Reporting a Foreign Inheritance to the Tax Office: Deadlines, Taxes, and Legal Support

The scope of German inheritance tax law is determined by section 2 of the Inheritance and Gift Tax Act (ErbStG). What matters is not the nationality of the parties involved, but solely their tax connection to Germany. Foreign nationals who live in Germany — whether permanently or temporarily — can be subject to German inheritance tax as either the deceased or the heir.

The four scenarios that give rise to tax liability

In general, four categories of cases can be identified in which the German tax authorities may assert a claim to inheritance tax:

1. The deceased was living in Germany at the time of death — that is, with a place of residence or habitual abode in Germany. In this case, the entire estate is subject to German inheritance tax regardless of where the heirs are located and regardless of where the assets are situated. This expressly includes foreign real estate and vacation properties.
2. The heir has their place of residence or habitual abode in Germany at the time the tax liability arises under section 9 ErbStG. Tax liability then extends to the full amount of the assets acquired, including assets held abroad. Foreign real estate must therefore be declared in the German inheritance tax return; foreign market value appraisals and official documents are generally required for valuation purposes.
3. One of the parties recently moved abroad — specifically, less than five years before the inheritance arose. German nationals who have given up their place of residence and habitual abode in Germany remain subject to extended unlimited tax liability for five years under section 2(1)(1)(b) ErbStG. Where the move is to a low-tax jurisdiction, this period is extended to ten years for certain assets under section 4 of the Foreign Tax Act (AStG).
4. The estate contains domestic assets — that is, assets located in Germany. Even where neither the deceased nor the heir is a German tax resident, limited tax liability applies to certain domestic assets under section 121 of the Valuation Act (BewG), including real estate, German business assets, and shareholdings in German corporations of 10% or more (calculated on an indirect basis).

The concept of place of residence is governed by section 8 of the General Tax Code (AO). A person is regarded as resident wherever they maintain a dwelling under circumstances indicating that they intend to keep and use it. What matters is not the official deregistration of one’s address but the factual circumstances: an occasionally used vacation property or a room in Germany that remains permanently available can be sufficient to establish a place of residence for tax purposes. In addition, German law permits multiple simultaneous places of residence — meaning that a person who moves their primary residence abroad but continues to maintain and use accommodation in Germany may still be classified as a German tax resident.

Distinct from place of residence is the concept of habitual abode under section 9 AO. This requires an uninterrupted stay of more than six months in Germany that is recognizably not merely temporary in nature. Brief interruptions are disregarded. Unlike place of residence, a simultaneous habitual abode in more than one country is not possible.

Where unlimited tax liability applies, the personal allowances under section 16 ErbStG apply in full: spouses and registered civil partners may inherit up to €500,000 free of tax, children up to €400,000, and grandchildren up to €200,000. Where only limited tax liability applies — because neither the deceased nor the heir is a German tax resident — a pro-rata reduction of the allowance has applied since the earlier flat-rate rule was corrected: the determining factor is the ratio of domestic assets to the total estate. The former flat-rate allowance of €2,000 under section 16(2) ErbStG (former version) was struck down by the Court of Justice of the European Union (CJEU) as incompatible with EU law. Whether the current replacement rule is itself fully compliant with CJEU requirements had not yet been conclusively resolved — a preliminary ruling procedure initiated by the Dusseldorf Tax Court (case ref. 4 K 1095/20 Erb) was pending before the CJEU.

The situation becomes more complex where the estate includes assets held within foreign trust or foundation structures. Since German law does not recognize such arrangements, a range of difficult follow-on questions arise: To whom are the assets attributable for tax purposes? By what standards are they valued? Which tax class applies to the beneficiary? Heirs in these situations are well advised to seek legal advice at an early stage — our lawyers advise on international inheritance law in Germany, including the particular complexities that arise where trust or foundation structures are involved.

German tax law imposes a statutory reporting obligation on heirs vis-a-vis the tax office, which applies regardless of whether inheritance tax is actually due.

Every acquisition on death must be reported to the competent tax office within three months of the heir becoming aware of the inheritance. This obligation arises from section 30 ErbStG and applies expressly where the inheritance originates abroad or where a substantial portion of the estate is located outside Germany. Where the deceased was living abroad, the competent tax office is the one responsible for the heir — generally the office at the heir’s place of residence.

Reporting process — step by step

1. Identify the competent tax office — this is the office at the heir’s place of residence in Germany.
2. Prepare the written notification, which must include: the identity of the deceased, the identity of the beneficiary, the nature of the acquisition, and the estimated value of the estate.
3. Submit the notification within three months of becoming aware of the inheritance.
4. Await a request from the tax office for a formal inheritance tax return, typically accompanied by a one-month deadline that can be extended on application.
5. Compile supporting documentation for foreign assets, including market value appraisals and official records, and submit with the return.

The reporting obligation does not apply only where the acquisition has already been reported through a notarial deed or through a probate court from which the tax office will independently obtain notification.

