Ask a tax advisor on the topic of Double taxation

Income tax return in the year of departure

May 29, 2016 | 50,00 EUR | answered by StB Patrick Färber

Dear Sir or Madam,

Below are my questions regarding the income tax return as an employee with limited tax liability in the year of moving out of Germany.

My Situation:

Since March 2013, I (German citizen) have been employed by a company in Thuringia and work there as a software developer. From 01.06.2015, I was sent by my German employer to the United Kingdom (specifically: England) to work on a research project. My workplace is the local university, which is conducting the aforementioned research project and using our products for it. My employer does not have a branch or similar establishment here. I gave up my residence in Germany at the beginning of the assignment. As part of the assignment contract, my employer continues to deduct social security contributions in Germany.

For the period from 01.01.2015 to 31.05.2015, I was classified as unlimited tax liable with tax class 1, as has been the case since the beginning of my employment. From 01.06.2015 to 31.12.2015, I was classified as limited tax liable with tax class 1. I have a certificate issued by the tax office titled "Certificate for Wage Tax Deduction 2015 for Limited Tax Liability according to §1 para. 4 in conjunction with § 39 para. 2 and 3 EStG". This certificate also confirms that my salary is not subject to tax deduction for the period from 01.06.2015 to 31.12.2015 due to the Double Taxation Agreement between Germany and the United Kingdom under Article 14 para. 1,2 according to § 39 para. 4 No. 5 in conjunction with § 52 para. 51b EStG. As a result, my gross salary minus social security contributions was paid monthly by my employer's payroll department for the period 01.06.2015 - 31.12.2015.

For my understanding, I was therefore unlimited tax liable from 01.01.2015 to 31.05.2015 (with a residence in Germany), and became limited tax liable for the rest of the year 2015 from 01.06.2015 (without a residence in Germany).

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My questions are as follows (each with some explanation and assumptions on my part):

(Question 1):
Is the income I received from my German employer while I was classified as limited tax liable (with a residence abroad and no residence in Germany) actually considered "foreign income" according to § 34d EStG? All further questions are based on this.

(Question 2):
Do I need to submit two separate income tax returns for 2015? One for unlimited tax liable and one for limited tax liable individuals?

My assumption: No, only one income tax return for unlimited tax liability individuals. I assume this because both the input assistance in ElsterFormular and the "2015 Guide to Income Tax Returns" from the Bavarian tax office, in the case of moving abroad and thus only temporary unlimited tax liability, require the submission of only one tax return for unlimited tax liability individuals for the entire calendar year.

(Question 3):
Assuming that I only need to submit one income tax return for unlimited tax liability individuals after question 2:

In lines 93 to 96 of the main form of the 2015 income tax return for unlimited tax liability individuals, "Only for temporary unlimited tax liability in the calendar year 2015", I have entered the period of my normal residence in Germany (01.01.2015 - 31.05.2015), and in line 95, I have entered the gross income for the period 01.06.2015 - 31.12.2015 (for the progression proviso).

Am I correct in assuming that by filling out lines 93 and 95 (above) in the main form of the 2015 income tax return for unlimited tax liability individuals, my remaining income for the year 2015 (from the time of assignment to England) is correctly reported? What evidence/documents do I need to provide?

Since my employment situation has not changed, I would assume that wage tax certificates for this period as well as the "Certificate for Wage Tax Deduction 2015 for Limited Tax Liability" (above) are sufficient. Furthermore, the assignment contract and the deregistration certificate from Germany could also be presented.

(Question 4):
Building on Question 3: Does Annex N lines 20 to 24 (further information on wage) apply to me?

Specifically line 21: "Tax-free wage according to Double Taxation Agreement / other international agreements (transfer from lines 50, 70 and/or 81 of Annex(es) N-AUS)."

My assumption: It does not apply, as this refers to unlimited

StB Patrick Färber

Dear questioner,

Your inquiry is very comprehensive. In order to maintain the balance between effort and consulting time, I will provide the answers very targeted, as requested:

- Your statements suggest that despite being "seconded", the conditions for Germany to tax (less than 183 days abroad) are NOT met. Therefore, the salary is taxed in the UK.

- In 2015, you only submit ONE income tax return (for unlimited tax liability)

- The salary earned in the UK is subject to the progression clause in the year of departure.

- The entry in the main form in the lines you mentioned is correct, as well as the indication of "temporary unlimited tax liability" (no completion of Annex N-AUS).

- You must later provide proof of the taxation of the salary in the UK within the framework of income tax: through a tax return there, a payment receipt, or by the sum of the monthly salary slips showing the tax deduction. In this case - as correctly assumed by you - the GROSS salary will be used.

- Special expenses (health insurance, pension, etc.) are fully deductible only for the period of domestic employment. Unfortunately, not afterwards, as you will then have tax-free foreign income.

I hope I have covered everything in the amount of text, if not, please let me know briefly. Your assumptions were largely correct!

Kind regards,
Patrick Färber (Tax Advisor)
post@richtig-gegensteuern.de