German Tax Residency Explained: Are You Taxable in Germany?

Last updated: April 2026

Introduction

Moving to Germany — or working here while living somewhere else — raises one question before anything else: does Germany tax you, on how much of your income?

The answer depends entirely on your German tax residency status. Get it wrong and you either overpay or find yourself with an unexpected bill from the Finanzamt. This guide walks you through exactly how Germany decides who it taxes, on what, and to what extent — in simple terms, with real examples.

The two types of German tax liability

Germany draws a sharp line between two groups of taxpayers. Which group you fall into determines everything: whether Germany taxes your worldwide income or only what you earn here.

Unlimited tax liability (unbeschränkte Steuerpflicht)

Unlimited tax liability means Germany taxes your entire worldwide income — your German salary, your rental income from a flat back home, your dividends from a foreign broker, everything. This applies to anyone who is fully tax resident in Germany.

This is the default for most people who live and work in Germany.

Governed by: § 1 Abs. 1 EStG

Limited tax liability (beschränkte Steuerpflicht)

Limited tax liability means Germany taxes only your German-source income — your income from everywhere else stays outside Germany’s reach. This applies to people who are not tax resident in Germany but earn income from German sources such as a German employer, a German property or a German bank.

Governed by: § 49 EStG · § 50 EStG

How does Germany decide if you are tax resident?

Germany uses two tests. If you pass either one, you are fully tax resident — and Germany taxes your worldwide income.

Test 1: Do you have a residence (Wohnsitz) in Germany?

A residence means a place you actually use, not just a registered address. You do not need to own it. A rented flat, a room in a shared house, even a room at a family member’s home can count — as long as you have genuine access to it and use it regularly.

Key point: You do not need to spend a minimum number of days in Germany to pass this test. If you keep a flat in Berlin while working abroad for six months, you may still be fully tax resident in Germany.

Governed by: § 1 Abs. 1 EStG · § 8 AO

Test 2: Is your habitual abode (gewöhnlicher Aufenthalt) in Germany?

If you do not have a fixed residence but you spend most of your time in Germany, you may still be tax resident based on where you habitually stay. As a rule of thumb, more than 183 days in Germany in a calendar year typically triggers this test.

Governed by: § 1 Abs. 1 EStG · § 9 AO

The classic expat edge case

This surprises many expats. The number of days you spend in Germany matters less than whether you maintain a home here.

What income does Germany tax? The seven income categories

Once you are established as tax resident, Germany taxes income across seven categories defined in § 2 EStG. Every euro you earn falls into one of these buckets:

1. Agriculture and forestry (§ 13 EStG)
2. Trade and business income (§ 15 EStG)
3. Self-employment / freelance income (§ 18 EStG)
4. Employment income — salary, wages, benefits in kind (§ 19 EStG)
5. Capital income — interest, dividends, ETF payouts (§ 20 EStG)
6. Rental and leasing income (§ 21 EStG)
7. Other income — certain pensions, private sales, annuities (§ 22 EStG)

Each category has its own rules for what counts as income, what you can deduct, and how it is taxed. The other pillar pages on Taxbyte cover each category in depth.

Special rules for EU, EEA and Swiss non-residents (the 90% rule)

The 90% rule under § 1a EStG allows certain non-residents from EU, EEA countries or Switzerland to be treated as if they were fully tax resident in Germany. This unlocks reliefs that limited taxpayers normally cannot access — most importantly, the spouse-splitting benefit (Ehegattensplitting) that can significantly reduce tax for couples with unequal incomes.

The main condition

At least 90% of your household’s worldwide income must be taxable in Germany — or your income from outside Germany must fall below a relatively low threshold (adjusted annually).

Governed by: § 1a EStG

Who must file a German tax return?

Not everyone in Germany files a tax return. § 25 EStG sets out the tax year (always the calendar year) and when filing is mandatory.

You must file if any of these apply

• You received income that was not subject to wage tax withholding — for example, freelance income, rental income, or investment income from a foreign broker
• Your additional income on top of your employed salary exceeded €410 in the year
• You received tax-free replacement income such as Elterngeld, Arbeitslosengeld or Kurzarbeitergeld — these trigger the Progressionsvorbehalt (§ 32b EStG), which can push up your tax rate
• You were married and used tax class combination III/V
• The tax office specifically requests a return from you

You can voluntarily file even if not required

Employees who are not required to file can still choose to submit a return — and very often should. Most people who claim work-related deductions, childcare costs or extraordinary burdens get a refund. The deadline for voluntary returns is four years after the end of the tax year.

