Germany–U.S. · German Perspective
Interest Between Germany and the United States
How is U.S. interest taxed when the recipient is resident in Germany? The key issues are German worldwide-income taxation, Article 11 of the Germany–U.S. tax treaty, possible U.S. withholding tax, Form W‑8BEN and the German reporting of foreign interest income.
German Taxation
U.S. Interest Generally Forms Part of German Worldwide Income
An individual subject to unlimited German income taxation generally has to report interest from U.S. bank accounts, bonds, brokerage cash balances and other foreign receivables in Germany.
For private investments, interest generally constitutes investment income and is typically subject to the separate German tax rate of 25%, plus solidarity surcharge and, where applicable, church tax.
Whether the United States may impose withholding tax in addition must be analyzed separately under U.S. domestic law and the Germany–U.S. tax treaty.
Framework
Three Questions Determine the Result
What Type of Interest?
Bank interest, portfolio interest, bond interest and special financing arrangements can be treated differently under U.S. law.
Who Is the Recipient?
Treaty residence, beneficial ownership and U.S. person status can affect source-country taxation.
How Is It Reported in Germany?
Foreign banks and brokers generally do not perform German tax withholding, so the interest must usually be reported through the German income-tax return.
Article 11 Germany–U.S. Tax Treaty
Ordinary Interest: Generally Taxable Only in the Residence State
Under Article 11 of the Germany–U.S. tax treaty, interest arising in one treaty state and beneficially owned by a resident of the other state is generally taxable only in the recipient's residence state.
For a non-U.S. investor resident in Germany, this typically means that Germany taxes the interest while the United States generally does not impose additional treaty withholding tax.
- ordinary interest: generally 0% U.S. withholding under the treaty
- German treaty residence must exist
- beneficial-owner requirement must be satisfied
- special rules and exceptions must be reviewed separately
- U.S. persons may be treated differently because of the saving clause
- German taxation remains fully applicable
Typical Types of Interest
Not Every U.S. Payment Is Treated the Same Way
U.S. Bank Interest
Certain deposit interest paid to nonresident aliens is exempt from U.S. income tax under U.S. domestic law. It generally remains taxable in Germany where the recipient is subject to German tax.
Portfolio Interest
Qualifying portfolio interest can also be exempt from U.S. withholding tax under U.S. domestic law for foreign investors.
Bond Interest
Interest on U.S. bonds can fall within the portfolio-interest rules or treaty rules depending on the instrument. The specific terms of the debt instrument matter.
Special Financing Arrangements
Shareholder loans, related-party financing, contingent interest or business receivables can be subject to special rules and should not be treated like ordinary brokerage interest.
Germany
Gross Interest Is Generally Reportable in Germany
A foreign bank or broker generally does not withhold German capital income tax. The interest therefore usually has to be reported on the German income-tax return.
Foreign-currency amounts must be converted into euros for German tax purposes. The relevant figure is the income determined under German rules, not merely a year-end USD amount reported by the U.S. broker.
If foreign tax was withheld, the amount has to be analyzed separately. Any treaty right to relief or refund must be taken into account when determining the German foreign-tax credit.
U.S. Bank & U.S. Broker
The Practical Challenge Is Often the German Tax Preparation
U.S. banks and brokers prepare annual statements under U.S. rules. These do not replace a German tax certificate.
For the German return, interest payments, account type, withholding tax and currency conversion often have to be reconstructed from statements and tax documents.
- retain interest statements and annual account statements
- separate bank interest from bond interest
- review cash-sweep and money-market arrangements
- determine gross income in euros
- document any U.S. withholding tax
- review treaty or domestic-law exemption
- Anlage KAP for foreign banks and brokers
W‑8BEN
Non-U.S. Persons Document Their Foreign Status
Form W‑8BEN is used by individual non-U.S. persons to document foreign status and, where relevant, claim treaty benefits with a U.S. withholding agent.
For some types of interest, U.S. domestic law may already provide an exemption. W‑8BEN remains practically important because it allows the broker to classify the recipient correctly as a foreign person.
U.S. citizens, green-card holders and other U.S. persons generally do not use Form W‑8BEN for their own tax status.
U.S. Persons in Germany
For U.S. Taxpayers, the U.S. Side Must Be Coordinated Separately
U.S. Worldwide Taxation
U.S. citizens and other U.S. taxpayers generally remain subject to U.S. taxation on worldwide interest income.
Saving Clause
The treaty may not eliminate U.S. taxation of U.S. citizens in the same way it can for a non-U.S. person. Treaty exceptions and coordination rules must be reviewed separately.
Foreign Tax Credit
German tax paid on interest may be relevant for the U.S. foreign tax credit depending on sourcing and the applicable FTC category.
Account Reporting
German and other foreign accounts can also trigger U.S. information reporting such as FBAR or Form 8938.
Related Guidance
Related Topics
Frequently Asked Questions
Interest Between Germany and the United States
What is the U.S. withholding-tax rate on interest for a German resident?
Is U.S. bank interest taxable in Germany?
What is portfolio interest?
Do I have to report interest from a U.S. broker in Germany?
Do I need Form W‑8BEN for U.S. interest?
What applies to U.S. citizens resident in Germany?
Germany–U.S. Tax Advice
Receiving Interest From the United States?
We review treaty allocation, U.S. withholding tax, W‑8BEN, German taxation and the preparation of U.S. bank and brokerage documents for the German tax return.
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