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Friday, March 21, 2008

Tax Implications of Moving to Germany

A few notes from my consultations with various tax folks (this only applies to my situation, so consult your own people if you're ever in this situation):

  • As U.S. citizen, you owe income tax on world wide income. Taxes you owe to a foreign government might grant you a tax credit.
  • As someone working in Germany, you owe taxes on income you generate while in Germany. Furthermore, you owe taxes on income generate through exercise and selling of stock options that vested while in Germany. However, if you sold after leaving Germany you are not liable for German taxes on those options.
  • For 2008, Germany has no capital gains tax. Germany, however, has realized that this is a problem and from 2009 onwards there will be a capital gains tax.
  • The U.S. taxes dividends at a preferential 15% tax rate. In Germany, they are taxed at your highest marginal tax rate (as high as 42%).
  • Many companies have a Tax-Equalization policy for expatriates. What this means in theory is that the company tries to equalize your taxes in such a way that you have no tax incentive to take or not take a foreign assignment. In practice, however, if there are limitations in the tax equalization clause, this could lead to a heads the company wins, tails you lose situation, as the company could capture all the tax benefits of you working in a foreign country (if there were any), while you reap all the penalties of working in a foreign country (if there were any) that are excluded from such tax equalization policies. If you work for such a company, read the policy with care!

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