Reporting departure

When German residence is given up and services are no longer performed in Germany, the tax office must be informed and a tax return for the entire calendar year must be filed.

The worldwide non-German source income must be disclosed for tax rate progression purposes. A copy of the deregistration certificate (issued by the local registration office) should be attached to the tax return. A fiscal representative resident in Germany should be appointed to receive the assessment.

Non-recurring payments such as a bonus for German activities should be shifted into the year after departure because the tax burden might be lower.

If the assignment to Germany was only temporary from the beginning and has been terminated, certain expenses for moving from Germany back to the home country are deductible in Germany. A refund of such expenses by the employer may not be taxable.

There are no restrictions with respect to the export of personal belongings. VAT and/or Customs rules of the country of destination must, however, be observed.

Other matters requiring consideration

Inheritance tax

Inheritance tax is a tax on lifetime gifts and on transfers of value passing on death. Basically a person is exposed to this tax if he/she is resident in Germany. Otherwise a person who is not resident in Germany is liable to this tax only in relation to his/her assets situated in Germany.

Assets of an enterprise (including shareholding of more than 25 percent) are only subject to inheritance tax if their total value exceeds DM 500,000. The tax value of the exceeding amount is assessed with 60 percent.

Progressive tax rates of 7 percent up to 50 percent and tax-free amounts of between DM 10,000 and DM 600,000 apply, depending on the value and the degree of relationship between donor and beneficiary.

For the surviving spouse an additional tax-free allowance of DM 500,000 is granted. This allowance is reduced by the discounted value of those pension entitlements which are not subject to inheritance tax.

Property tax

Property tax was phased out in 1997.

Stock options

Generally, stock options are taxable when exercised. Taxable income is computed at the time of exercising the option, normally as the difference between the market price of the shares and the preferred price.

There is an appeal pending before the Supreme Tax Court with the request to be taxed at the time the option is granted, based on the value of the option at that time, (the value of the option less a possible option price if payable). If this could be more advantageous, the tax assessment should be appealed in order not to loose the chance to be taxed at a lower value if the court should grant the request.

If any capital losses occur within a period of 12 months after purchase, they can only be offset against capital gains. Capital gains are taxable only if the shares were bought and sold within 12 months and if the profit exceeds DM 999 per annum. If losses cannot be offset against capital gains in the same year, the losses may be carried back for one year or carried forward indefinitely against capital gains in later years. The same taxation rules apply for capital gains and losses from futures and options.

Shares provided free of charge or at a low-price may be tax-free up to half of the value of the shares, but the tax-free amount is limited to DM 300 a year.

This relief is granted for shares of the employing company, of the parent company controlling and consolidating its subsidiary, and for shares in companies quoted at the German stock exchange. Furthermore the shares must be deposited for a period of at least six years. Exemptions are available only in cases of hardship.

If the employee sells the shares before the end of this six-year period, the benefit of up to DM 300 is withdrawn.

Thomas Kausch is tax advisor with PricewaterhouseCoopers in Germany. Email: thomas.kausch@de.pwcglobal.com