The usual residence and its significance in tax law

The term "usual residence" plays a central role in German tax law, especially when it comes to the question of unlimited tax liability. In this blog post, we explain what the usual residence is, who is affected, how it is calculated, and what effects it can have when moving away. We also illustrate with an example how the usual residence is assessed in practice.

What is the usual residence?

According to § 9 of the Fiscal Code (AO), someone has their usual residence where they stay under circumstances that indicate they are not only temporarily residing there. This definition is independent of whether the person has a residence or not. The usual residence leads, similar to the residence according to § 8 AO, to unlimited tax liability in Germany. According to § 1 of the Income Tax Act (EStG), the usual residence, like the residence, establishes unlimited tax liability.

Who is affected?

Natural persons who stay in Germany for an extended period are affected by the regulation of the usual residence. This also applies to individuals who regularly stay in Germany, such as cross-border commuters, migrant workers, or business travelers whose stays accumulate.

How is the usual residence calculated?

The usual residence is present when a person stays in Germany for more than six months. This period does not have to lie within a calendar year but can also be spread over several months. Short-term interruptions of stay, such as through vacations or business trips, are not taken into account. The decisive factors are the actual external circumstances that indicate a stay that is not merely temporary.

Impact upon emigration

In the case of emigration, the termination of the usual residence plays a crucial role in ending the unlimited tax liability in Germany. It is not sufficient to merely deregister the residence; the usual residence must also be demonstrably abandoned. Therefore, the person should not remain in Germany for an extended period, ideally at least six months. Visits should be minimized and documented to avoid any doubt about the abandonment of the usual residence.

Example

Case

Mr. Meier wants to emigrate to Portugal. He deregisters his residence in Germany as of December 31, 2023, and departs on January 5, 2024. In 2024, he stays in Germany for the following periods

• until March 15 (15 days)

• until June 20 (11 days)

• until October 15 (15 days)

Since Mr. Meier has not stayed in Germany for more than six months (183 days), he is considered to be not subject to unlimited tax liability for the year 2024.

Analysis of the example

Abandonment of the residence: Mr. Meier deregisters his residence as of December 31, 2023.

Moving away: Mr. Meier moved away from Germany on January 5, 2024.

Stay in Germany: Mr. Meier has stayed a total of 41 days in Germany in 2024.

Since Mr. Meier has not stayed in Germany for more than 183 days in the last twelve months and the stays do not result in a continuous duration of more than six months, he is not considered to be subject to unlimited tax liability. Thus, he effectively ended his usual residence in Germany on the day of departure on January 5, 2024.

Through planning his stays and the timely deregistration of his residence, Mr. Meier successfully concluded his usual residence in Germany. Consequently, he has also ended his unlimited tax liability and is now liable for taxes in Portugal.

Would you like to learn more about your tax liabilities in the case of planned emigration? Contact us today to learn more and to develop a strategy tailored to your needs. We look forward to hearing from you! Book your initial consultation!