Tax and Citizenship

[ajcoxuk]

Reworded as the original text was unclear:

With dual citizenship looking possible again for UK citizens, I wonder what the tax implications are if you remain resident in Germany with your new citizenship and if there are any implications if you return to the UK as a dual national? I know that there are significant tax issues if you obtain US citizenship but not sure if anything similar occurs for German citizenship.

Original text:

With dual citizenship looking possible again for UK citizens, I wonder what the tax implications are if you remain resident in Germany and if you return to the UK retaining your new German citizenship?

[Escafusa]

If you have German citizenship you can come and go as you please, so what would be the point or advantage of remaining registered as a resident here? Surely that means you should continue to pay taxes here?

[ajcoxuk]

Thank you. My original answer was unclear and I have reworded it.

[Escafusa]

If you return to the UK and remain there presumably you will be tax-resident in the UK, but if you fail to de-register/cancel your residence in Germany you will also be tax-resident in Germany as the authorities will assume you are living here. I don't see how holding UK, German citizenship or both would affect that in any way. And why would you want to remain resident in Germany if you are not living here?

[ajcoxuk]

I don't want to remain tax-resident in Germany if I return to the UK, but I just want to check that holding German Nationality doesn't have some "side-effect" I don't know of.

I know that American Nationals are taxed on their worldwide income regardless of their residence and I just want to check that there isn't some complication in German Tax Law I am not aware of.

I remember reading that being a German national does mean that your UK State Pension will be taxed in Germany if you are tax resident in Germany, while for a non-german citizen it is taxed in the UK. Is this correct? Is there anything else I should consider?

[Escafusa]

I don't want to remain tax-resident in Germany if I return to the UK, but I just want to check that holding German Nationality doesn't have some "side-effect" I don't know of.

Not that I am aware of. If you de-register from being a resident of Germany, then you will no longer be tax-resident either, regardless of nationalities held.

[PandaMunich]

I remember reading that being a German national does mean that your UK State Pension will be taxed in Germany if you are tax resident in Germany, while for a non-german citizen it is taxed in the UK.

You misremember.
That wasn't about the (not very aptly named) "UK State Pemsion" which is just their name for a social security pension.

No, it was about pensions for government service, see article 18 (2) of the DTA between Germany and the UK: https://www.bundesfinanzministerium.de/ ... onFile&v=3

• (2) Notwithstanding the provisions of paragraph 1, pensions
  and other similar remuneration paid by, or out of funds created by, a Contracting State, a “Land” or a political subdivision or a local authority of a “Land” or a Contracting State or some other legal entity under public law of that State to an individual in respect of services rendered to that State, “Land”, subdivision or authority or legal entity under public law shall be taxable only in that State.
  However, such pensions and other similar remuneration shall be taxable only in the other Contracting State if the individual is a resident of, and a national of, that State.

Is there anything else I should consider?

Yes, being a German citizen comes with a 5 year lagging gift and inheritance tax liability, see § 2 (1) Nr.
1 b) ErbStG: https://dejure-org.translate.goog/geset ... r_pto=wapp
If you move to the USA, it's 10 years lagging liability, since that is what's written in the inheritance tax DTA between Germany and the USA.
For details, please read the end of this section: https://expertise.tax/en/faq-german-tax ... tance_gift

And § 2 Außensteuergesetz also has some nice "surprises" for Germans who move away from Germany, see here (this is a Haufe article, which resists translation by GoogleTranslate. Just copy its text into DeepL.com to translate it into English): https://www.haufe.de/finance/haufe-fina ... 73437.html

The Wegzugsbesteuerung in § 6 AStG: https://www-buzer-de.translate.goog/6_A ... r_pto=wapp
on shares in capital companies of which you own at least 1%, that's what the reference to § 17 Absatz 1 EStG in there is about: https://dejure-org.translate.goog/geset ... r_pto=wapp

§ 6 AStG also applies to non-Germans, it applies to everybody who has lived here for at least 7 years out of the last 12 years.

By the way, this is is about owning at least 1% of any capital company worldwide, so if you came to Germany with at least 1% of a UK Ltd, lived here for 7 out of the last 12 years and now move back to the UK, the German state wants to tax the increase in value of these shares before you leave.

