(2022) How do I tax my foreign income?

If you have your residence or usual place of abode in Germany, you are subject to unlimited income tax liability here. This means you must pay tax in Germany on your domestic and foreign income. On the other hand, the foreign country also levies taxes; this is known as the source principle.

To avoid double taxation, Germany has concluded double taxation agreements with all major countries.

If the foreign country has the right to tax, double taxation is avoided as follows:

Exemption method:

• Foreign income is tax-free in Germany but is included in the calculation of the tax rate (progression clause).

Credit method:

• Foreign income is included in Germany, and the tax paid abroad is credited against the tax liability or deducted from income as business expenses.

For wages, the exemption method is generally applied.