2026-10-10 11:41

How does a double tax treaty with Germany work?

A treaty does not exempt income from tax: it only limits a German tax that has already arisen under German law, dividing the right to tax between two countries. Germany may tax rent from German property and gains on its sale, the country of residence relieves the double taxation by exemption or credit, and only residents of a treaty country are protected. The treaty with Belarus is suspended, Germany is suspending the one with Russia from 1 January 2027, and there has been no treaty with the UAE since 2022.

A treaty limits German law; it does not replace it

German law determines the tax first; only then does the treaty decide whether Germany may levy it, and how much. In Germany's negotiating basis — the model treaty it negotiates from — income from real estate (Art. 6) and gains on its sale (Art. 13(1)) may be taxed by the country where the property lies. So may gains on the sale of shares that at any time in the 365 days before the sale derived more than 50% of their value, directly or indirectly, from real estate in that country (Art. 13(4)). This rule applies only if the specific treaty contains such a clause.

Under the model, withholding tax on dividends does not exceed 5% for a company that has directly held at least 10% of the capital for 365 days, and 15% in all other cases (Art. 10(2)). Treaties in force depart from the model, and the rates must be read in each one.

Exemption or credit: the method decides where the tax is paid

Under the exemption method, the country of residence does not tax income that Germany may tax under the treaty, but may take it into account when setting the rate on other income. Under the credit method, it taxes the income itself and credits the German tax. The difference shows when Germany does not tax the income — an individual's gain on selling property after ten years of ownership, for example. Under the credit method there is then nothing to credit, and the tax is paid in full in the country of residence. Which method applies is set out in the treaty's article on the elimination of double taxation.

Relief at source does not apply by itself

As a rule, a German GmbH withholds 26.375% from dividends regardless of any treaty (§ 50c(1) EStG). The difference down to the treaty rate is refunded by the Federal Central Tax Office (Bundeszentralamt für Steuern, BZSt) on application. The application must be filed within four years after the end of the year of receipt, with a certificate of residence from the tax authority of the country of residence (§ 50c(3), (5) EStG).

An advance exemption from withholding under a treaty is available only to a corporate shareholder with a direct holding of 10% or more that pays corporate income tax in its country of residence (§ 50c(2) EStG). A foreign company must also pass the treaty anti-abuse test (§ 50d(3) EStG).

With Russia, Belarus and the UAE, there is no working treaty

A treaty protects only tax residents of a treaty country — and only while the treaty itself applies.

Exhibit 1. Not every treaty works: status as of October 2026

Country	Treaty	Status
Russia	of 29 May 1996	By a note of 8 August 2023 Russia "suspended" Arts. 5–22 and 24; since 2024 the treaty has not limited Germany's taxing rights, and Germany is suspending it from 1 January 2027
Belarus	of 30 September 2005	Suspended in full since 1 January 2025
UAE	of 1 July 2010	In force until 31 December 2021; no new treaty
Ukraine	of 3 July 1995	In force; the new treaty does not apply until it enters into force
Kazakhstan	of 26 November 1997	In force
Israel	of 21 August 2014	In force, applied since 2017
Cyprus	of 18 February 2011, 2021 protocol	In force
Latvia, Lithuania, Estonia	1996–1997, protocols 2020–2022	In force
Georgia	of 1 June 2006, 2014 protocol	In force

Source: Federal Ministry of Finance, status of tax treaties as of 1 January 2026; for Russia, the ministry's announcement of 9 July 2026. The table shows treaty status; it does not compare countries.

For residents of Russia the treaty has given no protection from German tax since 2024. Russia is on the German tax-haven list (StAbwV), and the rules on listed jurisdictions take precedence over the treaty (§ 1(3) StAbwG; see Part 9 of the series German Prime Retail).

Implications for investors

1. Check whether the treaty with your country of tax residence applies. With Belarus it is suspended, with the UAE there is none, and Germany is suspending the one with Russia from 1 January 2027.

2. Find out your country's method before you sell. Under the credit method, a gain Germany does not tax, such as an individual's sale after ten years of ownership, is taxed in full at home.

3. Build the withholding-tax refund into your timetable. A GmbH withholds 26.375% from dividends regardless of any treaty; the BZSt refunds the difference only on application, filed within four years after the end of the year of receipt.

What to check:
• whether a treaty with your country of tax residence is in force and has not been suspended;
• which treaty article your income falls under: real estate, dividends, interest or the sale of shares;
• the method your country uses to relieve double taxation — exemption or credit;
• the certificate of tax residence and the deadline for a refund application to the BZSt;
• for a foreign company, the treaty anti-abuse test (§ 50d(3) EStG).

Sources: Federal Ministry of Finance, German negotiating basis for double tax treaties (version of 3 July 2026), Arts. 6, 10, 13, 22; Federal Ministry of Finance, status of double tax treaties as of 1 January 2026 (letter of 7 January 2026) and announcement of the suspension of the treaty with Russia of 9 July 2026; BGBl. 2026 II No. 150; EStG §§ 50c, 50d(3); StAbwG § 1(3); StAbwV § 2. Legal position as of October 2026.

Photo: Jan-Philipp Thiele / Unsplash

This page is general information and not investment, legal or tax advice.

Ilya Gordon