Unlimited versus limited tax liability

• In a first step it is important to define whether a person is limited or unlimited tax liable.
• From the German point of view limited tax liability has the consequence that specific tax free amounts (e.g. child allowances), special expenses (e.g. contributions into live insurance schemes) or extraordinary expenses (e.g. support of needy persons) are not deductible. Favourable is the fact that no progression clause will cause a higher tax (only if an application for an assessment has not been filed).
• We check whether you are limited or unlimited tax liable and advise you on tax consequences.

Income from outside of Germany / Progression clause

• The progression clause has the effect that a higher tax rate is applicable on your German income in case of an existence of tax-free income from sources outside of Germany. This is due to the progressive German tax rate. Accordingly, the higher your income the higher is your tax rate.
• Whereas the taxable base is only your German income, the hereupon applicable German tax rate takes your world wide income into consideration.
• In a first step your tax rate is defined by regarding your world wide income. In a second step this tax rate is applied to your German income.