German Inheritance Tax - Tax Liability in Germany
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The article outlines the rules of tax Liability in Germany. According to § 2 Erbschafts- und Schenkungsteuergestz (ErbStG) unlimited inheritance tax liability results from the fact that either the deceased or the heir is a resident taxpayer upon his death.
A taxpayer is domiciled in Germany if he possesss a home in Germany under circumstances from which it can be assumed that he will keep this home and use it (see section 8 Abgabenordnung = General Tax Code). This home does not need to be his principal home. For instance, it was held by the Bundesfinanzhof (Federal High Tax Court) that a home being used only five weeks annually, is sufficient to be qualified as domicile according to Section 8 AO.
Example: A Canadian ciitzen owns a flat in Berlin and stays in this flat five weeks a year. He dies in Canada and leaves property in Canada and Germany. Unlimited tax liability occurs and his worldwide estate is taxable in Germany.
Habitual residence (see Section 9 Abgabenordnung) is held if somebody stays at a place (e.g. a long-term rented hotel suite) under circumstances from which it can be assumed that his stay at this place is not only temporary. Any stay exceeding a duration of six months and longer in Germany is deemed to lead to an habitual residence there (see Section 9 Sentence 2 AO).
In addition, extended unlimited inheritance liability ("erweiterte unbeschränkte Erbschaftsteuerpflicht") is applicable if the deceased is a German national and was domiciled or permanently resident in Germany 5 years before his death (see § 2 sec. 1.1.a) ErbStG). In some cases (limited) tax liability is extended to 10 years (see Section 4 AStG).
In any other case only assets situated in Germany are taxable (situs), e.g. real estate, business assets, shares in a corporation if the company has its seat or place of principal management in Germany and the deceased or donor, either alone or together with persons closely connected with him in terms of Section 1 Subsection 2 AStG, holds directly or indirectly at least 10 % of the nominal or share capital of the company, as well as some immaterial rights. German bank accounts are not subject to taxation because of situs.
Note for American tax payers: The German - American double taxation agreement modifies taxation for American tax payers.
ABOUT THE AUTHOR: Jan-Hendrik Frank
Certified Specialist in Probate and estate planning law. STEP member.
Copyright WF Frank & Partner LLP
More information about WF Frank & Partner LLP
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
Example: A Canadian ciitzen owns a flat in Berlin and stays in this flat five weeks a year. He dies in Canada and leaves property in Canada and Germany. Unlimited tax liability occurs and his worldwide estate is taxable in Germany.
Habitual residence (see Section 9 Abgabenordnung) is held if somebody stays at a place (e.g. a long-term rented hotel suite) under circumstances from which it can be assumed that his stay at this place is not only temporary. Any stay exceeding a duration of six months and longer in Germany is deemed to lead to an habitual residence there (see Section 9 Sentence 2 AO).
In addition, extended unlimited inheritance liability ("erweiterte unbeschränkte Erbschaftsteuerpflicht") is applicable if the deceased is a German national and was domiciled or permanently resident in Germany 5 years before his death (see § 2 sec. 1.1.a) ErbStG). In some cases (limited) tax liability is extended to 10 years (see Section 4 AStG).
In any other case only assets situated in Germany are taxable (situs), e.g. real estate, business assets, shares in a corporation if the company has its seat or place of principal management in Germany and the deceased or donor, either alone or together with persons closely connected with him in terms of Section 1 Subsection 2 AStG, holds directly or indirectly at least 10 % of the nominal or share capital of the company, as well as some immaterial rights. German bank accounts are not subject to taxation because of situs.
Note for American tax payers: The German - American double taxation agreement modifies taxation for American tax payers.
ABOUT THE AUTHOR: Jan-Hendrik Frank
Certified Specialist in Probate and estate planning law. STEP member.
Copyright WF Frank & Partner LLP
More information about WF Frank & Partner LLP
View all articles published by WF Frank & Partner LLP
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
