How does the credit method work to avoid double taxation?
May 21, 2022 | 110,00 EUR | answered by Albrecht Schneider
Dear tax advisor,
my name is Jan Schmidt and I work as a self-employed entrepreneur in Germany. Lately, I have been increasingly concerned with the issue of double taxation and wondering how I can avoid it.
My current situation is as follows: I have business partners abroad and generate income in both Germany and abroad. This creates the risk of my income being taxed in both countries, resulting in me being double-taxed. This not only means a financial loss for me as an entrepreneur, but also additional bureaucratic hassle.
My main concern is that I do not fully understand the tax regulations and options for avoiding double taxation. I fear getting lost in a complicated tax maze and ultimately being double-taxed.
Therefore, my question to you as an expert is: How does the credit method for avoiding double taxation work, and how can I successfully apply it as a self-employed entrepreneur? Are there specific requirements I must meet to benefit from this method? What specific steps do I need to take to effectively protect my income from double taxation?
I would greatly appreciate it if you could assist me in your online consultation and provide me with the necessary information and solutions.
Best regards,
Jan Schmidt
Dear Jan Schmidt,
Thank you for your inquiry regarding double taxation and how you can avoid it as a self-employed entrepreneur. It is understandable that this topic is of great importance to you as a business owner with partners abroad, in order to avoid financial losses and additional bureaucratic hassle.
The credit method to prevent double taxation is a common way to ensure that your income is not taxed in both countries. The tax paid abroad on your income earned there is credited against the tax payable in Germany. This means that you are not taxed twice.
In order to successfully apply the credit method, certain requirements must be met. Firstly, it is important that there is a Double Taxation Agreement (DTA) between Germany and the country where you earn income. These agreements determine which country has the right to tax certain incomes and how double taxation is avoided.
Furthermore, you must declare your income correctly in both countries and comply with the tax laws there. It is advisable to seek advice from an experienced tax advisor to ensure that you comply with all tax regulations and can benefit from the credit method.
To effectively protect your income from double taxation, you should first check if there is a DTA between Germany and the respective country where you earn income. Then, you should declare your income accordingly and claim the tax paid abroad in your German tax return.
I hope this information helps you and that you can successfully use the credit method to avoid double taxation. If you have any further questions, please feel free to contact me.
Best regards,
Albrecht Schneider
