What Does Unlimited Tax Liability Mean?
Anyone who has a residence or habitual abode in Germany is subject to unlimited income tax liability here — as set out in Section 1(1) of the Income Tax Act (EStG). Unlimited does not mean without limit in an absolute sense; it refers to the scope of taxable income. It covers worldwide income — all income earned globally, regardless of the country in which it arose.
A residence for tax purposes is not identical to a registered primary address. What matters is whether a person maintains a dwelling under circumstances indicating that they intend to keep and use it. A secondary residence in Germany can therefore already give rise to unlimited tax liability — even if the centre of life is abroad.
What Does Limited Tax Liability Mean?
Anyone who has neither a residence nor a habitual abode in Germany, but earns domestic income, is subject to limited tax liability (Section 1(4) EStG). Only income from German sources is then taxable — for example rental income from a German property, income from a German permanent establishment, or remuneration for work carried out in Germany.
Limited tax liability is considerably narrower in scope. Many allowances and reliefs available to those with unlimited liability are unavailable or restricted. At the same time, the tax burden is confined to domestic income — global income is disregarded.
Habitual Abode as a Trigger
Alongside residence, habitual abode is a second basis for unlimited tax liability. Section 9 of the Fiscal Code (AO) defines habitual abode as a stay that is not merely temporary. The tax authorities generally assume that an uninterrupted stay of more than six months establishes habitual abode — the so-called 183-day rule.
Important: the 183 days are calculated over any twelve-month period, not a calendar year. Short interruptions — such as holiday trips — count towards the total. Anyone planning to stay below this threshold through frequent travel should have the calculation carefully reviewed.
Typical Situations for Expats
Moving to Germany — Unlimited tax liability begins on the day a residence is established. From that point, worldwide income is subject to German tax — including income still earned abroad.
Leaving Germany — Unlimited tax liability ends when the last German residence is given up. Anyone who retains a dwelling in Germany — even if rarely used — remains subject to unlimited liability. A clean tax deregistration requires the complete relinquishment of all domestic residences.
Dual residence — Anyone with a residence in both Germany and another country is subject to unlimited tax liability in Germany. The applicable double tax treaty then determines which country has primary taxing rights — through so-called tie-breaker rules.
Frontier workers — People living in a neighbouring country and working in Germany are subject to special rules. Specific treaty articles govern the taxation of frontier workers between Germany and Switzerland, France or Austria, deviating from the standard treatment.
Extended Unlimited Tax Liability
A lesser-known provision: Section 1(2) EStG provides for extended unlimited tax liability for German nationals living abroad but employed by a domestic public law entity — such as diplomats or staff at German missions abroad. They are treated as if they had their residence in Germany.
Electing Unlimited Tax Liability
Under certain conditions, those who are only limitedly tax-liable in Germany may apply to be treated as if they were subject to unlimited liability (Section 1(3) EStG). This can be advantageous where at least 90 percent of worldwide income is subject to German tax, or where income not subject to German tax does not exceed the basic personal allowance.
Frequently Asked Questions
When does my German tax liability begin?Unlimited tax liability begins on the day you establish a residence in Germany or have been present here continuously for more than six months. From that point, your entire worldwide income is subject to German tax.
Can I be subject to unlimited tax liability in two countries simultaneously?Yes. Both states may establish unlimited tax liability under their domestic law. The applicable double tax treaty then determines which state has primary taxing rights — through tie-breaker rules based on factors such as permanent home, centre of vital interests, and nationality.
Does tax liability end automatically when I deregister my address?No. Tax deregistration is independent of administrative deregistration. What matters is the actual relinquishment of the residence. Anyone who retains a dwelling in Germany remains tax-resident — regardless of whether they have formally deregistered.
What is the difference between residence and habitual abode?Residence requires a dwelling that can and is intended to be used on a permanent basis. Habitual abode arises from an actual stay of more than six months — even without a fixed dwelling. Both give rise to unlimited tax liability.
Your tax situation is individual.
Whether you are moving to Germany, leaving, working as a frontier worker or maintaining a dual residence — the question of tax liability has far-reaching consequences and should be clarified early. We advise in German, English, Russian and Italian.
Confidential · Digital · Structured
