The deadline for 2023 taxes for those who file themselves is September 2nd, whereas those who turn to a tax advisor have a little more time. Whenever you submit your taxes, here are some top things for international residents in Germany to keep in mind, according to Zizelsberger from EXPATTAX.
READ ALSO: What are the 2024 deadlines to submit my tax return?
Double household expenses
For those who maintain two households–one in their home country and another in Germany–the German tax office offers some relief.
The expenses for the German accommodation are deductible up to €1,000 a month plus travel back and forth on a weekly basis.
Zitzelsberger said this deduction can be great for those debating a full move to Germany.
“From a very practical point of view, if somebody moves here and the family stays behind because they’re not entirely sure whether they want to uproot the whole family,” he said.
“So for a certain period of time they have this temporary solution where one family member is abroad. That’s what this is designed for.”
This deduction could lead to savings of €20,000 or more depending on the cost of travel expenses.
It’s also important to note that second home tax only applies if both homes are in Germany, so families will not face this if they have households in Germany and their home country.
READ ALSO: The tax cuts families in Germany need to know about
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Relocation expenses
When internationals first move to Germany they can deduct some of the relocation expenses if they can prove that the move was for work purposes. In most cases this requirement is satisfied, if you show that you began working in Germany within a “reasonable” period after moving.
The cost of transport for yourself and all family members can all be included for this deduction. And there is no limit on how much it can cost so long as you can provide a receipt for purchases.
“If you fly first class and you have the receipt for it, believe it or not, you can actually claim that as well,” Zitzelsberger said.
This also includes transportation if you travelled earlier to look for a house or apartment before making the move.
You can also claim the transport of personal belongings for your entire household. This should be considered for those debating transporting their furniture overseas, because no relief is offered to those who decide to buy new furniture once they arrive in Germany.
For those without receipts, all is not lost because they may qualify for a standard deduction for relocation expenses.
For the average family with two kids, that could mean a claim of €3,000 intended to help incentivise those who decided to go through all the trouble of moving.
READ ALSO: The top tax deductions often overlooked by employees in Germany
Sending money home could be tax deductible
If you sent money to your family, you may be eligible to claim that as a tax deductible expense on your German tax return. Support to parents, grandparents, kids, or spouse/ex-spouse may all be considered.
But there are some caveats. You must demonstrate that your family members do not have sufficient income to support themselves without your support. You will also be required to submit forms and have it certified in the country where those family members live. Taxpayers must fill out forms for each family member supported, but each member should live in a separate household to be considered.
You also cannot claim all of the amount that you send home. The amount that can be deducted is different depending on where the family members live. Germany’s tax office categorises countries in four groups. Taxpayers may be eligible for up to €8,820 in deductions depending on where their family resides.
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Charitable donations…with a catch
You can also claim donations to charitable organisations so long as you have receipts. But for international residents who make donations to charitable organisations in their home country, it is difficult and oftentimes impossible to make the claim, regardless of if they have receipts to support their claims.
However, if the organisation is German-based the charitable donation can be deducted. Zitzelsberger said this should be considered when giving to international organisations.
“If you donate to UNICEF in the US it doesn’t work, if you donate to UNICEF in Germany it does work,” he said.
“If you’re donating to UNICEF, that is a global organisation and instead of losing that claim, it is a very simple step to switch that donation from one country to the other.”
Capital Gains
Capital gains, or the profit from the sale of an investment, can also offer international residents opportunities to save money on their tax returns.
Crypto
Crypto investments can also offer some international residents an unlikely tax deduction. In Germany, capital gains from crypto currency are tax free provided you hold your investment for at least one year. Capital gains are triggered once you sell the investment.
It is important to note that crypto income–receiving crypto as payment or earning rewards for mining crypto– is still taxed.
Home sales
Any capital gains from selling your home are also considered tax free. If you have an investment property and you hold that for more than ten years it is also tax free.
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Investment Income
Investment income includes everything from interest and dividends to capital gains. In Germany there is an annual tax free allowance of €1,000 for individuals, whereas for couples that amount is doubled.
“We do see quite a bit that people don’t use that allowance,” Zitzelsberger said.
Two “Bitcoin” coins lie on a table. Photo: picture alliance/dpa/dpa-Zentralbild | Fernando Gutierrez-Juarez
Timing sales of investments
There is no separate tax on capital gains in Germany. Instead, capital gains are viewed as income subject to a flat 26.375 percent rate regardless of how long they are held.
Still, capital gains are triggered and taxed when you sell. This can be important for international residents debating selling investments while in their home countries versus in Germany.
An American living in Germany would face a 25 percent tax if they sold investments while in Germany. However, if they moved to the US and sold the same investments while there, they would pay a 15 percent tax.
READ ALSO: DAX hits record high: What you need to know about investing in German index funds
Zitzelsberger said this is a common situation clients can face when planning moves to and from the country.
“Sometimes, it could also work the other way around, if somebody moves to a jurisdiction where the taxes are higher on capital gains than in Germany, then the same game applies,” he said.
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Accumulating expenses
For those who do work related training and professional development that you pay for out-of-pocket like an MBA or continuing education course, there could also be a tax advantageous deduction available.
Most of these courses offer the ability to pay as you go, but it may be more beneficial to pay for it all together depending on your financial situation.
“If those payments are spread over a long time and therefore they are small payments, then they don’t really make a big difference,” Zitzelsberger said.
“However if they’re all compiled and you make one payment for all of it. Then that could make a huge difference.”
The same is true for medical procedures like getting braces. If it is paid as a lump sum or the instalments are all within the same tax year it can have a large impact on your overall tax bill. But if they are smaller, bite sized payments they will likely have no major impact on your tax bill come summertime.
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