Living in Germany as a French expatriate not only involves adapting to a new culture but also complying with a new tax framework. Income earned abroad must be declared to the German tax authorities. This procedure will allow you to remain compliant and avoid any unpleasant surprises.
1. Taxation in Germany: The Principle of Tax Residency
In Germany, the tax system is based on the principle of tax residency. If you reside in Germany for more than 183 days per year or if your family home is located there, you are considered a German tax resident. This means that you are taxable on all your worldwide income, including that earned in France, and you must therefore declare all your foreign income to the German tax authorities, the Finanzamt.
2. Steps to Follow to Declare Your Foreign Income
2.1. Identify the Types of Income Received
Before starting your declaration, draw up a complete inventory of income earned abroad, as not all of it is subject to the same tax rules in Germany.
The main types of income concerned include employment income, rental income, dividends, interest, and other financial income, as well as pensions and retirement benefits.
2.2. Using the Franco-German Tax Treaty to Avoid Double Taxation
The Franco-German tax treaty is an agreement between these two countries to avoid double taxation. This treaty specifies which country has the right to levy tax depending on the type of income.
In certain cases, such as rental income, France retains the right to tax, while Germany grants a tax credit to avoid double taxation. To learn more about double taxation between Germany and France, click on our link Avoiding Double Taxation Between France and Germany: Key Strategies.
2.3. Correctly Complete your Tax Declaration in Germany
To declare your foreign income in Germany, you must use the Anlage AUS form of the tax declaration. This form allows you to declare income earned abroad and benefit from the application of the Franco-German treaty. You will also need to attach certain supporting documents, such as French tax assessments or bank statements for investment income.
3. Pitfalls to Avoid to Remain Compliant
3.1. Failure to Declare Foreign Bank Accounts
As a German tax resident, you are obliged to declare all bank accounts held in France. The Finanzamt is increasingly vigilant on this point, and any omission can lead to penalties. The form to use is the Anlage KAP-INV, which allows you to declare investment income and interest related to foreign bank accounts.
3.2. Confusion between Tax Credits and Exemptions
It is important to understand the distinction between exempt income and income eligible for a tax credit. For example, certain real estate income earned in France may be exempt from tax in Germany, but it still influences your overall tax rate in Germany (exemption with progression method).
3.3. Forgetting to Account for French Social Contributions
For rental income, France applies social contributions, even if you are a tax resident in Germany. However, these contributions can sometimes be deducted from your taxable base in Germany. Make sure to include them in your German tax declaration to benefit from this reduction.
Conclusion
Consulting an advisor specialized in Franco-German taxation can save you from costly errors and help you optimize your taxation in compliance with both countries.
Schedule an appointment with our advisors for personalized support.