Before opening a local business in Germany, you will likely need to obtain a visa or work permit to reside and work in Germany legally. Moreover, you must decide on your business structure and register your business with the appropriate German agency. There are several German agencies where you may need to register your business, such as the local offices of Business and Standards, the local Labour Office, the trade office (Gewerbeamt), the tax office (Finanzamt), etc. You can find out more details on the appropriate office for your region provided on Germany’s Federal Ministry for Economic Affairs and Energy website.

The German Social Security system comprises three pillars:

An agreement between the United States and the Federal Republic of Germany improves Social Security protection for people who work or have worked in both countries. It helps people who, without the agreement, would not be eligible for retirement, disability, or survivor benefits under the Social Security system of one or both countries. It also helps many people who would otherwise have to pay Social Security taxes to both countries on the same earnings.

The agreement's provisions eliminate double Social Security taxation and permit dual residents to use their work in both countries to qualify for benefits.

U.S. Green Card holders residing in Germany may elect to apply what is known as the tie-breaker rule of the U.S.-Germany Tax Treaty and be deemed a resident only of the State (i.e., country) with which their personal and economic relations are closer (Germany).

Under such an election, the individual would file Form 1040NR and report only income derived from U.S. sources. The requirement to provide full disclosure of foreign bank accounts remains, and tax on income from U.S. sources will be higher than a tax on the same income when applied to U.S. residents filing Form 1040.

The primary source of information is Anlage N. If you had employee income from sources outside of Germany, you would also need Anlage N-AUS to add numbers from the respective fields.

To report the total amount of the annual gross salary from line 6 (Bruttoarbeitslohn):

Income from self-employment is a turnover of your unincorporated business. You will need German forms Anlage S or Anlage G. To report the gross income from the self-employment or business income, navigate to Income > Self-employment tab and enter the amount under the question Gross Income from the Self-employment.

Each type of income is reported as a gross amount before any deductions are allowed in Germany, for example, before contributions to the German public retirement system (those are reported separately).

If you received severance pay as compensation for termination of employment, add the gross amount as additional wages.

Similarly to income, the tax must be reported separately for each type of income on which tax was paid. To report tax imposed on the particular income type:

If there was an additional tax payment during the calendar year (i.e., Bundeszentralamt für Steuern issued a tax bill for tax underpaid in the prior year), add that amount to the amount of tax withheld during the filing year.

Taxes on unearned income may be withheld by the payor (e.g., bank-withheld income from dividends), or you may owe tax upon completing the tax assessment form. Report each type of tax paid during the filing year in the respective section, even if it applied to income received in prior years.

We will take specific deductions allowed for German residents by the U.S.-German Tax Treaty, for example, we can deduct contributions made to the employer pension scheme. You will report contributions to the employer pension separately from the gross income. We will take this deduction if this improves your tax position (in some cases, you may benefit from not taking this deduction now).

Further, the Taxes And Deductions > Deductions section of TQ offers you questions related to various additional deductions. Such deductions include mortgage interest, alimony payments, and investment advisor fees. Similarly to personal allowances in Germany, the U.S. tax system also applies a “Standard deduction” concept: $12,950 per single person and $25,900 for the married couple for the 2022 tax year. For most German residents filing a U.S. tax return standard deduction option is more tax efficient than “itemized deductions” - grossing up individual deductions. Refer to Standard vs. Itemized deduction on the U.S. tax return for more information.

As an example, you can report your property tax on a U.S. residence:

❗ Important note: foreign property taxes are not deductible for tax years 2018 through 2025.

To report employer contributions and your contributions to the pension scheme:

To report payouts from foreign pensions of all types: Social Security, employer pension, and widow's pension:

This does not need to be reported - it is not treated as income.

A: The Social Security payment is not deductible from your salary. Similarly, you do not “deduct” income tax. Instead, you need to report your gross salary, and then you can claim the foreign tax credit for income tax (not for the Social Security tax).

❗ Important note: there are other taxes that are also non-deductible, such as Church tax and VAT.

In 2006, the United States of America and the Federal Republic of Germany signed a Protocol amending their Tax Treaty to avoid double taxation and prevent fiscal evasion concerning taxes, allowing the exchange of tax-related information. This amendment was implemented through the Foreign Account Tax Compliance Act (FATCA) in 2010.

Germany incorporated FATCA principles into its local law, obligating German financial institutions to provide information on U.S. accounts to the German tax authorities (Bundeszentralamt für Steuern). Further, it becomes subject to the Intergovernmental Automatic Exchange of Information that took effect on May 31, 2013. Subsequently, German banks reported account balances on June 30, 2014, with reviews based on account value. Accounts with balances over $1 million were reviewed by June 30, 2015, and those with lower values ($50,000 - $1 million for individuals and $250,000 - $1 million for entities) by June 30, 2016.

To comply with U.S. FATCA regulations, German financial institutions search their data for indications (indicia) that an account holder may be a U.S. person (U.S. Specified Persons or foreign entities in which U.S. taxpayers hold a substantial ownership interest). These indications include:

Even though FATCA will provide relief in writing scope to many German retirement plans and pooled investment vehicles considered “deemed compliant", the FATCA rules applied to individuals were not relaxed. Form 8938 requires reporting by U.S. taxpayers participating in foreign pension plans.