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Progression clause

November 17, 2010 | 30,00 EUR | answered by Dipl.BW/SB Ulrich Stiller

Do income from employment in England or Switzerland fall under the progression clause in Germany if the individual is deregistered in Germany, has their residence in London or Zurich, but still owns a small business in Germany from which they make taxable profits?

Dipl.BW/SB Ulrich Stiller

Dear Client,

Thank you for your inquiry, which I would like to answer based on the information you provided and in the context of your situation in a first consultation as follows:

If you do NOT have a residence or habitual residence in Germany, you are not subject to unlimited income tax liability, but may be subject to limited income tax liability if you have income within the meaning of § 49 EStG. If you do not have a residence in Germany, but stay in Germany continuously for more than 6 months in a year, then you have a habitual residence in Germany and are subject to unlimited income tax liability even without a residence in Germany. The progression clause regularly applies to unlimited tax liability. In this case, the income you mentioned is subject to the progression clause.

If you have neither a residence nor a habitual residence in Germany, there is no unlimited income tax liability and the progression clause does not apply, as you are only subject to limited tax liability. This leads to unequal treatment between those with limited and unlimited tax liability. However, this unequal treatment is justifiable (see Hellwig DStZ 1996,385).

I hope I was able to assist you with my explanations.

Kind regards,

Ulrich Stiller
Tax consultant/Dipl. Betriebswirt