countries. They regulate which state has the right of taxation in which case and exactly which measures apply to avoid or mitigate double taxation.

The most common measure is the exemption method. According to this, non-German income remains tax-free in Germany if it was taxed abroad. However, it is subject to the progression clause in Germany, i.e. it increases the individual tax rate applied to domestic income.

The imputation method is rarer. Here, the income is taxed both abroad and in Germany. However, to mitigate double taxation, the tax paid abroad can be credited against the tax due in Germany.

💡 World income and source country principle, double taxation agreements and exemption method - as these terms already indicate, international tax law is complicated. The Taxfix app can therefore not yet cover all cases of non-German income. Here we explain exactly which tax cases we can map.

How non-German income is taxed in Germany

The taxation of income from abroad depends on the type and period in which you received it. The Taxfix app distinguishes between non-German income received abroad, and non-German income received while living in Germany.

The following applies to non-German income supported by Taxfix:

Non-German income abroad

Non-German income earned during your stay abroad is subject to the so-called progression clause in Germany. It is included in the calculation of the tax rate applied to your taxable income. However, this non-German income is not taxed itself. This means that it only increases the tax rate for your domestic income.

However, this does not apply to foreign capital gains that you earned during your time abroad. You neither have to pay tax on them in Germany nor do they increase your tax rate. The Taxfix app therefore does not ask you about these capital gains in detail.

Non-German income in Germany

The taxation of foreign income earned during your time in Germany is less uniform. It depends on what kind of income it is. The Taxfix app supports the following types of income:

Wages from a foreign employer for work in Germany:

Fully taxable in Germany. The gross wage is taxed.

Wages from a foreign employer for a previous job abroad:

Consideration in the progression clause: The wage is not itself taxable, but increases the tax rate. Here, too, the gross wage is relevant.

Rental or lease income from properties in the EU / EEA (excluding Spain):

Tax-free. This income does not have to be declared in the Taxfix app.

Income from agriculture and forestry from holdings in the EU / in the EEA (excluding Spain):