Unlimited and limited tax liability (Germany)

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The pair of terms unlimited or limited tax liability denotes the extent to which a person's income or assets are taxed.

Income tax

Unlimited income tax liability

With unlimited taxpayers (so-called tax residents ), the global income of the taxpayer is subject to income tax. You are subject to unlimited income tax in accordance with Section 1 of the Income Tax Act

Upon application, natural persons will be treated as subject to unlimited tax liability if they do not live in Germany, but at least 90 percent of their income is subject to German income tax or if their foreign income does not exceed the basic tax allowance .

If another country taxes the same income ( double taxation ), Section 34 c (1) EStG provides that the foreign tax on this income is offset against German income tax under the conditions specified there, unless the double taxation is prevented by a double taxation agreement .

Limited income tax liability

Anyone who earns income in Germany but has neither a domicile nor their habitual abode in Germany is subject to limited taxation ( Section 49 EStG ). Double taxation agreements are to be observed.

After previous law which restricts taxable income subject to a minimum tax of 25% and far-reaching restrictions on the consideration of operating expenses and advertising costs . The minimum taxation has been omitted since 2008 and business expenses and income-related expenses must be taken into account if they are economically related to domestic income. Special expenses are still excluded from deduction. Taxation is now the same as for unlimited tax liability, but again with the exception of income from employment, the basic allowance is added to the taxable income ( Section 50 (1) EStG ). Furthermore, certain limited taxable income is taxed at source according to § 50a EStG , such as B. for artists, athletes or supervisory boards.

Extended limited tax liability

In addition, there is also the extended limited tax liability for German emigrants in a low-tax country or a tax haven . Here all income that is not foreign income is subject to income tax ; this is the catalog income (in accordance with the generally limited income tax liability) as well as additional income that comes from Germany (for example credit interest from a savings account). In addition, there is certain income from intermediary foreign companies, which is treated as domestic income by virtue of the foreign tax order ( Section 5 AStG ).

Corporation tax

The corporations listed in § 1 KStG , etc. with management or headquarters in Germany are subject to unlimited corporation tax . The unlimited tax liability for corporation tax extends to world income .

There is limited tax liability if neither management nor headquarters are in Germany ( Section 2 KStG ). The limited tax liability only covers the income generated in the Federal Republic.

Inheritance and gift taxes

Unrestricted tax liability exists if either the testator, the donor or the acquirer are tax residents, whereby the unrestricted tax liability occurs under the same conditions as for income tax and, as an extended, unrestricted tax liability, continues to have an effect on German citizens five years after their departure from Germany. Then the entire accumulation of assets is taxable, otherwise only the accumulation of assets that consists of domestic assets within the meaning of Section 121 BewG or a right to use such objects ( Section 2 (1) ErbStG ).

In addition, external tax law also includes an extended, restricted inheritance tax liability, which occurs under the same conditions as the corresponding income tax obligation.