FAQ on taxation
On principle, only employers who have an establishment or representation in Germany are required to run a PAYE scheme. If your research institute is not represented in Germany, the researcher is responsible for paying his or her own income tax.
According to the German-American double taxation agreement, the right of taxation lies with the state of residence, i.e. Germany. The USA would only have the right of taxation if a second office or laboratory were set up for you in the USA and you were to carry out contract research there, too.
I am a Belgian citizen and am employed as member of the research staff at a German research institution. My German employer wants to send me on a two year research project to a research institution in the USA with which they have a 'visiting researcher agreement'. During my stay abroad I will be giving up my residence in Germany and will register my parental home in Belgium as my main residence. In which country is my salary taxable during my stay abroad?
In principle, the American-German double taxation agreement, the Belgian-American double taxation agreement and the German-Belgian double taxation agreement assign the right to tax income from employment to the country in which the work is carried out. Exceptionally, however, these agreements grant the country of residence the right to tax in the case of a research stay undertaken by a university professor or teacher, if the stay does not last more than two years. In the case of the USA, there are further conditions: the research stay must be undertaken at a recognised teaching or research institution and must be for the public good, rather than being primarily in the interests of a private person or company.
In this specific case, this means that:
- Germany does not have the right to tax income as the academic employee will not be resident there nor working there during the stay.
- Belgium has the right to tax income if the academic employee is classified as a university professor or a teacher in the USA, if the research institution is officially recognised there, if the research is undertaken for the public good and if the main country of residence is Belgium. Belgium would not be considered the main country of residence if the residency in the parental home is only pro forma and the centre of vital interests has been transferred to the USA during the stay.
- If one of the aforementioned conditions is not met, then the USA, as the country of employment, has the right to tax.
I have been granted a Marie Skłodowska-Curie Fellowship to go to the USA for 2 years and then complete the scheduled return phase back in Germany. The EU will enter into an agreement with my current employer in Hamburg so that I continue to receive my salary for the entire period from this employer. Do I have to declare this fellowship for taxation?
First of all, it must be decided whether the amount paid by the employer is judged to be a fellowship or wages in terms of American and German tax law. According to the German-American double taxation agreement, on principle, fellowships are exempt from taxation during the period spent in the USA. Wages have to be declared for tax in the USA on principle. However, in exceptional cases, the right of taxation may lie with the German side if the employee is a school or higher education teacher, if he/she is staying at a recognised university, institution of higher education, school or other teaching establishment, or a public research institute, or another institute for research work in the USA for the purpose of continuing his/her studies, carrying out research work, or employment as a teacher, and if the stay in the USA is restricted to a maximum period of 2 years and the work there is considered to be in the public interest.
With respect to the return phase, German tax law applies. German tax law does allow for tax exemption for fellowships providing certain conditions are fulfilled regarding who has awarded the fellowship, the way the fellowship is given as well as the amount and the aim. Wages have to be declared for taxation.
In many host countries you are eligible for tax relief on fellowships, just like in Germany. Furthermore, most double taxation agreements include a regulation that certain fellowships from foreign sources are not liable for taxation in the host country.
Many, but not all, double taxation agreements that Germany has concluded with other states include special regulations exempting certain teaching and research activities that are carried out over a limited period of time from taxation in the country in which they are carried out, or allocating the right of taxation to the country of domicile. In most agreements, the special regulation only applies to a stay lasting no longer than 2 years. The various special regulations differ significantly, though, so that it is not possible to make any across-the-board statements; each agreement has to be examined individually. In some cases, the taxpayer must be a teacher or higher education teacher, in others not.
There are differing criteria determining which teaching and research activities and which institutions are covered by the special regulations. In some cases, the special regulation only applies to payments not originating in the country in which the work is carried out. Whether teaching or research activities are covered by the special regulation should be discussed individually with the responsible tax authorities at the beginning of the stay abroad. They will examine whether the pre-conditions for applying the special regulation have been fulfilled. If they have, tax exemption will be confirmed and it will be determined to what extent income tax will be deducted in the country of domicile rather than in the country in which the work is carried out.
Even in cases where a tax exemption exists, some countries still require tax returns to be submitted. In the context of the income tax return the proportion of income covered by the special regulation must be specifically declared.
I am American but have been living in Germany for 6 years with a permanent residence permit working as a researcher at a university. In a few months I am going to take up a position at a British research institute but for personal reasons intend to continue living in Germany and also to spend most of my time working there. Where will I have to pay tax?
According to the German-British double taxation agreement, salaries have to be taxed in the country in which the work has been carried out. If the work is carried out both in Germany and in Great Britain, the salary has to be divided up in relation to the number of working days spent in the two countries and the relevant proportion then taxed in the respective country. As the place of residence, Germany, on principle, also has the right of taxation for foreign income. However, on proof of having paid a proportion of tax in Great Britain, you will be granted tax exemption at the same level.
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Last updated: 10 January 2022