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Dear Tax Talk,
I am a U.S. citizen and my company has agreed to allow me to work abroad in Germany for three months. So I will be
earning a salary in U.S. currency, and will be paid by my U.S.-based company while abroad. I am concerned that I will
be taxed by both the U.S. and Germany while working there. Is this true, and if so, what might be the best way to
mitigate double taxation?
-- John
Dear John,
While the dollar isn't what it used to be, the tax laws are. As a U.S. citizen, you'll always be a U.S. taxpayer no
matter where you work. There is a tax treaty between the U.S. and Germany that may prevent German taxation for your
short stint.
Tax treaties reduce the U.S. taxes of residents of foreign countries. With certain exceptions, they
do not reduce the U.S. taxes of U.S. citizens or residents. U.S. citizens and residents are subject to U.S. income
tax on their worldwide income.
Treaty provisions generally are reciprocal (applicable to both treaty countries); therefore, a U.S.
citizen or resident who receives income from a treaty country may find that a treaty might affect the tax to be paid
to that foreign country. Foreign taxing authorities sometimes require certification from the U.S. government that an
applicant filed an income tax return as a U.S. citizen or resident, as part of the proof of entitlement to the treaty
benefits. Form 8802 is used for certification
procedures.
Under the German treaty, you'll be excused from paying German taxes under the following conditions.
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Because it doesn't sound like the U.S. employer will be charging your salary to its affiliate in Germany,
(i.e., the cost is not borne by the German branch) you should not be subject to income taxes in Germany.
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