Limited Tax Liability in Germany—Understanding and Filing.
Residing abroad, earning income from Germany. What you need to report, what remains deductible—and when you might want to apply for unlimited tax liability.
What does “limited tax liability” actually mean?
German tax law recognizes two categories. Which one applies to you depends solely on your place of residence.
Limited tax liability
- Residence or habitual residence: abroad
- Taxable only on domestic income (Section 49 EStG)
- Form: ESt 1 C
- Basic exemption: not automatic
- Spousal income splitting: not automatic
- Legal basis: § 1(4) EStG
Unlimited tax liability
- Residence or habitual residence: Germany
- Taxable on total worldwide income
- Form: ESt 1 A
- Basic exemption for 2026: €12,348
- Spousal income splitting: included
- Legal basis: Section 1(1) of the Income Tax Act (EStG)
The Key Difference
If you have limited tax liability, the German tax office is only interested in income earned in Germany. Anything you earn outside of Germany is not taken into account. The catch: Many tax benefits—the basic exemption, spousal income splitting, and child allowances—do not apply by default. This can be changed upon request.
Only German income is taxed
Only income listed in § 49 EStG that has a clear connection to Germany is subject to taxation. If a type of income is not on the list, it remains tax-free in Germany.
Profits from
- Agriculture and forestry on German land
- Businesses with a permanent establishment in Germany
- Performances by artists and athletes in Germany
- Sale of German real estate
- Self-employment carried out in Germany
Wages, Capital, and Rent
- Wages for work in Germany
- Managing Directors of German Companies
- Dividends & Interest from German Sources
- Rent & Sale of German Real Estate
Other Income
- Pensions from German paying agencies
- Sale of German real estate
- Retirement savings & pension funds
- Interest in a German partnership
The Rule of Thumb
If there is a German connection—place of work, real estate, paying agent, permanent establishment—the income is taxed in Germany. If this connection is missing or the income is not listed in § 49 of the German Income Tax Act (EStG), it remains tax-free here.
France, Austria, Switzerland—A Comparison of Three Rules
Anyone who lives near the border and works in a neighboring country pays taxes on their wages in their country of residence. The requirements and tax deductions vary by country. (Applies only to wages—not to self-employment, pensions, or other income.)
France
Cross-Border Worker Rule at a GlanceBorder Zone
up to 20 km ¹
Return to Place of Residence
usually every workday
Rule does not apply
Outside the zone / no daily return
Taxed in
country of residence
Tax withholding in the country of employment
No
Austria
Cross-Border Worker Rule at a GlanceBorder Zone
30 km on both sides
Return to place of residence
Commuting is no longer mandatory
Rule no longer applies
45 days outside the zone or 20%
Taxed in the
Country of residence ²
Tax deduction in the country of employment
No
Switzerland
Cross-border Worker Rule at a GlanceBorder Zone
No distance limit
Return to Place of Residence
Regularly
Rule does not apply
60 days of non-return
Taxed in
country of residence
Tax withholding in the country of employment
up to 4.5% ³
¹ 30 km for employees residing in the French border departments. ² In the public sector, the country that pays the salary is responsible for taxation. ³ Swiss withholding tax, creditable in the country of residence—with a certificate of residence.
The difference in pay
In France and Austria, the country of employment does not withhold tax—the salary is taxed solely in the country of residence (in France, there is only a 1.5% adjustment payment between the countries, which does not affect you). Only Switzerland withholds up to 4.5% withholding tax. If you live in Germany, this tax is credited against your income tax.
For this, you’ll need an official certificate from your tax office confirming your residence—without it, the deduction isn’t limited to 4.5%.
And there’s a limit: If you don’t return home for more than 60 working days a year due to your job, the cross-border worker regulation no longer applies to you.
Cross-border worker? Your tax return—without the hassle of forms.
taxtastic guides you step by step through your income tax return, withholding tax credit, and direct submission via ELSTER.
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