The free movement of capital is essential for the functioning of the Single Market. It is one of the four fundamental freedoms guaranteed by EU law and enables the integration of European financial markets. EU citizens can now manage and invest their assets in any member state, while avoiding double taxation of their income at the same time. The liberalization of capital markets was a crucial step towards economic and monetary integration in the EU, leading to the creation of the Economic and Monetary Union (EMU) and the introduction of the euro.
The free movement of capital not only improves the efficiency of financial markets but also offers many advantages for EU citizens. They can conduct a variety of financial transactions in other member states with few or no restrictions, such as:
EU-based individuals are allowed to invest in, own, and manage businesses in other European countries.
If you live and work in a country other than your home country for more than 6 months a year, you will most likely become tax resident there. This country can then tax your entire income, both your salary earned there and income from other sources. However, if you have strong family and economic ties to your home country, you might still be considered tax resident there, even if you spend less than 6 months a year in that country.
Contact the tax authorities of your home country to determine which rules apply to you. It is always advisable to notify the tax authorities when you move from one country to another to avoid future problems.
The 183-day rule is part of the double taxation agreement. It states that you do not have to pay income tax in Germany if you spend less than 183 days in the calendar year there. If you no longer have a residence in Germany and have lived in another country for more than 183 days, you are no longer taxable in Germany. In this case, the tax liability shifts to the country where you are now residing. This is important to know in case of seasonal workers, who are excempted from paying taxes in Germany, since their stay rarely exceeds 6 months.
Exception to the 183-Day Rule: If you still own a house or an apartment in Germany, you remain fully taxable in Germany, regardless of whether your primary residence is abroad.
Scenario: You own an apartment in Bulgaria that you rent out for 400 euros per month. You live and work in Germany for more than 6 months a year, so you are now a tax resident here.
Should you pay taxes in Bulgaria or in Germany? Do you need to declare your profits in your German tax declaration?
Here’s how it generally works:
As a German tax resident, you must declare your worldwide income, including rental income from abroad, on your German tax return. Therefore, you need to report the rental income from your Bulgarian property in Germany.
Germany and Bulgaria have a Double Taxation Agreement to avoid double taxation. Under the DTA, rental income from immovable property (such as real estate) is typically taxed in the country where the property is located, which means Bulgaria has the primary right to tax the rental income from your apartment in Bulgaria.
In Germany, the rental income will be subject to either the exemption with progression method or the credit method, as specified in the DTA:
Given the complexity of international taxation and DTAs, it is advisable to consult with a tax professional who can provide guidance tailored to your specific situation and ensure compliance with both your home country’s and German tax regulations.
Whether you’re managing property abroad or navigating tax obligations as an expat, understanding the rules of free capital movement and double taxation can make all the difference.
Start your journey with JOBSMART today and find your perfect job in the EU’s largest economy!
