How does the credit method work to avoid double taxation?
May 8, 2023 | 110,00 EUR | answered by Isabel Zimmermann
Dear Tax Advisor,
My name is Irmgard Weiss and I am currently dealing with the issue of double taxation. I have read that there are various methods to avoid double taxation, including the credit method. Unfortunately, I still lack understanding of how exactly this method works and how I can apply it.
Regarding the current situation: I work in Germany and receive my income here. However, I also have income from a foreign source, for example, from owning property in Austria. Now I am concerned that this income could be taxed in both Germany and Austria, leading to double taxation.
The current status is that I am not sure how to avoid this double taxation and how the credit method could help me. I would like to understand how this method works and if it is suitable for my situation.
Therefore, my question is: How does the credit method work to avoid double taxation and how can I apply it in my case? Are there specific requirements or conditions that I need to meet to use the credit method? What deadlines or procedures do I need to be aware of to avoid double taxation?
I look forward to your detailed explanation and thank you in advance for your help on this important issue.
Sincerely,
Irmgard Weiss
Dear Mrs. Weiss,
Thank you for your question regarding double taxation and the credit method. I will be happy to explain in detail how this method works and how you can apply it in your case.
The credit method is a way to avoid double taxation of income from abroad. The tax already paid abroad is credited against the domestic tax. This means that you will not be taxed twice on the same income, but only in the country where you are liable for taxes.
In your case, if you have income from both Germany and Austria, you would first pay taxes on your income in both countries according to the applicable tax rates. Then you can have the tax paid abroad credited against your German taxes. There are certain conditions that must be met in order to use the credit method.
Firstly, there must be a double taxation agreement between the countries involved that allows for the credit method. In your case, between Germany and Austria, there is such an agreement that allows for the credit method. Additionally, you must be able to prove that you have actually paid taxes abroad.
To apply the credit method, you will need to fill out a form N-Aus in Germany, where you will report your foreign income and the tax paid abroad. This information will be used to calculate the tax to be credited.
It is important to inform yourself in a timely manner about deadlines and procedures to avoid double taxation. Generally, you must report your foreign income and the tax paid abroad in Germany by the end of the tax year and apply for the credit.
I hope this explanation has been helpful and that you now have a better understanding of the credit method. If you have any further questions, please feel free to contact me.
Best regards,
Isabel Zimmermann
