Top 5 Destinations Abroad for Germans: Second Citizenship, Less Taxes, More Freedom

We’ve received more inquiries from German citizens this year than the last two years combined. And, almost all of them are trying to minimize their tax burden and obtain temporary or permanent residency or even second citizenship in a foreign country.

Germany’s high income taxes and extensive social security contributions are driving many to explore alternatives abroad. And, with the power to work online from wherever they want in the world, Germans are taking those alternatives.

Here’s a comprehensive guide as to how a German citizen can set up tax residency in another country via residency or citizenship.

Why a German Citizen Might Want to Pay Less in Taxes

Well, this is not a secret: Germany has one of the most punitive tax systems in Europe, with citizens facing personal income tax rates up to 47.5%, high social security contributions, and an overly complex tax system.

The middle class in Germany, according to a report by the German Ifo Institute, has “one of the highest tax burdens in Europe,” which makes life hard for the majority of Germans amid increasing inflation rates and cost of living in cities across the world.

As you can see above, net profits are heavily taxed. And many German citizens are realizing the potential benefits of relocating to a foreign country – and potentially even getting residency or dual citizenship there – with a more favourable tax regime.

Why? So they can potentially keep more gross income in their own pockets.

The goal is to live a more free and flexible lifestyle. Leaving Germany can set things in motion. Several destinations have made their move to attract more Germans. Below, we’ll cover a few.

The Process of Leaving the German Tax Net

Disclaimer: JH Marlin is not a tax advisor, and what follows is not and should not be considered tax advice. Consult the experts before taking action.

Leaving Germany’s tax net isn’t as simple as buying a plane ticket. To successfully leave, you need to sever your ties to Germany, which involves deregistering as a resident and establishing a clear center of vital interests in another country. Here’s a step-by-step look at the process:

1. Determine if You’re a Tax Resident

If you reside permanently in Germany and earn income (no matter the source of the funds), you are likely a German tax resident. If you’re not sure, here are a few helpful tests to gauge whether you’re a German tax resident:

If you have a dwelling in Germany that you use or that is available for you to use (whether you rent or own doesn’t matter), you’re likely a tax resident in Germany.
If you have a “habitual abode” in Germany and spend more than six months in a calendar year or six consecutive months over a year-end, you’re likely a tax resident of Germany.
Other personal or economic indicators that signify significant ties to Germany may qualify you for tax residency in Germany as well.

Also worth mentioning – If you have German citizenship but do not meet these criteria, then you likely do not qualify as a tax resident in Germany. Like most countries around the world, Germany does not levy any citizenship-based taxes as an American citizen would be subject to.

2. Deregister as a Tax Resident

One of the key steps is to officially deregister from Germany. This means informing the local registration office that you are leaving Germany permanently. However, the next step is to deregister as a tax resident and stop paying income tax in Germany.

3. Establish Tax Residency in Another Country

The German authorities will require a deregistering tax resident to identify their new tax residence. So, you need to establish tax residency in another country before deregistering in Germany.

Depending on the jurisdiction, tax residency may involve meeting residency criteria, physical presence requirements, holding temporary or permanent residency in the foreign country, or other indicators. Essentially, you have to make it clear to authorities that you intend to live there for a significant portion of the year – and not in your native country of Germany.

4. Indicate Your “Center of Vital Interests”

Remember that Germany determines tax residency based on your “center of vital interests” – meaning your home, children, and economic activities. So, to effectively leave the German tax net, you also need to demonstrate that your center of vital interests is no longer in Germany.

That may require selling assets, not spending any time in Germany, and any other important steps to satisfy the tax authorities. And in your new country, you may have to create substantial local ties to show your new “center of vital interests.” Depending on the country, these requirements may be significant or rather lax.

5. Avoid Double Taxation

Double tax agreements between countries mean that a tax resident of one country won’t be taxed on the same income in another country that he or she has made their tax residency. In other words, your income will not be taxed twice if you have two established tax residencies at the same time.

Germany currently has over 90 double tax treaties with other countries. Make sure to understand double taxation agreements between your home country and your new country to avoid having to pay taxes in two countries in a certain period.

Top Destinations for Germans to Minimize Taxes

My favorite topic! When Germans approach us to help them relocate to a new country or to several countries, we must first evaluate their goals and the countries that meet those needs. Why? So we can suggest the right moves and support them in their path forward.

Here are the top five destinations for a German person on several metrics like taxes, quality of life, residency and visa options, cost of living, and ease of naturalization – even though the German passport is already quite strong (for reference, the neighboring Polish passport and Danish document are comparatively weaker):

5. Costa Rica

A recent hotspot among the average American citizen and expat, Costa Rica has a lot to offer. The Central American neutral country has become a popular destination for German expats as well.

Why? Its laid-back lifestyle, lower cost of living (in some parts), attractive tax policy, and attractive residency programs.

If you spend more than 183 days in the country and become a tax resident of Costa Rica, you can potentially benefit from their territorial tax regime, which exempts foreign-sourced income from income tax – no matter your citizenship or residency status.

