What Are Foreign Income for Tax Purposes?
Anyone subject to unlimited tax liability in Germany must declare their entire worldwide income here. This includes income earned abroad — from employment, self-employment, capital assets, rental property or business activity. Such income must generally be reported in the German tax return, even if it has already been taxed abroad.
The central question is not whether, but how: how is foreign income recorded in the German tax return, and what effect does tax already paid abroad have?
Anlage AUS — The Key Form
Foreign income and taxes paid abroad are reported in Anlage AUS, a supplementary form to the income tax return. A separate Anlage AUS must generally be completed for each country from which income is derived.
The form serves two purposes: it documents the amount of foreign income and the tax paid on it abroad. On this basis, the tax office determines whether a credit for foreign tax is available or whether the income is to be exempt under a double tax treaty.
Exemption or Credit — Which Applies?
The applicable double tax treaty determines which method governs the income in question.
Exemption method — Foreign income is not taxed in Germany. It must nevertheless be declared, as it affects the tax rate on remaining German income through the progression proviso. In Anlage AUS, it is entered as income to be exempted.
Credit method — Foreign income is taxed in Germany, but tax paid abroad is credited against the German liability. The credit is capped at the German tax attributable to that income. Any amount paid abroad in excess of the German tax is not refunded.
Documentation Requirements
The tax office requires evidence of foreign income earned and taxes paid abroad. In practice this means:
For employment income from abroad: a certificate from the foreign employer showing the amount of remuneration and tax withheld, preferably with an official translation.
For capital income: annual tax statements from the foreign custodian bank showing dividends, interest and withholding tax deducted.
For rental income from foreign property: an income and expenditure statement together with evidence of tax paid abroad.
Where documentation is absent, the tax office may refuse the credit or estimate the income — both typically to the taxpayer's disadvantage.
Particular Features of Capital Income
Foreign capital income is generally subject to German withholding tax of 25 percent plus solidarity surcharge. Foreign withholding tax may be credited against this — but only up to a maximum determined by the applicable treaty. Many treaties cap the creditable withholding tax at 15 percent.
Those holding foreign capital assets through a German bank often benefit from automatic crediting. Foreign custody accounts require manual reporting in the tax return — including conversion to euros at the exchange rate applicable at the time of receipt.
Losses From Foreign Sources
Losses arising abroad can only be offset in Germany under restricted conditions. As a general rule, foreign losses from states with which Germany has a treaty providing for the exemption method are not deductible in Germany — unless there is no positive income in the source state against which the losses could be offset (the so-called negative progression proviso).
Common Errors in Practice
Foreign income is not declared because it has already been taxed abroad — this is incorrect. The obligation to report in Germany exists regardless of whether actual double taxation arises.
Withholding tax is not claimed even though a credit would be available — often because the necessary documentation was not obtained.
Foreign income is converted to euros at the wrong exchange rate — the rate applicable at the time of receipt is the relevant figure, not an annual average rate.
Frequently Asked Questions
Must I declare foreign income in Germany if I have already paid tax on it abroad?Yes. As someone subject to unlimited tax liability, you are required to declare all worldwide income in your German tax return. Tax paid abroad is then either credited or the income exempted, depending on the applicable treaty.
What is Anlage AUS?Anlage AUS is the form used to declare foreign income and taxes paid abroad. A separate form must be completed for each country of origin.
How is foreign income converted to euros?The exchange rate at the time of receipt is the relevant figure. The Federal Ministry of Finance publishes official annual conversion rates that may be used for tax purposes.
Can I offset foreign losses against German income?Only in limited circumstances. For income from treaty states where the exemption method applies, foreign losses are generally not deductible in Germany. Exceptions apply under the negative progression proviso.
Your tax situation is individual.
Correctly reporting foreign income requires knowledge of the applicable treaty, the relevant forms and the documentation requirements. Errors frequently have a direct impact on the tax liability. We advise in German, English, Russian and Italian.
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