Relocation from Israel to Germany

Germany, as a central country in the European Union, offers a variety of opportunities for immigrants considering relocation for employment, investment, education, or improving their quality of life. The country is characterized by a stable economy, a well-developed welfare system, and a diverse job market, particularly in the fields of engineering, technology, and science.

However, relocating to Germany presents significant challenges, including the language barrier, navigating the local bureaucratic system, and gaining a comprehensive understanding of the legal, financial, and tax implications associated with the move. This article describes the key considerations that should be addressed before making the move.

The 5-Step process for relocating from Israel to Germany

1. Assess employment opportunities and living costs.
2. Consider terminating Israeli tax residency, taking into account matters such as exit tax.
3. Obtain an appropriate visa or residency.
4. Review your tax obligations under both Israeli and Argentine law, including potential double taxation and available reliefs.
5. Plan fund transfers and banking.

The following sections explain the main tax, legal, and financial considerations for Israelis relocating to Germany.

Key Considerations When Relocating from Israel to Germany

The relocation process consists of several essential steps. 

First, conduct a thorough review of employment opportunities in Germany, the cost of living (which varies between cities and regions), the local tax system, educational options for children, available healthcare services, and other important factors.

Second, you should consider whether you want to terminate your residency in Israel and the many implications that result from this. Terminating residency will affect, among other things, income tax obligations, national insurance, and estate planning.

You also need to plan how to manage your finances, assets, and private health insurance. In Germany, foreigners with certain types of residence permits have access to the public healthcare system, for example, if they are employees, students, or permanent residents.

At the same time, you must arrange your legal status in Germany by obtaining the appropriate work permit, temporary or permanent residency, visa, or citizenship, as applicable. Each type of visa has different requirements – age, education, income, minimum investment, employment contract, and health insurance, etc. It is essential to choose the visa that best suits your specific circumstances. After several years of residency in Germany, you can explore the possibility of applying for German citizenship, subject to meeting the required conditions such as knowledge of the German language, financial self-sufficiency, and absence of a criminal record.

Tax Aspects of Relocation to Germany

When moving to a foreign country, the question of post-move tax obligations in Israel arises.  The answer usually depends on whether you have terminated your Israeli tax residency.

Termination of Tax Residency

One of the main issues in the relocation process is determining your residency for tax purposes. In Israel, Israeli residents are taxed on their worldwide income, while non-residents are taxed only on income sourced in Israel.

If you intend to settle in Germany for the long term, it may be preferable to sever your residency from Israel (for both income tax and National Insurance purposes). Note that Israelis who sever their residency are required to pay an “exit tax” on certain assets.

According to Section 1 of the Israeli Income Tax Ordinance, residency is determined based on the center of life test, and a rebuttable presumption based on the number of days you stayed in Israel, as follows:

• The days test – An individual is considered an Israeli resident if they spent 183 days or more in Israel during a single tax year. A person may also be considered a resident if they spent 30 days or more in Israel during the current tax year. This applies when their total stay in Israel is 425 days or more over the current and two preceding years. This presumption can be rebutted if the individual proves that, despite their stay in Israel, their center of life is not in Israel.
• The “Center of Life” test  – This is a substantive test, in which all personal, family, economic, and social ties are examined. These include permanent place of residence, place of economic activity, location of economic interests, and more.

Anyone who meets the days test, i.e., is considered an Israeli resident under this test, must file Form 1348 – “Declaration of Residency”. This form is attached an annex to the individual’s tax report. Its purpose is to declare the termination of Israeli tax residency and to describe the circumstances demonstrating that the individual’s center of life is no longer in Israel.

It is important to note that terminating tax residency is usually not a one-time event but an ongoing process. The Israeli Tax Authority (ITA) may review your residency status even years after leaving. Therefore, it is recommended to keep detailed documentation of all actions indicating the transfer of your center of life to Germany, and to avoid creating new ties to Israel.

These days, a dramatic bill to amend the Income Tax Ordinance regarding the definition of Israeli residency for tax purposes has been submitted to the Knesset.

According to the proposal, there will be absolute presumptions that determine the number of days defining an individual as an Israeli resident. These presumptions cannot be rebutted. The “center of life” test will serve only as a secondary tool in cases not covered by these presumptions.

As a result, there may be situations where an individual who has terminated their residency in Israel will still be considered an Israeli resident for tax purposes. This can happen when the number of days spent in Israel in subsequent years is high enough to meet the residency threshold.

To view the draft bill, click here.

Exit Tax

Israelis leaving Israel may be required to pay an “exit tax” on certain assets. This tax is intended to capture the unrealized capital gains of assets held by Israeli residents.

According to Section 100A of the Income Tax Ordinance, an individual who ceases to be an Israeli resident is deemed to have sold their assets on the day before terminating the tax residency (“Exit Day”). The tax is calculated on the notional gain between the original purchase price and the value on the exit day. Note that some assets, such as real estate, may be exempt from this tax.

There are various methods for calculating and paying exit tax liability, each with different implications for the taxpayer. The timing and structure of these payments can significantly impact the overall tax burden. It is highly recommended to consult with an international tax expert before departing Israel to develop a tax strategy that best aligns with your specific circumstances and financial goals.

Double Taxation Treaty between Israel and Germany

Israel and Germany have a double taxation treaty. This treaty is intended, among other things, to prevent a situation where a person pays double tax on the same income. The treaty regulates issues such as determining residency in cases of dual residency, withholding tax rates on passive income (dividends, interest, royalties), and taxation of employment income.

