Ask a tax advisor on the topic of Double taxation

Taxation of US scholarships in Germany

April 1, 2018 | 50,00 EUR | answered by Oliver Burchardt

I moved to the USA last year. Prior to that, I was employed in Germany for 9 months and am therefore fully taxable in Germany. In the USA, I receive a Fellowship (US income code 16), which allows me to refer to Paragraph 20, paragraph 3 of the double taxation agreement:

"Payments - excluding compensation for personal services - that a person residing in one Contracting State and resident in the other Contracting State or who was resident in the latter State immediately before entering the former State, receives as a grant, maintenance allowance or scholarship from a non-profit, religious, charitable, scientific, literary or educational private organization or a comparable public institution, shall not be taxed in the former State."

My question now is: If I take advantage of the double taxation agreement and therefore do not pay taxes in the USA on the scholarship, do I have to pay tax on the US income in Germany? If yes, where does this go in the German tax return? If no, does the income go into the German tax return as 'Tax-free according to the double taxation agreement'?

Oliver Burchardt

Dear questioner,

Thank you for your inquiry, which I am happy to answer as part of an initial consultation.

In Germany, scholarships are generally tax-free, as they do not constitute wages for an employment relationship, but rather a grant for living expenses, § 3 No. 44 EStG.

I cannot verify in this forum whether all the requirements for tax exemption in Germany are met, as your information does not include all necessary details (amount, scholarship provider, timing of your university degree). However, you can apply to the tax office to certify your tax exemption.

However, I am not sure if you can really rely on the Double Taxation Agreement (DBA). By moving to the USA, you establish residency there and do not just stay there. To avoid disadvantages in the USA, you should clarify what your tax status is in the USA and whether relying on the DBA is possible for you.

Best regards,

Oliver Burchardt
Tax advisor