Living in Germany as a U.S. citizen comes with exciting opportunities, but it also requires navigating a complex cross-border financial landscape. From managing tax filing in both countries and dealing with currency exchange to understanding estate planning and dual citizenship rules, careful financial planning for American expats in Germany is essential. Banking and investment regulations, differences in income tax and estate tax systems, and application of tax treaties can all impact your financial well-being. Whether you’ve just arrived or have been in Germany for many years, understanding these key financial considerations can help you avoid costly surprises and make the most of your life abroad. In this guide, we’ll explore the essential financial steps to take to ensure stability and peace of mind while living in Germany.

Tax and Reporting Obligations for Expats

U.S. citizens and permanent residents are required to file U.S. tax returns and report their worldwide income, regardless of where they reside.

Under the Foreign Account Tax Compliance Act (FATCA), taxpayers residing outside the U.S. must file Form 8938 if their reportable foreign assets exceed $200,000 at the end of the year or $300,000 at any point during the year. For those filing jointly, the threshold increases to $400,000 at year-end or $600,000 at any time during the year.

Additionally, the Foreign Bank Account Report (FBAR) requires taxpayers to report foreign bank accounts on form FinCEN114 if their combined balance exceeds $10,000 at any time during the year. Failing to comply with FBAR regulations can result in severe penalties, starting at $10,000 per non-willful violation and up to 50% of the account balance for willful violations.

Germany taxes its residents on their worldwide income using a progressive tax system, with rates ranging from 14% to 45%, depending on income level. In addition, a solidarity surcharge of 5.5% applies to higher-income individuals, primarily affecting those in the top tax brackets. Individuals are considered German tax residents if they spend more than 183 days per year in Germany or establish a permanent home, indicating an intent to reside there long-term. Once tax residency is established, individuals must report and pay taxes on all income, regardless of where it is earned.

To prevent double taxation, the system of foreign tax credits allows U.S. taxpayers to claim credits on their U.S. tax returns for taxes paid in Germany, reducing their U.S. tax liability. While the U.S. – Germany Income Tax Treaty helps prevent double taxation, tax treatment varies depending on the type of income, making it essential for expats to assess their obligations carefully. The Foreign Earned Income Exclusion (FEIE) provides additional relief, allowing U.S. citizens working in Germany to exclude up to $130,000 of foreign-earned income from U.S. taxation in 2025. To qualify, individuals must meet either the Bona Fide Residence Test or the Physical Presence Test. However, this exclusion applies only to earned income, meaning investment income, rental income, capital gains, and pensions remain taxable in both the U.S. and Germany, subject to tax treaty provisions.

Self-employed individuals in Germany face substantial mandatory contributions to the German equivalent of Social Security. These contributions total 18.6% of income, typically split between employer and employee in standard employment situations. Public health insurance costs vary based on income and provider, generally ranging between 14.6% and 15.6%, with additional surcharges. Long-term care insurance adds approximately 3.4%, with slightly higher rates for those without children. While unemployment insurance is generally not mandatory for the self-employed, some may opt in voluntarily.

With tax obligations spanning both countries, understanding available exclusions, tax credits, and social security rules is crucial for effective financial planning. Proper tax preparation can help U.S. expats minimize tax liabilities, avoid unexpected penalties, and ensure financial stability while living in Germany.

Investment Strategies

Many U.S. banks, custodians, and broker-dealers restrict services to customers residing abroad due to FATCA, AML, and other regulations. At the same time, U.S. citizens living in Germany often face difficulties opening investment accounts with German financial institutions due to local regulations, like the EU MiFID II. In addition, residents of the European Union are told they cannot purchase U.S.-based exchange-traded funds (ETFs). To manage investments in this complicated framework, the most effective solution is often working with a U.S.-based cross-border wealth advisor and utilizing the services of expat-friendly investment custodians.

U.S. expatriates in Germany must also navigate complex investment taxation rules. Due to Passive Foreign Investment Company (PFIC) rules, it is highly disadvantageous for U.S. citizens to hold foreign mutual funds or other pooled investment vehicles, as these are generally subject to punitive U.S. tax treatment. 

Germany taxes capital gains differently depending on the holding period. Short-term capital gains are taxed at an individual’s marginal income tax rate, while long-term capital gains on stocks held for more than one year are taxed at a flat rate of 25%, plus a solidarity surcharge of 5.5% of the 25% (bringing the total to 26.375%).  

