Germany tax residency is something many digital nomads want to get rid off. In this post, we’ll take a closer look at the German tax rules and how to end your tax residency.
Summary Tax Residency in Germany
- Merely having a place available in Germany can trigger tax residency
- Progressive income tax rates up to 45%
- Separate fixed tax rates for investment income
- High social contributions for employees but more flexibility for most freelancers
- Corporate tax rates depend on where your business is located but range between 23-33%
Tax Rules and Rates in Germany
Let’s have a look at the different tax rules and rates in Germany.
Tax Residency in Germany
You qualify as a German tax resident if you meet one of the following criteria:
- You have a habitual abode in Germany.
This is presumed to be the case if you spend more than six months in the country throughout the calendar year or six consecutive months over two different years. - You have your domicile in Germany.
This is the case when you have permanent accommodation available. This can be a place you own, rent or even a place at family or friends that is kept available for you.
Your nationality is not important for this assessment.
Furthermore, (de)registration with the German tax authorities is merely an indicator and not decisive as such.
German Personal Income Tax
Germany applies progressive tax rates for professional and rental income:
- <12.348 EUR: 0%
- 12.348-68.878 EUR: progressive from 14-41%
- 68.878-277.825 EUR: 42%
- <277.825 EUR: 45%
The rate for interest, dividends and capital gains is 26,375%.
However, the progressive rates apply to capital gains from movable assets sold within one year and real estate sold within ten years.
Germany also has a church tax of 8-9% of your taxes if you are a member of a church.
Exit Tax (Wegzugsbesteuerung) & Extended Tax Liability
If you end your Germany tax residency you will have to pay an exit tax if you hold an interest of more than 1% in a company.
You pay tax on your unrealized capital gain based on the market value upon leaving.
Also when you have invested at least €500.000 in one single investment (ETF, fund, stock, etc.) the exit tax applies. However, in this case only if you lived in Germany for seven out of the last twelve tax years.
Furthermore, you need to watch out for the extended tax liability in Germany if you leave Germany but keep significant financial connections to the country.
This applies in the following cases:
- Income:
- 30% or more of your income comes from Germany
- German source income of €62.000 or more
- Assets:
- 30% or more of your worldwide assets in Germany
- Assets in Germany with a value of at least €154.000
- Shareholding: holding more than 1% in a German company five years before leaving
Yet, you must have been a tax resident for five out of the last ten tax years and move to a low tax country (<20,2% tax).
Under the extended tax liability Germany can keep levying tax on income from these sources.
Social Contributions in Germany
Social contributions differ for employees and self-employed individuals.
For employees the following rates apply:
- Pension insurance:
- Employer: 9,3%
- Employee: 9,3%
- Maximum income for calculation: €101.400
- Unemployment insurance:
- Employer: 1,3%
- Employee: 1,3%
- Maximum income for calculation: €101.400
- Health insurance:
- Employer: 8,75%
- Employee: 8,75%
- Maximum income for calculation: €69.750
- Long-term care insurance:
- Employer: 1,8%
- Employee: 1,8%
- Maximum income for calculation: €69.750
- Insolvency contribution:
- Employer: 0,15%
- Maximum income for calculation: €101.400
- Work accident scheme: depends on the sector and is solely borne by the employer
Most self-employed individuals do not have to pay social contributions but you can voluntarily join a scheme.
However, you do need to have health insurance but you can opt to get a private insurance (PKV) instead of contributing into the public system (GKV).
German Corporate Income Tax
The corporate income tax in Germany consists of two components.
On the one hand there is the federal corporate tax. The rate for 2026 is 15,825% but will slightly go down year after year to 10,55% in 2032.
On the other hand, there is the trade tax which heavily depends on the municipality tax.
Therefore, the tax rate depends on where your business is registered. The rates range from 7-17%.
Accordingly, your total corporate income tax in Germany will range from 23-33%.
How to End Tax Residency in Germany
If you want to end your Germany tax residency, you have to make sure you take all necessary steps.
First of all, you need to limit the amount of time you spend in Germany. You can’t spend more than six months in Germany.
Ideally, you even spend less time there. The more time you spend in the country, the higher the risk that the German tax authorities might look into you.
Furthermore, you want to make sure you don’t have housing available anymore.
Not owned but also not rented. Furthermore, you shouldn’t even keep a room with family or friends, even if it’s not recorded officially.
Finally, you’ll also have to formally deregister from Germany to inform them of your intention of leaving.
Germany does allow split year taxation. This means that if you leave throughout the year, you’ll only have to pay German tax on any income you made till the date you left.
How is Germany for Digital Nomads?
Germany is still the economic powerhouse of Europe. From that perspective it offers many opportunities for digital nomads and expats.
However, it does come at a cost: high taxes and contributions.
From a pure tax perspective, Germany is not a great option.
Yet, at the same time it does offer a good quality of life and good infrastructure.
Nevertheless, like in most European countries the cost of living is rising quickly.
Let Me Help You With Your Tax Setup
Are you planning to move to Germany and you want to minimize your tax exposure?
Or, do you have enough of paying outrageous German taxes and want to get out?
Reach out out and I’m happy to assist!