US-Germany tax treaty: complete guide for expats and businesses
Designed to avoid double taxation, the treaty between the United States and Germany sets clear rules on who can tax income, pensions, and cross-border payments. It reduces withholding taxes on dividends, royalties, and interest while creating pathways for dispute resolution. For both expats and businesses, it ensures smoother compliance and fairer outcomes across two tax systems.
This article is brought to you by Taxes for Expats – a trusted partner for Americans abroad navigating complex tax rules. Our team helps you apply the US-German tax treaty correctly so you can stay compliant and minimize unnecessary tax burdens.
Who is covered by the tax treaty
The US-Germany tax treaty applies to individuals and companies that qualify as residents under Article 4. It ensures relief from double taxation while setting out rules for income earned across borders, including wages, pensions, and certain forms of passive income. Coverage is not automatic, as eligibility depends on residency tests, tie-breaker rules, and limitation-on-benefits provisions.
US citizens living in Germany remain covered by the treaty but are still subject to the US savings clause, meaning they must file a US return even when Germany has the primary right to tax. German citizens in the US are also included, with employment and retirement income allocated according to treaty articles and domestic law. Dual residents and cross-border companies must rely on specific tests – such as permanent home, center of vital interests, or ownership thresholds – to determine which country has taxing rights and to qualify for reduced withholding rates like 15% on dividends, 5% for corporate owners, or 0% on interest and royalties.
NOTE! Germany’s official overview reflects the same savings-clause understanding and cross-references to domestic anti-abuse law.
Tax residency and treaty tiebreakers law
Residency decides who taxes first and which forms secure relief. This section follows Article 4 of the US-Germany income tax treaty, talking in detail about how residency is determined and sets up later steps on rates, withholding, and claims.
- Each country’s rules come first. Germany treats you as a resident if you keep a dwelling you intend to use (8 AO) or if a continuous stay exceeds six months, which triggers worldwide income when unlimited liability applies; a seven-month project in Munich meets that test.
- If both states claim you, Article 4 resolves an individual’s status in order: permanent home, center of vital interests, habitual abode, nationality, then competent-authority agreement; a Berlin apartment plus close family and work ties there outweighs a Texas house, so Germany takes residence.
- Special note for US citizens and green card holders. Germany treats such a person as a US resident only if there is substantial presence, a permanent home, or a habitual abode in the US; a green card holder living full-time in Frankfurt with no US home is a resident of Germany for treaty purposes.
- For companies and trusts, residence is set by a competent authority agreement; until agreed, no treaty benefits apply. A Delaware parent managed day-to-day from Munich may be denied reduced withholding while the authorities decide the single residence.
- Habitual-abode nuances matter. Connected stays under six months can still establish an abode when the pattern shows a non-temporary presence; rotating two-month Berlin assignments that form one planned engagement can tip the scale.
- Document your status and expect checks. Payers often ask for Form 6166 issued after Form 8802; a German bank releasing dividends to a US resident typically applies treaty rates once that certificate is on file, which then feeds Article 23 relief from double taxation.
Double taxation relief under the treaty
Relief exists so you are not taxed twice on the same stream, even when both countries have a claim to tax. This section shows the main methods used, then gives a quick, practical way to claim relief.
Tax credit in the US
The US allows a credit for German taxes paid by a US resident or citizen on the same income, consistent with Article 23. For limit calculations, the treaty treats those items as German source, and IRS rules let you carry back unused credit one year and carry it forward ten years.
Exemption with progression in Germany
Germany generally excludes the item from the German tax base and then uses the rate that would apply if the item were included, known as an exemption with progression. This approach is the standard method Germany applies when a treaty allocates taxing rights to the other state.
German credit method when required
Where Germany must tax or the United States may tax but is prevented from doing so by its domestic law, Germany switches to a credit method under Article 23. This is one of the key coordination rules in the US-Germany tax treaty.
Claiming the tax treaty relief in practical steps
Imagine an American engineer in Munich paying German wage tax while also filing a US return. The treaty provides a way to prevent double taxation, but the process only works if you follow the steps in order. Below is the path most expats and companies use to secure relief under the US-Germany tax treaty.
Step 1: Map what each country taxes and which treaty article covers it, then pick the matching relief method in Article 23. Keep a simple list of items that Germany taxes first and items that the US taxes first.
Step 2: Gather proof. Save the German Steuerbescheid, US Forms W-2 or 1099, and any withholding statements; if you expect German withholding relief on capital income, plan to use the BZSt Online Portal.
Step 3: File the US side. Complete Form 1116 using the treaty resourcing rule for amounts taxed in Germany, and apply the one-year carryback and ten-year carryforward if your credit exceeds the limit.
Step 4: File the German side when a refund or exemption is needed. Submit the electronic relief application in BOP and attach Form 6166, which you requested via Form 8802.
Saving clause and what it means for Americans
US law embeds a saving clause in the US-Germany tax treaty to preserve domestic taxing rights. Below is what it means for citizens and where targeted relief still applies.
The saving clause allows the US to tax its citizens and residents as if the treaty did not exist. In practice, you still file a US return and use foreign tax credits to prevent double taxation.
Exceptions that protect core rights
Some categories of income and several procedural protections sit outside the saving clause. These carveouts apply even when the US would otherwise assert full taxing jurisdiction.
