Double taxation treaty between Germany and the United States of America  (DBA-USA)

The double taxation treaty between Germany and the United States of America  (DBA-USA) is not only one of the most complicated double taxation treaties that Germany has concluded with other countries to date, but also allows double taxation of some income, paradoxical as it may sound.

Double taxation is possible because of the so-called “Saving Clause” in accordance with Article 1 paragraph 4 letter a DBA-USA. According to this, the USA reserves the right to tax some income of US citizens based on their US citizenship, regardless of the fact that Germany has the right to tax the same income in accordance with the provisions of DBA-USA. However, DBA-USA does not contain a corresponding reservation from Germany’s perspective. The Saving Clause applies primarily to US citizens who are staying in Germany temporarily but not for a short period of time for professional or business reasons.

Double taxation due to the Saving Clause can affect such income as interest, income from employment, pensions, supervisory board remuneration, other income, etc.

However, DBA-USA is not that unfair. To avoid or rather eliminate double taxation due to the Saving Clause, DBA-USA contains a special multi-step crediting method. This allows US citizens to refund overpaid taxes.

In order to offset taxes paid in both countries and to arrange for the refund of taxes that have been overpaid, we recommend that US citizens who plan a non-short-term professional or business stay in Germany speak to their US tax advisor about the points outlined above. For these reasons, we also recommend that such US citizens find a tax advisor in Germany at an early stage. Of course we are happy to offer our assistance.

Vadym Ponomarenko | TLI Steuerberater