Moreover, Costa Rica offers several paths to become a resident and eventual citizen. On top of a digital nomad visa program that exempts holders from income tax regardless of its source, Costa Rica offers residency through investment. Here’s a full breakdown of three popular options:

Digital nomad visa — Show a monthly income of at least US$3,000 and you can qualify for the one-year digital nomad visa. Despite the ability to renew this visa and to include a spouse and children in your application, you cannot qualify for permanent residency or citizenship – no matter the time accumulated – on the digital nomad visa.
Retirement visa — By demonstrating a recurring monthly gross income of at least US$1,000 (this could be social security payments, pension dividends, or rental income), you can qualify for the Rentista or Pensionado visa. If you spend more than four months a year in the country, you can then qualify for permanent residence after three years and Costa Rican citizenship by naturalization after seven years.
Investor visa — Like the retirement visa, this Costa Rican residency by investment program offers a path to permanent residency after three years and citizenship after seven years – however, with physical presence requirements of at least 180 days a year to maintain the visa. Program qualification requires a non-refundable contribution to a local conservation project of US$100,000 or a local business or real estate investment of at least US$150,000.

Similar to another country on this list, the Costa Rican government automatically naturalizes all children born in their territory. Moreover, if foreign parents have a child born in the country, they may qualify for permanent residency as well.

Despite Costa Rican law deeming only Spanish citizens eligible for dual nationality in the country, this is rarely followed in practice. We know of several clients who’ve resided in Costa Rica and qualified and obtained dual citizenship in the country.

But why Costa Rica? With a path to second citizenship in a neutral, safe, stable country, Costa Rica can offer a far more relaxed lifestyle, proximity to North America, and a more tropical environment for the average German citizen.

4. Malta

Malta offers an attractive second passport for non-EU citizens with visa-free travel to almost 180 countries. But, even for a German person who already has residency rights in 27 European countries, German-Maltese dual nationality has several benefits.

First, the Mediterranean island country offers several routes to permanent residency and foreign citizenship through their residency by investment and citizenship by investment programs.

Residence by investment — Malta’s residency program requires a local real estate acquisition for €300,000 (or an annual lease of at least €10,000 monthly) and a €150,000 bond investment held for five years or longer. While temporary residence is granted immediately, investors may receive their residence permit a few months later. Moreover, after you spend five years in Malta, you can convert your permanent residency to dual citizenship.
Citizenship by investment — Malta’s direct citizenship by investment program requires investors to both purchase local real estate for at least €700,000 (or a full year’s lease for at least €16,000 monthly) and make a non-refundable contribution of €600,000 to the government. To navigate the due diligence process, expect to wait 1-2 years to be approved and granted citizenship. Malta does permit dual citizenship.

On top of the clear pathways to residence and dual nationality for foreign investors, Malta can also offer significant tax benefits, including a reduced 15% flat tax rate for foreign-sourced income remitted to the country.

Why Malta? English is an official language of the island nation, so don’t expect to have to learn Maltese. For that reason and its membership in the EU, a German can expect a smooth transition to the new country. Plus, the Mediterranean climate is widely-revered. And with close proximity to both North Africa and Southern Europe, you’re always within a few hours’ travel to other desirable destinations.

3. Cyprus

Often confused with neighboring Malta, Cyprus is another desirable Mediterranean destination for a German person looking to optimize their tax situation and gain residency. Let’s break down the island nation’s options.

Digital nomad visa — By demonstrating a monthly income of at least €3,500 (again, this can be rental income, retirement dividends, or social security payments as well), a person can qualify for Cyprus’s digital nomad visa. If approved, the visa allows those of foreign nationality to remain in the country for a year and two years upon renewal.
Permanent Residence — A German citizen can obtain immediate residence in Cyprus by investing at least €300,000 in a new real estate property on the island. While you are free to live in Cyprus with your residency status, there is no obligation to make it your home. Your spouse and children are also eligible for permanent residency.

Similar to Malta, one of the major attractions of Cyprus is its favorable tax regime, including a non-domicile tax status that exempts foreign-sourced revenues from local income tax and the lack of an inheritance tax. Also, among EU countries, Cyprus also boasts a relatively low corporate tax rate.

After seven years of living in Cyprus, a residency visa holder can qualify for the country’s passport and dual nationality in Cyprus. Permanent residents immediately have the right to live, work, and reside in Cyprus. But, as an EU country, Cyprus nationality doesn’t grant a German person any more residency or labor rights as they don’t already have in the EU.

However, having a second nationality and multiple citizenships provides more optionality in the event an investor may need diversification.

The passport allows visa-free travel to 170 other countries and is the world’s tenth most powerful travel document.

Of the Germans we speak to who seek foreign nationality, Cyprus is one of the most popular options. If you seek a second passport for you, your children, and your family, Cypriot dual nationality is a strong choice.

2. Panama

Nestled in the heart of Latin America is the thriving country of Panama.

