(2024) What applies to rental income from abroad?

As a rule, the foreign state in which the property is located has the right to tax the income from renting and leasing (taxation in the state of receipt). The foreign rental income is then tax-free in Germany but subject to the progression clause.

However, if the rental property is in an EU/EEA country, the rental income is not subject to the progression clause. Rental income from the EU/EEA does not need to be declared in the income tax return.

However, losses from renting out a foreign property in the EU/EEA cannot be claimed in the German tax return, even if they are not taken into account for tax purposes abroad (FG Baden-Württemberg, 08.07.2014, 4 K 1134/12).

Note: An important exception applies to properties in Spain. Rental income must be declared in Germany in the "V" form. The income tax paid in Spain on the rental income can be credited against German income tax.

Rental income from third countries (non-EU/EEA countries) is fully subject to the progression clause in Germany and must be declared in the AUS form. The foreign income must then be determined according to German tax regulations.

Be careful: Some double taxation agreements (e.g. with Switzerland) provide for the so-called credit method. In this case, the foreign rental income must be declared in the "V" form. The income tax paid abroad on the rental income can be credited against German income tax.

Therefore, each individual case of foreign property must be carefully examined to determine which state has the right to tax, whether the exemption or credit method applies, and whether the progression clause applies.