GERMANY Law and Practice Contributed by: Tanja Schienke-Ohletz, Flick Gocke Schaumburg
and family relationships is determined uniformly in all participating EU member states. In Germany, there are no significant conflicts between state and federal law in this area, as family and inherit - ance law is uniformly regulated at the federal level by the BGB. 12. Cross-Border Succession Planning 12.1 Taxation of Cross-Border Estates and Transfers From a German perspective, there is only one fed- eral tax regime in the area of inheritance and estate planning, as is the case in federal systems such as the United States. The relevant regulations are pre- dominantly uniform across Germany, while European regulations and double taxation agreements play an important role in cross-border matters. The Inheritance Tax and Gift Tax Act, which applies nationwide, is central to the taxation of inheritances and gifts. It determines both tax liability and allow- ances and tax rates. In addition, the Valuation Act regulates the tax valuation of transferred assets, such as real estate or company shares. Unlimited tax liability applies if either the testator or the acquirer has their domicile or habitual residence in Germany at the time of acquisition. In this case, worldwide assets are generally subject to German inheritance or gift tax. For German citizens, unlimited tax liability can even continue for up to five years after moving away. Limited tax liability applies if neither the deceased nor the acquirer is resident in Germany. In this case, only certain domestic assets are taxed, such as real estate located in Germany or shares in German companies.
To avoid double taxation, Germany has concluded double taxation agreements for inheritance tax (and in some cases also for gift tax) with a few countries. In double taxation agreements, both countries often have the right to tax an estate or a gift, but there are credit provisions. Ultimately, the higher tax rate pre- vails. Exemption from inheritance or gifts by a coun- try is rarely found in common double taxation agree- ments. If there is no double taxation agreement, tax credits apply. However, it should be noted that the national systems are not harmonised, so double taxation may still occur. In addition to tax regulations, conflict-of-law rules also play an important role. For cross-border inherit- ance cases within the EU, the EU Succession Regu- lation applies, which basically applies the law of the deceased’s habitual residence to the entire succes- sion. Substantive German inheritance law is itself regulated in the BGB. The German federal states have no independent substantive regulatory powers in this area for inheritance tax law or inheritance law. Their role is essentially limited to tax administration (tax offices) and, in some cases, the supervision of certain asset structures such as foundations. Overall, succession planning with international impli- cations is therefore primarily shaped by the interplay of federal tax rules, international double taxation agreements and European conflict-of-law rules. These determine which state may tax the assets and which law applies to the transfer of assets.
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