How do Germany's double taxation agreements (Doppelbesteuerungsabkommen) work?

Germany has concluded Doppelbesteuerungsabkommen (DBA) with over 90 countries. These bilateral treaties allocate taxing rights over different types of income between the two countries and prevent the same income from being taxed twice. The treaties generally follow the OECD Model Tax Convention, though individual treaties vary.

For most income types, one country is designated as the primary taxing country. Employment income is typically taxed where the work is physically performed. Business profits are taxed where the permanent establishment (Betriebsstätte) is located. Dividends, interest, and royalties are usually taxed in the residence country, with a withholding tax permitted at source up to a treaty-specified ceiling (typically 5%-15% for dividends, 0%-10% for interest). Pension income is generally taxed in the country of residence, though government pensions are often taxed only in the source country.

Germany uses two methods to eliminate double taxation: the exemption method (Freistellungsmethode), where foreign income is excluded from the German tax base but included under the Progressionsvorbehalt to determine the rate, and the credit method (Anrechnungsmethode), where foreign tax paid is credited against the German tax due on the same income. Which method applies depends on the specific treaty and type of income. German residents with foreign income should check the applicable DBA on the BMF website to understand which rules apply to their situation.

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