Under the treaty, employment income earned by an Israeli resident who works in Germany is generally subject to tax in Germany, provided the work is physically performed there. However, if the employee is present in Germany for less than 183 days in 12 months and certain additional conditions are met, Israel may retain the right to tax that income. Each case should be assessed based on its specific circumstances.

In addition, the treaty also addresses dual residency. In cases where an individual is considered a resident for tax purposes in both countries, the treaty offers equalization rules for determining residency, as follows:

1. The individual shall be deemed to be a resident only of the State in which a permanent home is available to that individual; if a permanent home is available in both States, that individual shall be deemed to be a resident only of the State with which the individual’s personal and economic relations are closer (centre of vital interests);
2. If the State in which the centre of vital interests is situated cannot be determined, or if a permanent home is not available to the individual in either State, the individual shall be deemed to be a resident only of the State in which that individual has a habitual abode;
3. If the individual has a habitual abode in both States or in neither of them, the individual shall be deemed to be a resident only of the State of which the individual is a national;
4. If the individual is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

To read the Double Taxation Treaty between Israel and Germany in English, click here.

How will Terminating Tax Residency Affect Income Taxation?

If the move to Germany is temporary, you remain an Israeli tax resident and cannot terminate your residency status. This means you are liable for Israeli tax on your worldwide income and must report all income, including income earned in Germany, to the ITA.

If tax residency is not terminated, you may still be able to claim a tax credit in Israel for taxes paid in Germany.

If the move to Germany is permanent and you have terminated your Israeli tax residency, you will only be liable for Israeli tax on income sourced in Israel, while all other income will be subject to tax in Germany.

For more information on the termination of residency, click here.

National Insurance

An Israeli resident staying abroad is required to pay National Insurance (Bituach Leumi) contributions However, once tax residency is terminated, there is no obligation to pay National Insurance, and the individual is no longer entitled to health or social security benefits in Israel.

Between Israel and Germany, there is a social security agreement. The arrangement in the treaty with Germany is intended to prevent a situation in which an Israeli resident would be simultaneously subject to both countries and required to pay insurance contributions in both, or alternatively, would not be entitled to insurance in either country.

Tax System in Germany

In Germany, a person is considered a resident for tax purposes if they have a residence available to them or have a permanent place of residence in Germany. This can be assumed if the person is physically present in Germany for more than six months in any calendar year, or for a continuous period of six months at the end of the year.

Personal Income Tax Rates

Germany operates a progressive income tax system, with tax rates varying according to income level. The tax brackets (for 2025) are:

• €0-12,096 – Tax exempt.
• €12,096-68,429 – Tax rate ranges between 14%-42%.
• €68,430-277,825 – 42%.
• Above €277,826 – 45%.

Capital Gains

In Germany, different types of capital gains are taxed differently. These include:

Capital gains from the sale of real estate – Only if the property is sold within less than 10 years from the date of acquisition will capital gains tax apply according to the marginal tax rate.

Capital gains from the sale of shares/financial investments – A German resident will be subject to a fixed tax rate of 25% (plus 5.5% solidarity surcharge). However, they have an annual exemption of 1,000 euros. In contrast, a non-resident who sells shares in a German company in which they hold 1% or more will be taxed on 60% of the gain (unless they have an exemption under a tax treaty).

corporate tax

The corporate tax rate in Germany is imposed at a uniform rate of 15%, plus a solidarity surcharge of 5.5%.

inheritance tax

In Germany, a progressive inheritance tax is imposed on heirs and beneficiaries receiving assets, including assets located in Germany, even if the heir or the deceased is not a resident of the country. The tax rate ranges from 7% to 50%, depending on the degree of family relationship and the value of the assets, with significant exemptions available for close family members.

For more information on inheritance tax in Germany, read the article ” Tax Aspects of Inheritance in Germany.”

Transferring Funds from Israel to Germany

You should review the various options for transferring funds abroad – bank transfers, international credit cards, etc. Each option has its advantages and disadvantages in terms of fees, transfer times, exchange rates, amount limits, and regulations. Pay attention to reporting requirements for authorities and banks, following anti-money laundering laws and international regulations (FATCA, CRS). It is also advisable to open a bank account in Germany in advance.

According to Section 170(a) of the Ordinance, when making a payment from Israel to a foreign resident that constitutes taxable income, withholding tax applies. There are several exceptions to this obligation for which there is no need to apply to the tax authority for an exemption from withholding tax.

In addition, there are other requirements regarding the transfer of money abroad, such as an accountant’s approval regarding tax payments or the source of funds, and more.

For more information, see the article “Transferring Funds from Israel Abroad.”

Opening a Bank Account in Germany

Opening a bank account in Germany is possible for foreigners, but the process requires a registration certificate known as an “Anmeldung,” which can be obtained from the local municipal office. Furthermore, a German tax identification number may also be required, so it is recommended to schedule appointments early so you can take care of all necessary elements you may be missing.

Returning to Israel

When returning to Israel, it is important to carefully assess the potential implications. If you have terminated your tax residency, you may qualify for benefits as a regular or veteran returning resident, depending on the duration of your stay abroad. These benefits can include tax exemptions on income and capital earned outside Israel.

You should also take into account the waiting period of up to six months for the renewal of National Insurance (Bituach Leumi) health coverage, as well as possible benefits available through the Ministry of Aliyah and Integration.

In short, relocation to Germany offers many opportunities, but it is a complex process that requires professional planning, personal guidance, and a thorough understanding of all legal and tax aspects. It is recommended to consult with international tax experts to ensure early and comprehensive planning for a smooth and successful transition to your new life in Germany.

The firm of Nimrod Yaron & Co. has extensive experience advising on international relocation and Israeli tax residency termination. For an initial consultation, click here.

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