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Understand the tax treaty between Germany and the U.S.

On Behalf of | Apr 12, 2022 | Business, International Tax and Business Entities |

When German citizens have business interests in the United States, they may need to pay taxes in both countries. However, they may be able to take advantage of the income tax treaty.

According to the Internal Revenue Service, a tax treaty is an arrangement that the U.S. has with other countries. The terms specify which kinds of income are subject to taxes, as well as the tax rate. People do not need to have dual citizenship to take advantage of the tax treaty. German citizens with U.S. residency can usually qualify. Each state sets its own policies regarding taxation and some may not recognize the tax treaty. If people do business in both New York and Florida, they may need to consider the tax codes of both states.

What is business income?

The Federal Foreign Office says that the tax treaty between Germany and the U.S. provides a definition of business profits. Profits are typically the money that people receive from their company’s activity or from the assets. Some German citizens may rent out houses or apartments. They usually have to report this income to both countries. Additionally, profits from film and television fall into this category.

What are the terms of the tax treaty?

People may only need to pay taxes in both countries if they have a permanent business in the U.S. Professionals can usually deduct the expenses associated with setting up and maintaining their company.

People may also need to consider the pricing guidelines laid out by the Organization for Economic Co-operation and Development. These guidelines consider the legal structure that a company would have in the U.S. or in Germany. This makes it easier for tax professionals to determine where the business fits in the regulations of both countries.

Tax treaties may not include every type of income. Business people may need to consult with someone about their particular situation.