- Article 18, paragraph 5: Social Security benefits, taxable only by the recipient’s country of residence.
- Article 18A: pension plan rules, including investment income of qualifying pension funds and specified contribution relief.
- Article 23: Relief from double taxation through credit or exemption mechanisms.
- Article 24: nondiscrimination protections.
- Article 25: mutual agreement procedure, including the ability to implement agreements and resolve disputes
- Article 9, paragraph 2: correlative adjustments for transfer pricing.
- Article 13, paragraph 6: basis adjustment coordination for exit tax scenarios.
- Temporary resident carveouts preserved for certain government service, students and trainees, and diplomatic or consular personnel.
Income groups covered under the tax treaty
From wages to dividends, from gains on property to pensions, the treaty sets detailed taxing rights. Understanding these categories, rules, and relief measures is key to applying the rules correctly.
How is employment income taxed?
Compensation is generally taxed where the work is physically performed. The tax treaty preserves a short stay exception when strict conditions are met.
- You do not exceed 183 days in the other country in the calendar year.
- Your employer is not resident in that country.
- The pay is not borne by a permanent establishment in that country.
What happens to dividends, interest, and royalties?
These are classic passive income streams paid across borders. Here are the current withholding rates and the key eligibility tests.
| Income | Source tax under the tax treaty | Key conditions |
|---|---|---|
| Dividends | 15% standard | 5% if the recipient company owns at least 10% voting stock; 0% for a direct 80% owner that meets LOB tests or for a qualifying pension fund. |
| Interest & Royalties | 0% | Taxable only in the recipient’s country of residence, subject to PE and anti-abuse rules. |
How are capital gains treated?
Most gains follow where the asset sits or where a business is effectively carried on. The treaty also addresses special US real property rules.
- Real property gains are taxed where the property is located.
- Gains attributable to a permanent establishment are taxed in the country of that establishment.
- Other gains are generally taxed in the seller’s country of residence.
NOTE! For treaty purposes, property situated in the United States includes a US real property interest.
How are pensions and social security benefits taxed?
Under the US-Germany tax treaty, retirement income gets clear allocation rules. Private pensions and annuities are taxable only in the recipient’s country of residence. Social Security and comparable public pensions are taxable only in the recipient’s country of residence. Government service pensions have their own rule that generally taxes them in the paying government’s country, with narrow exceptions.
Totalization rules for employee coverage
Totalization coordinates Social Security coverage so workers do not pay into two systems for the same work. The rules decide which country collects contributions and how your credits can be combined for future benefits. It sits alongside the US-Germany tax treaty, but it tackles payroll coverage, not income tax.
- Core rule and the 5-year assignment limit – Coverage generally follows where the work is performed; if an employer assigns you to another country for five years or less, you stay covered only by your home system.
- Certificate of coverage is mandatory – Show the right certificate to avoid double Social Security taxes: USA/D 101 when you remain under US coverage and D/USA 101 when you remain under German coverage. Request through SSA or the German sickness fund before the assignment starts.
- Self-employed rule – Self-employed work is covered where you normally work; if you transfer your trade to the other country for five years or less, you keep home-country coverage.
- Extensions by exception – If an assignment unexpectedly runs long, authorities can grant limited extensions by mutual consent; Germany’s DVKA explains the timeline and counting rules.
- What you pay in 2025 – US OASDI is 6.2% employee and 6.2% employer up to a wage base of $176,100; Medicare is separate and uncapped for 1.45%. Germany’s pension insurance is 18.6% split 9.3% each, generally up to €96,600 a year (about €8,050 per month in 2025).
- Qualifying for benefits with combined credits – You can combine US and German coverage to qualify for retirement, disability, or survivors' benefits. You need at least 6 US credits to totalize for a US benefit, and Germany requires 18 months of German coverage to totalize there.
- Assignments to an affiliate – If you switch payroll to a German affiliate, yet want US coverage to continue, your US employer must have an IRS section 3121(l) agreement, and you still need a US certificate of coverage.
- Not an A1 for the US – A1 forms are for EU coordination. For the United States, Germany issues a different certificate under the bilateral agreement.
Ready to talk to a tax advisor about your US–Germany tax obligations?
The US–Germany tax treaty offers valuable relief, but claiming benefits depends on careful IRS filings and the right supporting forms. From Form 8833 disclosures to securing a residency certificate, the smallest oversight can cause big setbacks.
At Taxes for Expats, our licensed professionals can help you with your IRS compliance, giving Americans in Germany trusted guidance about the tax treaty without the guesswork.
FAQ
Employees have wage tax withheld through payroll, and some must file an annual return based on their situation. Germany taxes residents on worldwide income and provides official calculators and guidance.
Tax treaties do not cover state income taxes. Many states follow federal income definitions, but some do not honor treaty benefits.
Banks report under the FATCA Model 1 agreement, and both countries exchange information on request and automatically in defined cases. The treaty also allows information exchange between tax authorities.
Private pensions and annuities are generally taxable only in the recipient’s country of residence. Social Security is taxable only in the recipient’s country of residence, while some government service pensions follow separate rules.
In 2025, the 42 percent marginal rate applies to singles with taxable income from about €68,430 up to €277,825, with 45 percent above that. Thresholds are doubled for joint filers.
