Renting out a German home while living abroad

Why Germany taxes it

§ 49(1) no. 6 EStG lists income from letting and leasing (§ 21) when the immovable property is located in Germany. § 21(1) no. 1 covers letting of immovable property, in particular plots, buildings and parts of buildings. So a flat in Munich rented to a tenant produces German taxable income even if the owner has never lived in Germany.

Letting to a relative at a low rent is dealt with in § 21(2): if the rent is below 50% of the local market rent, the use is split into a paid and an unpaid part; at 66% or more of the local rent, a long-term residential letting counts as paid in full. That matters for a parent or child living in your German flat.

How a limited taxpayer is assessed

Deductions. Limited taxpayers may deduct business expenses and income-related expenses only in so far as they are economically connected with German-source income (§ 50(1) EStG). For letting, that means loan interest, running costs, repairs, management and depreciation connected with the let property. Personal items such as many special expenses and family allowances listed in § 50(1) sentence 4 are not available.

The basic allowance. § 50(1) sentence 2 adds the basic allowance (Grundfreibetrag) to the taxable income before the tariff is applied, so the zero band is effectively kept for the German-source income. I have not found the amount in the provisions read; it is set in § 32a EStG for each year.

Depreciation. § 7(4) EStG allows buildings to be depreciated in equal yearly amounts: 3% a year for non-business buildings completed after 31 December 2022, 2% for those completed before 1 January 2023 and after 31 December 1924, and 2.5% for those completed before 1 January 1925, on the acquisition or production cost. Only the building, not the land, depreciates. A shorter actual useful life can be claimed instead where shown. The rate must be checked against the completion date in your purchase file; see the guide on rental income tax and depreciation.

No withholding on rent, as far as read. § 50(2) says income tax on income subject to wage tax, capital-gains tax or § 50a deduction is deemed settled by the deduction. The provisions I read contain no withholding rule for ordinary rent from a residential let, so the tax is normally settled by assessment after the end of the year, on a return you sign by hand (§ 25(1) and (3) EStG). Ask your tax office or adviser how the return is filed from abroad.

Being taxed as a resident by application

§ 1(3) EStG allows a person with German income and no residence in Germany to apply to be treated as an unlimited taxpayer. This works only if at least 90% of the person’s income in the calendar year is subject to German income tax, or the income not subject to German tax does not exceed the basic allowance (reduced where necessary and appropriate under conditions in the home state). Proof of the foreign income by a certificate from the foreign tax authority is a further condition (§ 1(3) sentence 5). Someone whose only significant income is rent from a German flat may qualify; a pensioner with a large foreign pension will not.

Numbers and registration

The tax office needs your identification number; see the tax ID guide. If you never registered in Germany, the BZSt describes a form for persons not in the registration records that is filed with a tax office. Tenants and the tenancy are unaffected by your residence: the tenant’s protections, for example the rent brake in areas designated by state ordinance, apply to a dwelling in a designated area (§ 556d BGB); see rent brake.

Treaties

Germany has tax treaties that determine which state may tax rent from immovable property and how double taxation is relieved. They are covered for the UK, the United States and Canada in Germany-UK, Germany-US and Germany-Canada. This guide states the German side only.

Which professional to consult

A tax adviser who handles non-resident owners; an agent or property manager for the tenancy; a notary only for acts such as a lease with special terms. For the agent route, see the real estate agent page.