Assignment Abroad: In which country am I tax resident?

Particularly in the case of longer-term assignments abroad, the answer is not always straightforward. An employee may continue to have a home in Germany while living and working abroad. In such cases, both countries may regard the individual as tax resident under their respective domestic laws.

Double taxation agreements contain specific rules for situations of this kind. The German Federal Ministry of Finance has clarified the criteria applicable to employee assignments abroad in a comprehensive administrative guidance document.

Why is tax residence so important?

Tax residence determines which country is treated as the country of residence under a double taxation agreement. As a rule, this country is entitled to tax the individual's worldwide income. The other country may additionally have a right to tax certain income, for example because the employment is exercised there or because certain assets are located there.

The double taxation agreement then determines how double taxation is avoided. Depending on the applicable treaty, foreign income is either exempt from tax or foreign tax is credited against the tax due in the country of residence.

An incorrect assessment of tax residence can have significant consequences:

• Salary may be declared in the wrong country.
• Tax exemptions may be claimed incorrectly.
• Foreign taxes may not be fully creditable.
• Subsequent corrections may result in additional tax payments and interest.
• The employer may calculate payroll withholding tax incorrectly.

A domestic tax residence and treaty residence are not the same

Under German domestic tax law, an individual is generally subject to unlimited tax liability if they have a residence or their habitual abode in Germany. A residence may continue to exist if a dwelling remains permanently available and can still be used by the individual.

Treaty residence must, however, be determined separately. It does not depend solely on whether a dwelling is available or whether a foreign tax authority has issued a certificate of residence.

The German Federal Ministry of Finance has expressly clarified that a foreign certificate of residence is not binding on the German tax authorities. The individual's actual personal circumstances are decisive.

What happens if a home is available in both countries?

If an employee has a permanently available home both in Germany and in the host country, treaty residence is determined step by step.

1. In which country does the individual have a permanent home?

The first question is whether a permanent home is available in either country. A permanent home is a dwelling that is available on an ongoing basis and not merely for occasional stays.

If a permanent home is available in only one country, the individual will generally be treated as resident in that country for treaty purposes.

2. Where is the centre of vital interests?

If a permanent home is available in both countries, the next question is where the individual's centre of vital interests is located. This depends on the closer personal and economic relations.

Relevant personal relations include, in particular:

• the place of residence of the spouse and minor children,
• private activities and leisure interests,
• friends and social environment,
• memberships in clubs and associations,
• medical care,
• language skills and social integration.

Relevant economic relations include, in particular:

• the place where the employment is exercised,
• sources of income,
• real estate ownership,
• bank accounts and investment portfolios,
• the place where personal assets are managed,
• business interests and shareholdings.

Personal and economic ties must be weighed against each other on the basis of the specific facts of each case. There is no general rule. In practice, however, the family home will often carry considerable weight if the spouse and minor children remain in Germany.

3. Additional Criteria

If the centre of vital interests cannot be clearly determined, further criteria must be considered. These include the individual's habitual abode and nationality. In rare cases, the tax authorities of both countries must resolve the matter by mutual agreement.

How important is the duration of the assignment?

The German Federal Ministry of Finance distinguishes between short-term, medium-term and long-term assignments.

Assignment of up to one year

If an assignment lasts no longer than one year, the centre of vital interests will generally remain in the home country. As a rule, this also applies if the family temporarily accompanies the employee abroad.

Assignment of more than one year but less than five years

For assignments within this period, a careful review of the individual circumstances is required. The overall pattern of the individual's personal and economic relations is decisive.

Relevant questions include:

• Does the employee retain a home in Germany?
• Does the family move abroad?
• Is there a contractual arrangement for the employee's return?
• Is a permanent home established in the host country?
• Does the employee develop personal ties abroad?
• Are assets and economic interests relocated?

Most employee assignments fall into this medium-term category. This is also the area in which the most difficult borderline cases arise.

Assignment of five years or more, or for an indefinite period

If an assignment lasts at least five years, the circumstances will often indicate that treaty residence has shifted to the host country. This applies in particular if the family also relocates and the individual's centre of life is clearly transferred abroad.

Even in such cases, however, the specific facts must still be reviewed.

Example: Three-year assignment to Spain

An employee is assigned by a German employer to work in Spain for three years. The employee rents an apartment in Spain and works exclusively there. The employee's spouse and children remain in the family home in Germany. The house remains available to the employee at all times.

In this case, a permanent home is available in both countries.

The place of employment indicates a connection with Spain. The close personal relations with the family, however, indicate a connection with Germany. As the assignment lasts longer than one year but less than five years, an individual assessment is required.

In many cases of this kind, Germany will continue to be treated as the country of residence for treaty purposes. If the situation changes later — for example because the assignment is extended to six years or the family moves to Spain — the centre of vital interests may also shift to Spain.

Special Case: Switzerland

Particular caution is required in cases involving Switzerland. The double taxation agreement between Germany and Switzerland contains special provisions that may allow Germany to retain certain taxing rights after an individual has moved to Switzerland. These rules are commonly referred to as the German “overriding taxation” provisions.

It is important to note that the term “permanent home” under the double taxation agreement is not identical to the concept of a residence under German domestic tax law. A detailed review is therefore essential, particularly when relocating to Switzerland.

Prepare documentation at an early stage

Cross-border situations are subject to increased documentation and cooperation requirements. The taxpayer must be able to demonstrate their personal circumstances to the tax authorities in a clear and comprehensible manner.

It is advisable to prepare documentation from the outset of the assignment. This should include, in particular:

• the assignment agreement and any return arrangement,
• the rental agreement for the home abroad,
• evidence concerning the use of the German home,
• the number of days spent in each country,
• the family's place of residence,
• the children's school attendance,
• bank accounts and asset management,
• memberships in clubs and private activities,
• information concerning medical care.

The longer the assignment lasts, the more important it becomes to update this documentation regularly.

Conclusion

An assignment abroad does not automatically result in a change of tax residence. The decisive factor is the overall pattern of the individual's personal and economic relations.

Assignments lasting more than one year but less than five years require particular attention. During this period, there is neither a simple short-term presumption nor a clear presumption that residence has shifted to the host country.

Anyone who documents their actual circumstances at an early stage can often avoid subsequent disputes with the tax authorities.

References

• Guidance issued by the German Federal Ministry of Finance dated 12 December 2023, IV B 2 – S 1300/21/10024 :005, Federal Tax Gazette I 2023, p. 2179, in particular paragraphs 7 et seq.
• Amending guidance issued by the German Federal Ministry of Finance dated 19 December 2025, IV B 2 – S 1300/00510/012/002

Author: Peter Scheller, Tax Adviser — Master of International Taxation — Certified Adviser in Customs and Excise Duties

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