German inheritance tax - tax Liability in Germany


According to § 2 of the German Inheritance and Gift Tax Act (Erbschafts- und Schenkungsteuergesetz) unlimited German inheritance tax liability results from the fact that either the deceased or the heir has a residence in Germany at the time of his death.


An individual is a German resident if he or she has either a permanent home or a habitual abode in Germany.


A taxpayer has a permanent home in Germany if he possesss a home in Germany under circumstances  from which it can be assumed that he will keep this home and use it (8 German General Tax Code). This home does not need to be his principal home. For instance, it was held by the Bundesfinanzhof (Federal High Tax Court) that a home being used only five weeks annually, is sufficient to be qualified as a home for means of determination of the home of a taxpayer.


Example: A Canadian ciitzen owns a flat in Berlin and stays in this flat five weeks a year. He dies in Canada and leaves property in Canada and Germany. Unlimited tax liability occurs and his worldwide estate is taxable in Germany.


A habitual abode is held if somebody stays at a place (e.g. a long-term rented hotel suite) under circumstances from which it can be assumed that his stay at this place is not only temporary (See Section 9 of the German General Tax Code). Any stay exceeding a duration of six months and longer in Germany is deemed to lead to an habitual residence there (see Section 9 Sentence 2 of the German Tax Code).


In addition, extended unlimited inheritance liability ("erweiterte unbeschränkte Erbschaftsteuerpflicht") is applicable if the deceased is a German national and was domiciled or permanently resident in Germany 5 years before his death (see § 2 sec. 1.1.a of the German Inheritance Tax and Gift Tax Act). In some cases (limited) tax liability is extended to 10 years (see Section 4 AStG).


In any other case only assets situated in Germany are taxable (situs), e.g. real estate, business assets, shares in a corpo­ration if the company has its seat or place of principal management in Germany and the deceased or donor, either alone or together with persons closely connected with him in terms of Section 1 Subsection 2 AStG, holds directly or indirectly at least 10 % of the nominal or share capital of the company, as well as some immaterial rights. German bank accounts are not subject to taxation because of situs.


Note for American citizens: The German - American Opens internal link in current windowdouble taxation agreement modifies taxation for American citizens.


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2009 © Jan-Hendrik Frank (Rechtsanwalt und Fachanwalt für Erbrecht)