Inheritance and gift tax in Germany: avoid double taxation

There is no treaty between Germany and the Netherlands to prevent double inheritance and gift tax. Therefore, both countries can levy tax on the same acquisition. For example, if a Dutch heir inherits a home from a German parent, or if an entrepreneur transfers their German GmbH to a child in the Netherlands.

Germany does have a settlement option ( § 21 ErbStG ), but it only works if:

• the foreign tax is comparable to the German inheritance or gift tax
• the levy on the same assets
• the payment is demonstrable

In practice, this often proves difficult. Different valuation methods and definitions quickly lead to disputes. Therefore, joint coordination between Dutch and German advisors is essential.

German law (the Erbschaft- und Schenkungsteuergesetz or ErbStG) distinguishes between:

Unlimited tax liability (Section 2 paragraph 1 no. 1 ErbStG) :

• if the testator, donor or acquirer is a resident of Germany (place of residence, habitual residence)
• or had German nationality in the past 5 years

Then the worldwide assets are taxable in Germany.

Limited tax liability (§ 2 paragraph 1 no. 3 ErbStG) :

• if there is no question of residency, but there is German capital

In that case, only the German assets are taxed, such as:

• real estate in Germany
• companies or permanent establishments in Germany
• shareholdings of more than 10% in German companies

Note: With this limited tax liability, personal exemptions are reduced pro rata, depending on the ratio of German to foreign assets. This can significantly increase the effective tax burden.

German exemptions apply per purchaser and per 10 years. The main amounts:

• Spouse / registered partner: €500,000
• Children: €400,000
• Grandchildren: €200,000 (or €400,000 if the child dies before you)
• Other purchasers: €20,000

The rate is progressive and rises up to 50% , depending on kinship.

Strategic giving: take advantage of the 10-year term

Because the exemptions mentioned above reapply every ten years, it’s wise to spread out gifts. With careful planning over several years, families can transfer large sums tax-free.

The German ErbStG also includes an exemption for the family home (Section 13, paragraph 1, no. 4b ErbStG).
If the surviving partner or child lives in the home itself, it is often completely exempt from inheritance tax.

Household goods and personal belongings are also exempt to a limited extent (Section 13 ErbStG). Think of furniture, jewelry, or works of art. This applies up to a certain amount and only when acquired within the family.

Germany has a broad exemption for business assets:

• 85% (regular scheme)
• or 100% (optional arrangement for stricter conditions)

These conditions include:

• the company is active (no investment assets)
• company retention (5 or 7 years)
• wage sum standard is met

Note: If the company holds more than 20% of its investment capital, the exemption expires. A restructuring or spin-off may offer a solution. This German scheme is similar to the Dutch BOR (Dutch Business Tax Scheme), but the details differ. What is exempt in the Netherlands may still be taxable in Germany.

A STAK (Stichting Administratiekantoor) is common for tax purposes in the Netherlands, but is often not recognized as transparent in Germany. This has consequences:

• certificates are not fiscally allocated to the certificate holder
• transfer of certificates may lead to inheritance or gift tax
• Owning German real estate through a STAK can even lead to transfer tax (Grunderwerbsteuer)

Even certification or decertification can be considered a taxable acquisition. Therefore, any change to a STAK with German assets requires prior tax advice.

If a shareholder with a stake of more than 1% in a German GmbH moves to the Netherlands, the Wegzugsbesteuerung (Section 6 AStG) applies. Germany considers the departure a deemed sale of the shares and immediately taxes the hidden reserves. Since 2022, the interest-free and unlimited deferral scheme for relocations within the EU/EEA has been abolished. Now, only payment spread over seven years is possible, usually with security.

If the shares are gifted or inherited after emigration, you may also be subject to German inheritance or gift tax. Without proper preparation, you’ll be paying double.

In Germany, inheritance tax, gift tax, and transfer tax are subject to strict reporting requirements. Heirs, donors, and beneficiaries must report transactions to the Finanzamt (Financial Office) within the specified deadlines. Notaries, banks, and advisors also have reporting obligations. Failure to report (on time) risks fines and tax penalties.

According to the European Succession Regulation (EU 650/2012), the inheritance law of the country where the testator has their habitual residence generally applies. However, in cross-border situations, the testator can, through a choice of law, stipulate that the inheritance law of their nationality applies. This applies, for example, to a German citizen living in the Netherlands, or to someone with dual nationality. In practice, this choice of law is often explicitly stated at the beginning of the will.

Please note: this choice of law applies only to substantive inheritance law, the rules that determine who is an heir and how the estate is distributed. It is not possible to choose a specific tax system through a will. Inheritance and gift taxes are assessed separately based on the national tax rules of Germany and the Netherlands.

• Double inheritance tax due to lack of treaty
• Reduced exemptions for limited tax liability
• No or limited settlement of Dutch inheritance tax due to missing supporting documents
• Incorrect tax treatment of STAK structures
• Too much investment capital in business succession
• Forgotten reporting obligation for inheritance, gift or transfer tax
• A will that does not correspond to fiscal reality

We have been advising clients and their Dutch advisors for years on international inheritance and asset transfer. Our added value:

• Double insight into Dutch and German inheritance and gift taxes
• Practical multi-year planning strategies
• Connection of testamentary and fiscal structure
• Assistance with restructuring, emigration or business succession
• Coordination with the Finanzamt and your Dutch advisor

Cross-border inheritances and gifts between the Netherlands and Germany require tax coordination. Because there is no treaty, there is a risk of double taxation.

Anyone who owns real estate, assets, or business interests in both countries is well advised to plan ahead. By making the most of exemptions, business succession schemes, and the 10-year term, you can avoid unnecessary taxes.