Unlimited versus limited tax liability

  • In a first step it is important to define whether a person has limited or unlimited tax liability.
  • 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. payments made into life insurance schemes) or extraordinary expenses (e.g. support of needy persons) are not deductible. Favourable is the fact that there is no progression clause to place you in a higher tax bracket (only if an application for an assessment has not been filed).
  • We check whether you are limitedly or unlimitedly tax liable and advise you on the various 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 if you receive tax-free income from sources outside of Germany. This is due to the progressive German tax rate. Accordingly, the higher your income the higher your tax rate.
  • Whereas the taxable base is only your German income, the applicable German tax rate also takes your worldwide income into consideration.
  • In a first step your tax rate is defined by calculating your worldwide income. In a second step this tax rate is applied to your German income.