The Impact of US Tax Rules on Americans Living in Germany

According to The Local, moving to Germany presents unique challenges for everyone, but for Americans residing and working in the country, increasing reports of anxiety and financial stress are linked to US tax regulations.

Taxation Challenges for Americans Living in Germany

The primary source of concern is the taxation requirements imposed by the US government on American citizens abroad, including those in Germany. This, coupled with legislation compelling both individuals and their banks to report their assets, has created a growing burden.

Unlike other countries, the US, alongside Eritrea, bases its taxation system on citizenship rather than residency. This unique approach contributes significantly to a rising trend of Americans across Europe renouncing their citizenship.

Impact on Americans living in Germany

The repercussions extend to Americans living in Germany, as highlighted by responses in a recent survey. Some participants pointed to the tax burden and stress as contributing factors to divorce, while others cited challenges in saving money or significant costs incurred for specialized financial advice.

“I would love to invest in my life in Germany but am too scared to do so,” expressed one respondent.

Double tax returns and reporting challenges

Despite a treaty between the United States and Germany to prevent double taxation on the same income and assets, Americans are still required to file a tax return each year, detailing any US-based assets, regardless of their residence. Failure to comply risks severe fines from the Internal Revenue Service (IRS). This requirement also affects “Accidental Americans,” those born in the US to foreign parents with no substantial connection to the country.

Challenges because of FATCA and FBAR

Americans living overseas face additional challenges with the Foreign Account Tax Compliance Act (FATCA). This legislation compels foreign banks serving US persons to report accounts to the US government, causing many German banks to restrict or refuse services to American customers due to the associated costs.

Also, the Foreign Bank and Financial Accounts Report (FBAR) mandate requires American citizens abroad to submit details of any foreign bank accounts exceeding $10,000 alongside their annual tax return.

Yearly tax return obligations for Americans in Germany

The requirement for Americans living in Germany to file yearly tax returns was found to be unfair and burdensome by nearly all respondents. One American resident of Germany said, “I’ve lived abroad for over 30 years and have never earned a great deal of money, but have had to pay thousands each year to get my US taxes prepared by a professional so I don’t get in trouble, even though I don’t owe tax. This is hugely stressful and time-consuming.”

Another respondent, unable to save for his daughter’s future, highlighted the impact on daily life: “I also had to shut down my daughter’s savings account—she is a US citizen—to which I am naturally a signatory. The interest accruing there was making it more difficult to do my tax returns. Now I store cash at home as savings, which I despise.”

Filing tax returns in both Germany and the United States

Many respondents expressed frustration at the dual requirement of filing tax returns in both Germany and the United States. Their anger, however, was more pronounced regarding the adverse effects of FATCA and FBAR.

“Since 2013, my wife and I have had to struggle with the fact that I am toxic. There is no future for Americans living abroad. We will one day be forced to come back just to live normal lives,” lamented one respondent.

Challenges for Accidental Americans in Germany

Dual citizens, especially “Accidental Americans,” faced unexpected challenges. One respondent, born to German parents, discovered their US tax obligations later in life, expressing shock and fear. Another German citizen with an American background, voiced frustration: “I am angry that, although I am a German citizen, I am treated as a US person when it comes to opening and maintaining a simple bank account here in Germany.” The same respondent was later asked by Commerzbank to close her share portfolio, due to her US citizenship. 

Impact on settling in Germany

A recurring theme among respondents in Germany is the hindrance these taxation requirements pose to fully settling in the country, even for those holding citizenship. “I would love to invest in my life in Germany but am too scared to do so. I’m scared to buy a house or invest in stocks—not even possible,” shared one respondent.

Another participant echoed similar sentiments: “Can’t save properly for retirement. I can’t be a co-signer on my wife’s business, so she ends up with a higher interest rate and additional life insurance requirements. Can’t save properly for my daughter’s education.”

Another American living in Germany concisely conveyed their viewpoint: “When I fill out forms at banks, and they ask where I was born, the minute I put the US—that’s the end of it. I can’t do anything.”

The impact of US tax rules on Americans in Germany extends beyond financial burdens to affect their daily lives, investments, and ability to fully integrate into German society.

More information for Americans living in Germany

We, the founders of Americans Overseas, were born in the Netherlands and obtained our American nationality through our (American) mother.

When we heard about the US tax system for the first time around 2013, we were in total disbelief (it can’t be true!), anger (how can they do this?), fear (am I going to get fined or pick up other problems?), and panic (what should I do?). It is (unfortunately) true that there is an additional American tax levy. But there’s no information from the local government, and when approached, the consulate referred us to the IRS, and the IRS was impenetrable.

That’s why we started this initiative to help people from all over the world by providing proper information about the US tax system to avoid unnecessary panic and offering help free of obligation and free of charge. If needed, we have a network of affordable professionals (accountants) who can help you with your tax obligations.

Contact us for more information

Sources:

• Thelocal.de
• SEAT