When living in Germany, receiving a gift or making a gift may result in a German gift tax obligation. This post shall give you an overview about the German gift tax rules and the taxation to expect when receiving or making a gift.
What is qualified as a gift?
In Germany, the gift and inheritance tax is unified. Gifts are granted during lifetime while the inheritance tax is applicable on assets inherited after someone’s death.
Gifts are any benefits granted to a person without a corresponding consideration. There is a list of taxable gifts listed by the German gift tax law. Some random example for gifts are: money, waiver of loan, transfer of assets like properties.
Who is tax liable?
Both, the recipient and the giver are liable for the German gift tax (Schenkungssteuer).
The taxation applies if either the recipient or the giver is qualified as a German resident person. A resident person is
- an individual with a residence or habitual abode in Germany or
- a German citizen with no residence or habitual abode in Germany during an absence abroad of less than 5 years
- German citizen employed by a German authority abroad
- a corporation, a partnership, an association with registered office or place of effective management in Germany
With a German residence the worldwide income (here gifts) is taxable in Germany. It is an unlimited tax liability.
Without a German residence, a taxation applies only in case German assets are gifted e.g. properties. Cash or other privately held investments are generally not defined as German assets. In this case, it is a limited tax liability.
The main difference between a limited and unlimited tax liability are the tax-free allowances that are granted under certain conditions.
The following post only covers the unlimited tax liability to keep the post short.
Tax rates & Tax Exemptions
Next to factual exemptions of certain assets (e.g. business assets, family home), the gift tax burden mainly depends on the personal relationship between the recipient and the giver and on the value of the taxable gift.
In general, the German tax law specifies that gifts between the closest family members are taxed with benefits.
The value of the gift is usually the fair value. However, for special assets like business assets and real estate the tax law provides for special valuation methods.
Here is an overview of the tax classes, tax rates and tax-free allowance (as of 2021):
Personal relationship | Tax Class | Tax Rate | Tax-free allowance |
Spouse, registered life partner | I | 7% to 30 % | 500,000 EUR |
Children, step-children | I | 7% to 30 % | 400,000 EUR |
Grandchildren | I | 7% to 30 % | 200,000 EUR |
Parents, step-parents | II | 15% to 43% | 20,000 EUR |
Siblings, nieces/nephews | II | 15% to 43% | 20,000 EUR |
Children-in-law | II | 15% to 43% | 20,000 EUR |
Divorced spouse, life partner | II | 15% to 43% | 20,000 EUR |
Other person | III | 30% to 50% | 20,000 EUR |
German gift tax return
The German tax law requires a disclosure of a gift within 3 months after gaining knowledge of the gift. There is no general obligation to file a German gift tax return. However, after disclosure of the gift, the German tax office can require a tax return.
Usually, if the gift value is below the tax-free allowance and the disclosure is justified correspondingly, a tax return is likely not necessary.
In certain cases, the notary will disclose the gift to the tax office. This applies mainly if real estate or shares in a limited liability company are involved. In these cases, the tax office requires the filing of the tax return.
Be aware that the failure of disclosing any gift can be seen as tax fraud, if taxes are not paid.
Avoidance of double taxation
For gift tax purposes, Germany entered into Double Tax Treaties only with 6 countries (as of 1 January 2021): USA, Switzerland, Denmark, France, Greece, Sweden.
The Double Tax Treaties usually assign which country has the taxation right for a gift/heritage and provides rules to prevent any double taxation.
In case a Double Tax Treaty is not at hand, the German tax law provides for a special rule to avoid double taxation under certain circumstances: A German resident person who receives foreign assets through a gift or a heritage can credit the foreign tax against the German tax obligation if certain formal requirements are fulfilled.
Note: In case a foreign country is involved, the tax advisors of both countries have to work closely together to avoid any double taxation.
Good to know
- All gifts that a person receives within 10 years are added together. The respective tax-free allowance is to be deducted from this total amount. With a long-term planned gift strategy, multiple use of the personal allowances can be realized.
- Example: a mother gifts her daughter cash in the amount of 180,000 EUR in 2011. This amount was tax-free. Until 2021, she can gift her daughter an additional amount of 220,000 EUR. In 2021, the tax allowance for the daughter of 400,000 EUR is used up within the 10-year period. Then, the next 10-year period begins. The 10-year period begins on the day of the actual enrichment of the recipient and not on the day of the promise of the gift.
- In relation parents to children, each parent can grant the tax-free allowance to each child.
- Example: Parents with two children can gift a total of 1,6 Mio. EUR tax-free to their children every 10 years (400 kEUR from each parent to child).
- Occasional gifts (so called übliche Gelegenheitsgeschenke) are tax-exempt. Occasional gifts are those gifts that are generally common on certain occasions according to their type and value (e.g. gifts for weddings, birthdays, exams, Christmas, etc.).
For a better understanding, this article refrains from using complicated technical terms and is presented in shortened form with regard to the individual preconditions required by law. An individual examination in your case is recommended.
Disclaimer: This article does not constitute legal or tax advice but is for general information only. Every personal/company situation is unique, so that your tax situation might be different as described in this article. Therefore, I always recommend professional advice to avoid any tax disadvantages.
Last updated on December 9, 2021
