Germany Cross-Border Tax Guide (Grenzüberschreitende Besteuerung)
A guide to cross-border taxation involving Germany. Germany has over 90 Doppelbesteuerungsabkommen (DBAs) — most follow the OECD model where the residence country taxes income but the source country may also tax. The exit tax (Wegzugsbesteuerung, §6 AStG) applies when a German resident with >1% shareholding in a German company moves abroad — unrealised gains are deemed realised. Cross-border workers (Grenzgänger) have special rules with France, Switzerland, Austria, Poland, and the Czech Republic.
Cross-border tax issues arise whenever an individual or business has connections to Germany and another country. Germany taxes its residents on worldwide income (unbeschränkte Steuerpflicht) but provides relief through tax treaties. Understanding the DBA rules is critical for managing double taxation risk. For related reading, see our Tax Treaties Guide → and Non-Resident Tax Guide →.
Key Cross-Border Tax Concepts
- Permanent establishment (Betriebsstätte): A foreign company operating in Germany may create a permanent establishment (PE) if it has a fixed place of business (office, factory, workshop), a construction site lasting >6 months, or a dependent agent who habitually concludes contracts. PE profits are taxable in Germany. See our Permanent Establishment Guide →.
- Exit tax (Wegzugsbesteuerung — §6 AStG): If a German resident (individual) moves their tax residence abroad and holds a direct or indirect shareholding of ≥1% in a German company, the Finanzamt may tax unrealised capital gains as if the shares were sold at the time of exit. This applies to both entrepreneurs and private investors. Deferral options are available if moving to another EU/EEA country.
- Grenzgänger (cross-border commuters): Special rules apply for individuals who live in one country and work in another. For example, residents of France working in Germany (and returning home daily) are typically taxed in the workplace country. The specific rules depend on the DBA with the neighbouring country (France, Switzerland, Austria, Poland, Czech Republic).
- Treaty relief mechanisms: Most DBAs follow the OECD Model Tax Convention. The residence country generally retains the primary taxing right, while the source country may have limited taxing rights (e.g., 15% withholding on dividends). Relief is provided either via the exemption method (income not taxed in Germany) or the credit method (foreign tax credited against German tax).
Practical Scenarios and Compliance
- Foreign income reporting: German tax residents must report all foreign income in their annual Steuererklärung using Anlage FW (foreign income). The Finanzamt reviews whether treaty relief applies. Even if income is exempt under a DBA, it must be disclosed due to the Progressionsvorbehalt (exemption with progression).
- Transfer pricing (Verrechnungspreise): Cross-border transactions between related entities must comply with the arm's length principle (Fremdvergleichsgrundsatz). The Finanzamt scrutinises intercompany pricing, royalty payments, management fees, and financing arrangements. Documentation (Transfer Pricing Documentation) is mandatory for transactions exceeding certain thresholds.
- CFC rules (Hinzurechnungsbesteuerung): Germany's CFC rules (controlled foreign company — Hinzurechnungsbesteuerung under §§7–14 AStG) target passive income (interest, royalties, dividends) parked in low-tax jurisdictions. If a German resident controls a foreign company with passive income and the effective tax rate is below 25%, the income is attributed to the German resident. Since 2022, the CFC rules were tightened to align with EU ATAD.
- Withholding tax reclaims: If German withholding tax was deducted at a higher rate than the applicable DBA rate, the non-resident (or resident) can file a refund claim with the Bundeszentralamt für Steuern (BZSt). Reduced withholding rates under DBAs must sometimes be applied for in advance via a Freistellungsbescheinigung.