Governed by: § 25 EStG · § 46 EStG

Limited taxpayers: what changes for you?

If you are not tax resident in Germany but earn German-source income, § 50 EStG cuts back many of the reliefs that residents take for granted:

• The basic tax-free allowance (Grundfreibetrag — €12,348 for 2026) is generally not available to limited taxpayers unless they qualify under the § 1a EStG route
• Deductions for extraordinary burdens (§ 33 EStG), the single-parent relief (§ 24b EStG) and most household-related credits (§ 35a, § 35c EStG) do not apply
• Many Sonderausgaben deductions are restricted

This is why limited taxpayers often find their German tax result looks harsher than expected — they are paying German tax rates without access to the personal reliefs residents use to reduce their bill.

Governed by: § 50 EStG

Withholding tax for non-residents

Certain payments to non-residents are subject to withholding tax at source — meaning the German payer deducts tax before handing over the money. § 50a EStG covers the main cases: payments to foreign artists, athletes, supervisory board members, licensors and certain service providers.

If a double taxation treaty applies, the withholding rate may be reduced or eliminated. The non-resident typically needs to apply for treaty relief in advance.

Governed by: § 50a EStG

Double taxation: paying tax in two countries

Being tax resident in Germany does not automatically mean you pay full tax twice on the same income. Germany has double taxation treaties with over 100 countries. These treaties decide which country has the primary right to tax each type of income, and Germany provides relief through one of two methods:

• Exemption method: the foreign income is exempt from German tax but may still affect your German tax rate via the Progressionsvorbehalt
• Credit method: Germany taxes the income but credits the foreign tax you already paid against your German bill

Governed by: § 34c EStG · § 34d EStG

The Progressionsvorbehalt: tax-free income that still costs you

The Progressionsvorbehalt is one of the most misunderstood rules in German tax law. Certain tax-free payments — including parental allowance (Elterngeld), unemployment benefit, short-time work pay, and some exempt foreign income — do not get added to your taxable income. But they do get added to a separate calculation that sets your tax rate.

The result: your taxable income stays the same, but the rate applied to it goes up.

This is why receiving Elterngeld, Arbeitslosengeld or exempt foreign income often makes filing a tax return mandatory.

Governed by: § 32b EStG

German income tax rates at a glance

Germany uses a progressive income tax formula set out in § 32a EStG. For 2026:

The solidarity surcharge (Solidaritätszuschlag) applies at 5.5% of your income tax bill above a threshold — most taxpayers below €20,350 in income tax (€40,700 for jointly assessed couples) pay no Soli since the 2021 reform. Church tax (Kirchensteuer) applies if you are registered as a member of a tax-collecting church — 8% or 9% of your income tax depending on the federal state.

Governed by: § 32a EStG · § 51a EStG

German income tax: key figures for 2026

Frequently asked questions

Related Tax Guides

• Cross-Border & Expat Income — residency determines your treaty position
• Employee Taxes — residency rules for employed expats
• Freelancers — residency implications for self-employed expats

Related law pages on Taxbyte

• § 50a EStG — Withholding tax for non-residents
• § 1 EStG — Steuerpflicht: who is taxable in Germany
• § 1a EStG — EU/EEA/Swiss non-residents and the 90% rule
• § 2 EStG — The seven income categories
• § 25 EStG — Who must file a German tax return?
• § 32a EStG — German income tax rates and brackets
• § 32b EStG — The Progressionsvorbehalt explained
• § 34c EStG — Foreign tax credit and double taxation relief
• § 34d EStG — What counts as foreign income?
• § 49 EStG — German-source income for non-residents
• § 50 EStG — Special rules for limited taxpayers
• German Ministry of Finance (BMF)
• Einkommensteuergesetz (EStG) §§ 1–50a
• gesetze-im-internet.de

Related Guides

This page explains German tax law in plain English for general information purposes. It is not legal or tax advice. Tax rules change annually — always verify figures against official sources or consult a Steuerberater for your specific situation.

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