Do I have to report income from abroad on my German tax return?

For tax residency purposes, it is sufficient to own an apartment or house in Germany that you intend to keep and use, even a secondary residence. This is independent of your registration with the local authorities and requires only the ability to use the property yourself at any time. 

Whether you actually must pay taxes on rental income from abroad in Germany is something that needs to be determined in a second step. For example, real estate abroad used exclusively for personal residence is excluded, since it does not generate any income. The most common scenarios requiring disclosure are rented properties, bank or brokerage accounts, securities accounts, and trusts or business interests abroad. Even if you do not pay tax on these items abroad due to a high tax-free allowance elsewhere, you may still have taxable income in Germany as income must be calculated according to German tax rules. If you pay taxes abroad (e.g. on rental income from your vacation property), you may not have to pay taxes on it in Germany because depreciation or interest on debt may not be tax-deductible there.

When foreign banks withhold taxes on interest or dividend income, or when a tax return has already been filed and income has been taxed abroad, we often hear people say, “I don’t need to report that anymore, because that income has already been taxed.” Unfortunately, this statement is incorrect as all income must be reported. This applies even if taxes have already been paid abroad. An expert in international tax law must then determine whether a German tax liability is limited or even excluded (e.g. by a double taxation treaty, EU regulations, or national tax laws), and whether the tax paid abroad can be credited against the German tax liability.

In the best-case scenario, you won’t have to pay any additional taxes. In the worst-case scenario, you’ll face a large back-tax bill, as tax rates in Germany are often higher than in other countries. Failing to report this income may trigger tax evasion consequences. Not only will higher interest than usual of 0.5% per month (6% per year) be charged on the tax liability, but under certain conditions, there may also be surcharges of 10–20%, monetary fines, or, in particularly serious cases involving large amounts of evaded taxes, even prison sentences of up to 10 years. 

It is therefore better not to wait until tax offices exchange information or purchase data from a whistleblower with information on account holders and companies in tax havens. It is better to consult an expert beforehand and ask whether you are required to report income and whether you can rectify the situation retroactively through, for example, an amended return or a voluntary disclosure. 

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Oliver Biernat is the founder and Managing Partner of Benefitax. He is a German chartered accountant, certified tax advisor, certified advisor in Criminal Tax Law (WIRE), and specialist advisor for international taxation, with more than 30 years of experience. He has chaired GGI’s International Taxation Practice Group (ITPG) for 17 years, and helped to grow it to the size it is now with approximately 600 experts from 90 countries.