Additionally, Germany taxes dividends and interest income at the same flat 26.375% rate.

Retirement Accounts for Expats in Germany

Managing U.S. retirement accounts while living in Germany requires strategic planning. Tax-deferred savings accounts offer valuable tax advantages, which can allow for greater pre-tax savings and better growth due to the tax-deferred compounding of wealth. Even though holding U.S. retirement accounts can be beneficial within both countries, it can be difficult to make new contributions once living abroad.

IRA and 401(k) accounts remain tax-deferred until there are distributions, which is a significant advantage. However, while living in Germany, contributing to these accounts may not be beneficial. This is because German taxes paid on income earned often generate foreign tax credits that eliminate U.S. tax liability. For this reason, making contributions which lower one’s U.S. tax liability effectively offer no tax savings. What’s worse, it’s possible that in the future, distributions from these U.S. accounts would then be taxable, potentially leading to double taxation.

Distributions from 401(k)s and IRAs may be taxable in both countries, but the U.S.-Germany Tax Treaty generally grants taxation rights to the country of residence. Despite this, U.S. tax rules still require reporting worldwide income.

Germany’s pension system consists of three pillars: the statutory pension (public system), occupational pensions, and private pensions. Localized German employees must contribute to the statutory system, with combined employer and employee contributions totaling 18.6% of income. Self-employed individuals may need to make voluntary contributions to qualify for benefits.

Additionally, Roth IRA distributions, tax-free in the U.S., are not treated the same way in Germany. German tax authorities often classify distributions as taxable income, which can lower the value of these after-tax savings accounts and impact financial planning for American expatriates. Thus, it is particularly important to speak with a financial advisor with specific knowledge of expats’ retirement options in Germany

Estate and Gift Planning

The U.S. imposes estate and gift taxes on worldwide assets for citizens and permanent residents. The 2025 estate tax exemption amount is $13.99 million per individual. Gifts below $19,000 per recipient are excluded under the gift tax regime and do not need to be reported.

Germany imposes an inheritance and gift tax ranging from 7% to 50%, depending on the relationship between the deceased and the beneficiary. Spouses can inherit up to €500,000 tax-free, while children can receive up to €400,000 before inheritance tax applies. More distant relatives or unrelated heirs face significantly lower exemptions and higher tax rates.

The U.S.-Germany Estate and Gift Tax Treaty prevents double taxation, but careful planning is necessary to ensure tax-efficient wealth transfers. Trust structures commonly used in U.S. estate planning are not recognized under German civil law and may lead to unintended tax consequences.

Germany’s forced heirship rules ensure that certain heirs, primarily children and spouses, receive a mandatory share (Pflichtteil) of an estate, even if they are excluded from a will. This share is typically half of what they would have inherited under intestacy laws and must be paid in cash.

The EU Succession Regulation (Directive 650/2012) allows EU residents to choose whether their estate is governed by the succession laws of their home country or country of residence. This means that U.S. expatriates in Germany can opt for U.S. inheritance laws instead of German forced heirship rules, providing greater flexibility in estate planning. However, without an explicit choice, German law applies by default, which is why an expert in cross-border estate planning is crucial to understanding your options. It is also important to note that EU Directive 650/2012 applies only to succession rights, not inheritance taxes, meaning that all German tax laws will still govern the taxation of an inheritance.

Real Estate Considerations

Real estate transfer tax in Germany varies by state, ranging from 3.5% to 6.5%. This tax applies when purchasing property and is a significant upfront cost. Annual property tax is relatively low compared to the U.S., often amounting to 0.1% to 0.3% of the property’s assessed value.

Capital gains tax applies to the sale of properties in Germany unless the property has been held for more than ten years. For U.S. citizens selling property in the U.S., gains are taxable under U.S. law, and depending on residency status, German taxation may also apply.

Germany imposes a speculation tax (Spekulationssteuer) on profits from selling real estate if the property is sold within 10 years of purchase. This tax applies to capital gains on privately owned properties unless the property was used exclusively by the owner for their own residential purposes for at least two full calendar years before the sale. The tax rate is based on the seller’s personal income tax rate, which can be as high as 45% plus a solidarity surcharge. However, if the property is held for more than 10 years, the sale is tax-free. This rule aims to prevent short-term real estate speculation and stabilize the housing market.