Please see here for a Haufe article on Wegzugsbesteuerung: https://www.haufe.de/finance/haufe-fina ... 51215.html

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Here is an article covering the tax consequences of moving away from Germany: https://www-rosepartner-de.translate.go ... r_pto=wapp

[Nixon]

Hello Panda,

- What is the "10 years after move to the USA Lagging tax liability"?
- When you mention Ltd in the UK, would it apply to the US LLCs too (in our case it doesn't have shares/stocks but is a wrap for realestate properties). A house selling price would be higher than purchase price, at least in the current situation.

Thanks

Yes, being a German citizen comes with a 5 year lagging gift and inheritance tax liability, see § 2 (1) Nr.
1 b) ErbStG: https://dejure-org.translate.goog/geset ... r_pto=wapp
If you move to the USA, it's 10 years lagging liability, since that is what's written in the inheritance tax DTA between Germany and the USA.
For details, please read the end of this section: https://expertise.tax/en/faq-german-tax ... tance_gift

And § 2 Außensteuergesetz also has some nice "surprises" for Germans who move away from Germany, see here (this is a Haufe article, which resists translation by GoogleTranslate. Just copy its text into DeepL.com to translate it into English): https://www.haufe.de/finance/haufe-fina ... 73437.html

The Wegzugsbesteuerung in § 6 AStG: https://www-buzer-de.translate.goog/6_A ... r_pto=wapp
on shares in capital companies of which you own at least 1%, that's what the reference to § 17 Absatz 1 EStG in there is about: https://dejure-org.translate.goog/geset ... r_pto=wapp

§ 6 AStG also applies to non-Germans, it applies to everybody who has lived here for at least 7 years out of the last 12 years.

By the way, this is is about owning at least 1% of any capital company worldwide, so if you came to Germany with at least 1% of a UK Ltd, lived here for 7 out of the last 12 years and now move back to the UK, the German state wants to tax the increase in value of these shares before you leave.

Please see here for a Haufe article on Wegzugsbesteuerung: https://www.haufe.de/finance/haufe-fina ... 51215.html

*****************************************************************************

Here is an article covering the tax consequences of moving away from Germany: https://www-rosepartner-de.translate.go ... r_pto=wapp

[PandaMunich]

- What is the "10 years after move to the USA Lagging tax liability"?

If you have German citizenship (but not US citizenship!) and you move from Germany to the USA and you make a gift or die within the first 10 years after having moved to the USA, you would owe German gift/inheritance tax.
This is laid down in article 4 (3) of the double taxation agreement with regards to gifts/inheritances (DTA-gift/inheritance), see here: http://pinkernell.de/estate.htm#Art04

• 3. Where an individual, at his death or at the making of a gift, was
  a) a citizen of one Contracting State, and not also a citizen of the other Contracting State, and
  b) by reason of the provisions of paragraph 1 domiciled in both Contracting States, and
  c) by reason of the provisions of paragraph 1 domiciled in the other Contracting State for not more than ten years,
  then the domicile of that individual and of the members of his family forming part of his household and fulfilling the same requirements shall be deemed, notwithstanding the provisions of paragraph 2, to be in the Contracting State of which they were citizens.

The above article 4 (3) of the DTA-gift/inheritance also works the other way around:
If you have US citizenship (but not German citizenship!) and you move from the USA to Germany and you make a gift or die within the first 10 years after having moved to Germany, you (and also the gift recipients/heirs, as long as the only ones who live in Germany are the ones residing in your own German household, i.e. the ones who moved along with you to Germany), would owe only US gift/inheritance tax, which basically means no tax at all, since the US exempt the first 13.61 million US$ from estate tax.

- When you mention Ltd in the UK, would it apply to the US LLCs too (in our case it doesn't have shares/stocks but is a wrap for realestate properties). A house selling price would be higher than purchase price, at least in the current situation.

No, because according to article 13 (1) of the double taxation agreement regarding income tax (DTA), only the USA have the right to tax the gain from US real estate: http://pinkernell.de/dbausa.htm#Art13
This is called the Belegenheitsprinzip: https://www-juhn-com.translate.goog/fac ... r_pto=wapp

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If you should also have another LLC, e.g. for your professional activity, then that would fall only under the exit tax (Wegzugsbesteuerung) of § 6 AStG if the Finanzamt had classified your US LLC as a Kapitalgesellschaft in the Rechtstypenvergleich and not simply as a Personengesellschaft (transparent, pass-through entity), see my post of 3. October 2016 in here: https://web.archive.org/web/20210508035 ... -gmbh-etc/
Which is unlikely, since very few US LLC are more similar to German Kapitalgesellschaft than to a German Personengesellschaft.

[Nixon]

Thank you Panda.