Ask a tax advisor on the topic of Double taxation

Different sources of income in several EU countries with residence abroad

November 30, 2009 | 50,00 EUR | answered by Matthias Wander

Dear Sir or Madam,

I am a freelancer and have additional income from a business operation as well as rental income (house approximately 180 m2), 80% of which I rent out to a tenant and operate a small office in the remaining 20%, from which the business operation (online shop and web administration) is conducted by an employee.

I had my primary residence in Germany until May 31, 2009, and then moved to the Czech Republic on June 1, 2009 due to my freelance work as my sole residence and center of my life, occasionally traveling to Germany from there to coordinate business activities at my house.

I declare my income to the Czech tax office and pay taxes on it in the Czech Republic.

Question #1:
Until 2007, it was the case that in the event of my permanent residence in Germany, this income had to be declared to the German tax office in the "Anlage AUS" along with the income taxes paid abroad, and that under double taxation agreements, this income would not be taxed again in Germany, but would be subject to progression, meaning that the income tax to be paid in Germany would be taxed at a rate corresponding to the entire "world income".

Now, in preparing my 2008 tax return with my WISO software, I discovered that, following a new regulation by the EU finance ministers effective from January 1, 2008, this situation has changed in that the income in the "Anlage AUS" must still be declared along with the income tax paid in an EU country, but now from January 1, 2008, it would no longer be subject to progression! Is this correct, is this a new situation?

Question #2:
How does the tax office calculate in my case how long I am subject to unrestricted taxation and from when I am only subject to restricted taxation due to my permanent residence abroad? How is the basis for a possible restriction of taxation determined, for the whole year or divided into months? In my case, would I be subject to unrestricted taxation for the first 5 months of 2009 and then only restricted for the remaining 7 months after moving to the Czech Republic? Or do I remain constantly subject to unrestricted taxation in Germany despite my residence abroad due to the additional sources of income from rental and business operations?

What if, for example, I were to re-register as a "move-in" from the Czech Republic to Germany, for example on December 1, 2009, in my own house where I also have overnight accommodation in the office - would I then be subject to unrestricted taxation throughout the year due to the 183-day rule? How does the tax office proceed in such special cases where the taxpayer has their permanent residence in two different countries in the calendar year, is there a fixed legal regulation for this, or is it decided anew for each tax case?

Question #3:
In the case of restricted taxation from 201

Matthias Wander

Dear Mr. Diener,

Thank you for your inquiry, which I would like to answer based on your information in the context of an initial consultation.

1. According to § 32b para. 1 sentence 1 no. 3 in conjunction with sentence 2 of the Income Tax Act (EStG), the progression clause is no longer applicable from 2008 to income exempt from taxation under a DTA from EU/EEA countries if it involves income
- from an agricultural or forestry establishment,
- from a commercial establishment,
- from renting and leasing of immovable property,
- from the paid use of ships, or
- from the valuation of a lower value.
As a freelancer, you earn income from self-employment (§ 18 EStG). These are also subject to the progression clause in 2008.

2. According to § 2 para. 7 EStG, income tax is an annual tax. The basis for its determination is to be calculated for each calendar year. If there is both unlimited and limited income tax liability during a calendar year, the domestic income earned during the limited income tax liability is to be included in an assessment of unlimited income tax liability. Therefore, only one income tax return is to be submitted for unlimited tax residents in 2009. An income tax return for limited tax residents would only be required from 2010 onwards (unless at least 1 day of unlimited income tax liability).

3. From the year 2010, you are limited tax liable due to your domestic income, as you lack a residence or habitual abode. According to § 50 para. 1 EStG, you may only deduct business expenses or advertising costs to the extent that they are economically related to German income. Therefore, you can continue to deduct monument depreciation according to § 7i EStG as advertising costs from renting and leasing. Special expenses and child allowances, on the other hand, are not taken into account. Foreign income is not reported in the income tax return for limited tax residents.

I hope this gives you a first overview.

Best regards,

Wander
Tax Advisor