Rental income from U.S. and German properties is taxable in both jurisdictions. Depreciation deductions for U.S. properties may not be recognized under German tax law, leading to a mismatch in tax treatment.

Speak to a specialist in expat real estate options to ensure you are navigating these complex tax implications.

Health Insurance for Expats in Germany

Germany mandates health insurance for all residents. Public health insurance (Gesetzliche Krankenversicherung – GKV) is available to employees earning below €69,300 per year, with contributions based on income. Private health insurance (Private Krankenversicherung – PKV) is an option for those earning above this threshold, self-employed individuals, and retirees.

Public health insurance contributions typically amount to 14.6% of gross income split evenly between the employee and the employer, with an additional supplementary contribution averaging 1.3%. Private insurance premiums vary based on age, health condition, and coverage level. Unlike the U.S. healthcare system, German public insurance covers most medical expenses, including preventative care, hospital visits, and maternity benefits. Learn more about insurance planning and risk management options.

Social Security and Benefits

The U.S. and Germany have a Totalization Agreement to prevent dual social security taxation. Work credits from both countries can be combined to determine eligibility for benefits. U.S. citizens residing in Germany can continue receiving Social Security benefits, though they may be subject to German taxation.

In Germany, Social Security benefits are treated similarly to German pension income and are subject to progressive income tax rates. However, only a portion of the benefit is taxable, depending on the year you started receiving payments. For example, if you began receiving Social Security in 2024, 83% of your benefits are taxable, with the remaining 17% tax-free for life. This taxable percentage increases gradually, reaching 100% for those starting benefits in 2040 or later.

Since Germany has a progressive tax system with rates ranging from 14% to 45%, the actual tax rate depends on your total income. If U.S. Social Security is your only income, the tax burden may be minimal due to standard deductions and allowances. However, those with additional income sources should plan accordingly to avoid unexpected tax liabilities.

​The Windfall Elimination Provision (WEP), which previously reduced U.S. Social Security benefits for individuals also receiving foreign pensions, has been repealed under the Social Security Fairness Act, which was signed into law on January 5, 2025. ​

This repeal means that U.S. citizens residing in Germany and qualifying for German pensions may now receive their full U.S. Social Security benefits without the reductions that WEP imposed.

Currency Management

For U.S. citizens living in Germany, managing currency effectively minimizes financial risks and optimizes savings. Exchange rate fluctuations between the U.S. dollar and the euro can significantly impact income, investments, and tax liabilities. Expats should consider maintaining multi-currency accounts to reduce unnecessary conversions and using low-cost transfer services to avoid high bank fees. Timing large currency exchanges when rates are favorable can also lead to significant savings, especially for major expenses like real estate purchases.

Germany requires all foreign income to be reported in euros, which can create tax mismatches due to currency fluctuations. If the dollar strengthens against the euro, taxable income may appear higher, potentially increasing German tax liabilities. This is the main reason why many U.S.-centric investment strategies, like tax loss harvesting, may not work as intended for German residents.

Diversifying assets across both USD and EUR can help mitigate risks, ensuring that long-term savings are protected from exchange rate volatility. By aligning income and expenses with the local currency and leveraging smart transfer strategies, U.S. expatriates can manage their finances efficiently while reducing unnecessary costs.

Moving to Germany as a U.S. citizen comes with exciting opportunities, but it also requires some financial planning to avoid unexpected challenges. Managing taxes in both countries, handling investments, planning for retirement, and understanding currency exchange can feel overwhelming, but with the right approach, it doesn’t have to be. Taking advantage of tax treaties, making smart investment choices, and working with professionals who understand cross-border finances can help simplify the process and protect your wealth.

Estate planning, real estate purchases, and social security benefits also require careful thought, but with good preparation, you can ensure your financial future remains secure. Whether you’re just settling in or have been in Germany for years, having a solid financial strategy in place will give you peace of mind and allow you to focus on enjoying life abroad.

Navigate the Financial Complexities of Being a U.S. Expat in Germany with Confidence

Specialized Cerity Partners advisors can assist you with all aspects of your cross-border lifestyle. Schedule a complimentary 30-minute call to help us understand your unique financial landscape, and we will match you with our top financial advisors for expats.

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