Unlimited and limited tax liability
Distinction between unlimited and limited tax
As in most other European countries, the German income tax
system is based on the criterion of residency (Ansässigkeit).
Citizenship is not a relevant factor.
According to the concept of
unlimited tax liability (unbeschränkte Steuerpficht), individuals
who reside in Germany are subject to income tax on their world-
wide income. The status of unlimited tax liability is also relevant
for various tax allowances and fling options (e. G. Joint returns for
married couples, child beneft payments, and child allowances).
For the purpose of income tax, an individual’s residence is
presumed to be the place where an individual is domiciled or has
his customary place of abode (gewöhnlicher Aufenthalt). The
term “domicile” (Wohnsitz) involves more than having a dwelling
place (Wohnung) in Germany. In order to be liable for tax as a
resident, the taxpayer must actually use the dwelling place or, at
a minimum, it must be evident from the specifc circumstances
that there is an intention to use it on a long-term basis.
If the individual does not have a dwelling place or if the intention to use
it on a long-term basis is not evident, then resident tax status
applies if the individual does in fact reside in Germany. However,
the facts and circumstances must indicate that the physical
presence is other than of a temporary nature. Physical presence
for more than six months will result in deemed residence. Short
interruptions, such as holidays in foreign countries, are not rele-
vant and therefore count towards the six-month period.
Non-residents are subject to taxation only on certain income
from German sources. This is known as the concept of a limited
tax liability (beschränkte Steuerpficht). If an individual has no
German-source income, no taxes are levied. Consequently,
unlimited tax liability (resident tax status) is based more on the
individual, whereas limited tax liability (non-resident tax status) is
based more on the source of the income.