Tax Implications of Beneficiaries of Foreign Trusts Moving to Germany
By Oliver Biernat, Benefitax GmbH
Germany is beautiful and there are many good reasons to move here. Tax advantages are usually not among them and before packing your suitcases you should take a minute or two and consider the tax implications that may have. This is especially true if you own a company abroad where there is no German equivalent (e.g., LLC) or if you are the beneficiary of a foreign trust. The problem is that German tax authorities are very suspicious if you own something they cannot easily understand or rate and there are no clear rules how this is handed tax-wise.
Let us take the example of an Australian who is a beneficiary of an Australian trust and moved to Germany. Trusts do not exist in German law. Therefore, one needs to decide how to handle a trust tax-wise in Germany. The result is shocking as I will show you.
Depending on the rules in the trust deed, one has to decide how to classify the trust according to German civil and tax law. Assuming our foreign trust comes closest to a German family foundation, Sec. 15 AStG (Foreign Tax Act) says that,
“assets and income of a family foundation which has a business address and registered offce outside Germany are attributed to the founder, if he is subject to unlimited tax liability in Germany, otherwise to the persons subject to unlimited tax liability in Germany who are entitled to draw or are entitled to claim, according to their share.”
That means that there is no doubt about it that all running profits of the trust as well as capital gains when the trust is terminated, are taxable according to Sec. 15 AStG in Germany, if the beneficiary has a residence in Germany. However, it is doubtful if there is double taxation. German tax authorities usually want to raise a) gift tax on donations made by a foreign trust to their German beneficiaries and b) income tax on investment income on all benefits the German resident receives from a foreign trust, on top of the tax already raised by Sec. 15 AStG. It is expected that the German federal fiscal court will decide on that and until then a lot of uncertainty remains.
Oliver BiernatGGI member firm
Benefitax GmbH Steuerberatungsgesellschaft Wirtschaftsprüfungsgesellschaft
Advisory, Auditing & Accounting, Corporate Finance, Fiduciary & Estate Planning, Tax
Frankfurt am Main, Germany
Frankfurt am Main, Germany T: +49 69 256 227 60
Benefitax GmbH Steuerberatungsgesellschaft Wirtschaftsprüfungsgesellschaft is a tax consultancy and public auditing company located in Frankfurt, which is widely recognised as the financial centre of Germany. Benefitax predominantly serves German entities of foreign multinational groups, mid-sized German companies with cross-border activities, and wealthy private individuals.
Oliver Biernat is the Founder and Managing Partner of Benefitax. He is a German chartered accountant, certified tax advisor, and specialist advisor for international taxation, with more than 20 years of experience. Since 2008, he has chaired GGI’s International Taxation Practice Group (ITPG), increasing its size to more than 570 experts from 90 countries in the process.
Published: Trust & Estate Planning Newsletter, No. 05, Spring 2020 l Photo: Comofoto - stock.adobe.com