A question of particular relevance in international estate matters concerns foreign branches of German credit institutions. The Federal Fiscal Court (BFH) referred to the CJEU, in a request for a preliminary ruling (BFH, decision of October 1, 2014, II R 29/13), the question of the extent to which EU-based foreign branches are required to report inheritance cases. In practice, this means that heirs whose estate assets are held in accounts or securities deposits at foreign bank branches cannot rely on the institution to submit the notification on their behalf — as our lawyers advise on in the context of bank information and right of disposition in international inheritance cases. The reporting obligation lies primarily with the beneficiary.

Following the initial notification, the tax office may request the submission of a formal inheritance tax return. A deadline of one month from receipt of the request is typically set, which can be extended on application. For complex international situations — for example where foreign assets must be valued or foreign tax assessments must be submitted — early legal support is advisable in order to apply for realistic deadline extensions in good time.

Anyone who fails to meet the reporting obligation or provides incomplete information on assets risks regulatory proceedings. Where assets are deliberately concealed, the tax office may treat the matter as tax evasion under section 370 AO. In the inheritance tax context, the threshold for criminal liability is reached quickly: where the amount evaded exceeds €50,000, this typically constitutes tax evasion on a large scale — a sentencing bracket that is far from uncommon given the often significant values involved in estates. In particular, a claimed relinquishment of residence shortly before the expected death of the deceased or the beneficiary is subject to especially close scrutiny by the tax authorities in practice.

Anyone who inherits from abroad and is also required to pay inheritance tax there may face a dual burden: once to the foreign state and once to the German tax office. German law provides two approaches for addressing this.

In the area of inheritance tax, Germany has concluded only a very limited number of bilateral agreements — far fewer than in the field of income tax. Double taxation agreements currently exist with the following seven states: Denmark (1995), France (2006), Greece (1910/1912), Sweden (1992), Switzerland (1978), the United States of America (1980), and — not always with identical provisions in respect of gift tax — certain other states, with deviating rules for particular types of assets. Not all of these agreements extend to gifts. A current overview of all agreements concluded by Germany in the tax field can be found in the Federal Ministry of Finance (BMF) circular on the status of double taxation agreements.

Where a double taxation agreement exists, the estate assets concerned are either allocated exclusively to one state for taxation purposes, or a crediting arrangement is established between the two countries. For all other states — the large majority — no such bilateral protection exists at all.

As a fallback rule for countries without a double taxation agreement, section 21 ErbStG provides that inheritance tax paid abroad can be credited against the German tax liability. This sounds more straightforward than it is in practice: the credit is conditional on the foreign levy being structurally comparable to a German inheritance tax, on it having been actually paid and evidenced to the tax office, and on it relating to the foreign assets that are also subject to taxation in Germany.

In practice, this frequently gives rise to crediting gaps. Where the foreign state does not levy a conventional inheritance tax but instead — as in Canada — imposes a capital gains tax that treats the estate assets as notionally disposed of at the date of death, a credit under German law is not readily available. The Federal Fiscal Court addressed this in a leading judgment on the Canadian capital gains tax (BFH, judgment of April 26, 1995, II R 13/92). Similar issues arise where foreign levies take the form of registration fees or capital appreciation taxes that do not correspond to the German concept of an inheritance tax. Timing risks add a further complication: where foreign tax assessments are issued with considerable delay, the window for crediting them in Germany may already have closed.

A frequently overlooked aspect of international estates is that the question of which country is entitled to levy inheritance tax and the question of which law governs the succession are entirely independent of one another. The applicable succession law is determined primarily by the EU Succession Regulation (EuErbVO), which looks to the last habitual abode of the deceased — a concept that in civil law is more closely tied to the actual center of a person’s life than its tax law counterpart. Where that center is located abroad, foreign succession law may apply, which can differ from German law in material respects — for example in relation to forced heirship rights, the validity of joint wills, or inheritance contracts.

German nationals living abroad have the option of expressly choosing German succession law in their will. This can offer significant practical advantages in certain situations, but it does not affect the tax law assessment. For a broader overview of how international inheritance law operates in Germany — including the interaction between EU succession rules and domestic tax obligations — our lawyers advise international clients across all aspects of cross-border estate matters.

International estates are frequently complex from a tax law perspective. Which country is entitled to tax which assets depends on a range of factors: the last place of residence of the deceased, the place of residence of the heirs, the nature of the assets, and whether a double taxation agreement exists. In addition, foreign assets must be determined and correctly declared in the tax return in accordance with German valuation standards. Where real estate forms part of the estate, additional valuation and documentation requirements apply.

Schlun & Elseven Rechtsanwälte accompanies clients through every stage of an international estate matter. Prior to an inheritance arising, the team assists with tax-oriented estate planning and the structuring of cross-border assets — including business succession planning where a business forms part of the estate. When an estate arises, the firm handles timely notification of the tax office, preparation and submission of the inheritance tax return, and communication with the tax authorities. The firm also assesses whether and to what extent taxes paid abroad can be credited, and represents clients in objection and litigation proceedings.

Dr. Thomas Bichat is an experienced point of contact for questions of succession and tax law, advising both on the structuring of estates and on the administration of international estates that have already arisen.