Situation · Germany–U.S.
U.S. Person in Germany With a U.S. Brokerage Account
A U.S. citizen or other U.S. taxpayer resident in Germany is subject to two tax systems at the same time: Germany generally taxes worldwide income based on residence, while the United States continues to tax based on U.S. taxpayer status. For a U.S. brokerage account, dividends, interest, capital gains, cost basis and foreign tax credits therefore have to be coordinated across both countries.
Dual Tax Nexus
Germany Taxes by Residence — the United States by U.S. Taxpayer Status
An individual subject to unlimited German income taxation is generally taxed in Germany on worldwide income. This includes income and gains from a U.S. brokerage account.
A U.S. citizen generally remains subject to U.S. taxation on worldwide income at the same time. Similar rules can apply to green-card holders and other U.S. taxpayers.
The Germany–U.S. tax treaty does not eliminate this parallel taxation entirely. Because of the saving clause, the United States generally retains the right to tax its own citizens. Double taxation is therefore coordinated primarily through the treaty's credit and re-sourcing rules.
Framework
Four Levels Have to Be Combined
German Tax
Dividends, interest and capital gains are determined under German law and generally reported in euros.
U.S. Tax
The U.S. tax return reports the same investments under U.S. rules and in U.S. dollars.
Treaty & FTC
Foreign tax credits and treaty re-sourcing determine how double taxation is relieved and which country ultimately bears the tax.
U.S. Dividends
For U.S. Citizens, the Credit Mechanism Is More Complex Than for a Non-U.S. Investor
Germany generally taxes U.S. dividends received by a U.S. citizen resident in Germany under German law. The same dividends also remain subject to U.S. taxation.
The treaty provides a special credit ordering mechanism. Germany generally allows credit only for the U.S. tax that the United States would also be entitled to impose under the treaty on a comparable German resident who is not a U.S. citizen. For typical portfolio dividends, this is generally the 15% treaty rate.
Any additional U.S. tax arising solely because of U.S. citizenship is then coordinated on the U.S. side under the treaty's special credit and re-sourcing rules.
- Germany taxes the gross dividend
- typical portfolio-dividend treaty rate: generally 15%
- German credit for U.S. tax is generally limited to the treaty amount
- additional citizenship-based U.S. tax is coordinated on the U.S. side
- Form 1116 and treaty re-sourcing may be required
- Form W‑8BEN is generally not the correct form for U.S. persons
Interest
U.S. Interest Also Runs Through Both Tax Returns
Interest from a U.S. bank or brokerage account generally constitutes taxable investment income in Germany when the taxpayer is resident in Germany.
Because the investor is a U.S. person, the same interest also generally remains taxable on the U.S. return. The 0% U.S. withholding result that may apply to a non-U.S. investor under Article 11 of the treaty does not, by itself, eliminate the U.S. tax liability of a U.S. citizen because of the saving clause.
German tax can therefore become relevant as a U.S. foreign tax credit; source rules and treaty re-sourcing have to be reviewed separately.
Stock Sales
Capital Gains Can Be Taxable in Both Countries
Germany
For a German resident, gains from the sale of shares are generally taxed under Section 20 EStG. The gain is determined under German rules and in euros.
United States
U.S. citizens and other U.S. taxpayers generally remain subject to U.S. tax on worldwide capital gains. U.S. holding periods and U.S. basis rules remain independently relevant.
Treaty Coordination
For certain U.S.-source items of a U.S. citizen resident in Germany, the treaty provides special re-sourcing rules so that German tax can be credited on the U.S. side.
The Gain May Not Be Identical
Because Germany and the United States can determine cost basis and currency conversion differently, the taxable gain does not have to be the same in both countries.
Cost Basis
The Same Security Can Have Two Different Tax Basis Calculations
A U.S. brokerage statement reports cost basis under U.S. rules. For the German return, however, the German taxable gain calculation is controlling.
For shares acquired in U.S. dollars, acquisition cost and later sale proceeds are generally converted into euros at their respective transaction dates for German tax purposes. This can create a different German capital gain even where the U.S. cost basis is unchanged.
- retain complete historical tax lots
- do not adopt U.S. cost basis without review
- determine German acquisition cost in euros
- convert sale proceeds separately into euros
- track stock splits and corporate actions
- document reinvestments and transfers
- calculate German and U.S. gains separately
U.S. Broker
Forms 1099-B, 1099-DIV and 1099-INT Do Not Replace German Tax Reporting
A U.S. broker prepares tax documents for the U.S. tax return. For German tax purposes, dividends, interest, sales, withholding tax and cost basis must be prepared under German rules.
In particular, German euro conversion and German loss-offset rules are not handled by the U.S. broker. For foreign brokerage accounts, Anlage KAP is therefore regularly relevant; where investment funds are held, KAP-INV can also become relevant.
For cross-border coordination, the same transaction data should be used as the common source for both tax returns and then adjusted separately under the applicable national rules.
U.S. Information Reporting
A U.S. Brokerage Account Is Not a “Foreign Account” Merely Because the Owner Lives in Germany
FBAR
A brokerage or bank account actually maintained in the United States is generally not a foreign financial account for FBAR purposes. German and other non-U.S. accounts can, however, be reportable.
Form 8938
Form 8938 likewise concerns specified foreign financial assets. An ordinary U.S. brokerage account does not become foreign merely because the taxpayer lives in Germany; German financial accounts and other foreign assets may still be relevant.
Form 1116
Form 1116 is generally relevant for claiming credit for German income tax on the U.S. return. Dividends, interest and capital gains often fall within the passive category, subject to sourcing and treaty rules.
Other Investments
If the taxpayer also holds German or European funds, additional U.S. issues such as PFIC and Form 8621 can arise. Those issues are separate from the U.S. brokerage account itself.
Related Guidance
Related Topics
Frequently Asked Questions
U.S. Person in Germany With a U.S. Brokerage Account
Does a U.S. citizen in Germany have to report the U.S. brokerage account in both countries?
Should a U.S. citizen in Germany provide Form W‑8BEN to the U.S. broker?
Is my U.S. brokerage account reportable on FBAR?
Can I claim German tax as a credit in the United States?
Is the capital gain the same in Germany and the United States?
What if I also hold German ETFs?
Germany–U.S. Tax Advice
Are You a U.S. Person in Germany With a U.S. Brokerage Account?
We coordinate German and U.S. taxation of dividends, interest and capital gains, review cost basis, foreign tax credits and treaty re-sourcing, and prepare brokerage data for both tax returns.
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