U.S. EXPAT TAX GUIDE – GERMANY
Do self-employed Americans in Germany have to file US taxes?
Yes, if you’re an American citizen or hold a Green Card and are self-employed in Germany, you must comply with US tax filing obligations, regardless of your business’s nature.
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What should I know about being a sole proprietor in Germany?
As a sole proprietor in Germany, you and your business are considered a single entity for legal purposes.
On the US tax front, you should report your business income and expenses using Schedule C, which is part of your personal tax return (Form 1040). Key points to note include:
- Totalization Agreement: This agreement between the US and Germany prevents the need to pay US self-employment taxes on the income earned in Germany.
- Foreign Earned Income Exclusion (FEIE): This allows you to exclude a significant portion of your foreign-earned income from US taxation, given you meet certain conditions, helping to reduce your overall US tax bill.
What if I own a company in Germany?
Owning a company in Germany, particularly a foreign corporation, involves more complex reporting requirements:
- Form 5471: Must be filed by US shareholders of foreign corporations to provide details about the corporation’s operations and finances.
- Controlled Foreign Corporation (CFC) Rules: If you own more than 50% of a foreign company, or if a group of US persons has control, it might be considered a CFC. This status can lead to immediate US taxation of certain incomes earned by the corporation under Subpart F income rules, irrespective of whether profits are distributed.
When is a self-employed person required to file a US tax return?
If you are self-employed in Germany and earn at least $400, you must file a US tax return. This threshold is much lower than many realize.
Does self-employment income influence the US tax filing thresholds?
Yes, it does. Even if your combined income from employment and self-employment doesn’t exceed the general filing thresholds—for instance, $13,850 for singles in 2023-2024—the $400 minimum from self-employment alone triggers a filing requirement.
Are self-employed US expats in Germany subject to dual social security contributions?
Fortunately, no. The totalization agreement between the US and Germany exempts those paying social security in Germany from also paying it to the US, thus avoiding dual social security contributions.
What tax advantages can self-employed Americans in Germany access?
Self-employed expats often benefit from mechanisms like the foreign tax credit and the FEIE to lower their US tax liability. It’s advisable to consult a tax professional who can tailor advice to your specific situation, potentially reducing or even eliminating your US tax obligations through strategic use of these benefits.
Why partner with a specialist Expat accountant?
Living outside of the US can make your tax filing requirements complicated. To ensure you pay the minimum amount of taxes, it’s critical to work with an accountant who understands every aspect and avenue for reducing your tax liability. We have a dedicated team of tax accountants who work exclusively with US expats earning and investing in Germany. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.
