How are non-residents taxed on German-source income?

Non-residents who do not have a permanent home or habitual abode in Germany are subject to beschrankte Steuerpflicht (limited tax liability). This means Germany can only tax income from specific German sources listed in §49 EStG, not worldwide income. German-source income includes wages from work physically performed in Germany, income from a German permanent establishment, German rental income, German dividends, and royalties from German-registered intellectual property.

For employment income, German employers withhold Lohnsteuer even for non-resident employees working in Germany. Non-residents may be eligible to apply for treatment as unlimited taxpayers (Option zur unbeschränkten Steuerpflicht) under §1 Abs. 3 EStG if at least 90% of their worldwide income is subject to German income tax, which can provide access to deductions and allowances not otherwise available to limited taxpayers.

For German rental income, non-residents must file a German tax return (Steuererklarung) declaring the rental income. The applicable tax rate is the same progressive rate as for residents. Dividends from German corporations paid to non-residents are typically subject to withholding tax at 25% (or a reduced treaty rate), and filing a return may allow recovery of excess withholding. Non-residents can apply to the BZSt (Bundeszentralamt für Steuern) for refunds of excess withholding tax under applicable treaties.

This is general information only, not professional tax advice. Consult a qualified tax professional for your specific situation.