Like Costa Rica, Panama offers tax residents the tax benefit of a territorial system where only locally-sourced income is subject to income tax.

Panama offers the Friendly Nations Visa, which allows citizens of certain countries, including Germany, to obtain residency with ease.

Digital nomad visa — Panama offers a short-term stay digital nomad visa program of nine months’ validity for those who can show an annual foreign-sourced income of at least US$36,000. However, this program does not lead to permanent residence or dual nationality.
Retirement visa — A passive, monthly gross income of US$1,000 can make a person eligible for Panama’s retirement visa.
Investor visa (Friendly Nations Visa) — Immediate permanent residency is granted to those who invest US$300,000 in Panamanian real estate, US$500,000 in local securities, or make a deposit of at least US$750,000 in a Panamanian bank account. Each of these investments must be held for at least five years. And, the investor must make at least one visit to Panama every two years to maintain their immigration status.

Worth mentioning – If foreign parents have a child born on Panamanian soil, the nationality act deems them eligible for citizenship immediately (i.e. birthright citizenship). Additionally, those of foreign nationality can also qualify for citizenship if their spouse’s citizenship is Panamanian and they reside in the country for three years.

The relative strength of the country’s passport and ability to have dual nationality makes Panamanian citizenship attractive. However, even though the path to citizenship in Panama is five years of residency, as codified by the immigration law, foreign citizenship in the country is rare.

So, Panama should be seen as a strategic play for residency, potential tax optimization, and diversification of assets – not another nationality.

Regardless of the uphill battle to Panamanian nationality, why would someone choose to expatriate to Panama? Panama City is one of the most connected business communities in Latin America and frankly, the world. With a high percentage of residents born abroad, the country can serve as a strategic business base centered in the middle of the Western Hemisphere.

1. Dubai (United Arab Emirates)

Dubai is a favorite among high-net-worth individuals and many citizens of Germany who we speak to. Because of its zero personal income tax policy and attractive residency options for investors, Dubai will only become more popular in the decades to come.

Here’s how to qualify for temporary residence in the Middle Eastern country:

Residency by investment — The program requires a public investment of about $2.75 million, real estate investment of about $275,000, or the local incorporation of an existing company with a capital transfer of about $25,000. These investments have various visa lengths and physical presence requirements. The application can include children, spouses, and parents from other countries.

From a tax standpoint, the Dubai Free Zone has relatively few regulations. The government does not have personal income tax, capital gains, or property taxes. And, in case you headquarter your company in Dubai, corporate tax rates are only 9%. Dubai’s tax incentives mean that if you make this your new tax residency, you may not have to pay any taxes at all.

Despite its many routes to residency and clear laws around residency, the United Arab Emirates rarely naturalizes those with a foreign passport.

For Germans seeking to pay less in taxes, Dubai is an ideal choice. The process for obtaining a residency visa in Dubai is relatively quick, making it an appealing option for those wanting to establish residency and optimize their taxes next year.

How to Set Up Tax Residency in a Foreign Country

Tax residency refers to the country in which you are obligated to pay taxes on your income. Establishing tax residency in a foreign country can provide significant tax benefits, especially if that country has lower or zero income taxes compared to Germany.

Establishing tax residency in another country is a critical step to potentially pay less taxes. Here are the basics of setting up tax residency abroad:

Choose a destination — Make sure wherever you become a tax resident aligns with your goals and needs.
Meet tax residency requirements — You don’t necessarily need temporary or permanent residency or the country’s passport (legal immigration status) to become a tax resident (tax status) of your target country. Countries like Panama, Malta, and Dubai all provide plenty of options. To be considered a tax resident in the other country, you must meet their requirements of tax residency (e.g. spend more than 183 days in the territory).
Comply with the tax law in Germany and the other country — Remember, you don’t necessarily need citizenship in these two countries. You just need to follow the rules and optimize for your own situation to minimize your tax liability. Be aware – The law may require you to file annual taxes and pay taxes in one or two countries, no matter your citizenship or nationality. Understand the amount of time you spend in each country, where your income is sourced (e.g. German social security), and where you are a tax resident. Each country has certain criteria.
Diversify your portfolio — We’ve talked about this several times. But with more residency permits and dual citizenship throughout the world, you open yourself up to more options – travel access, investment opportunities, banking privileges, etc. Of course, determine your goals first before investing your time and resources in a program. Having dual nationality in other countries may create more obligations as well.

Second Citizenship and Dual Citizenship

The German nationality act was recently amended to allow a German citizen to hold dual citizenship and foreign nationality. Previously, Germans were required to hold only one nationality and were forbidden from holding dual citizenship and a foreign passport.

This development is exciting for many reasons.

Having foreign nationality can provide significant freedom and flexibility for Germans. It allows individuals to diversify their assets, gain access to additional investment privileges and consular protection, and have a backup plan in times of more political or economic risk.

The Benefits of a Foreign Passport and Dual Citizenship

A second citizenship and dual nationality allow you to hold multiple citizenships and passports, which have a whole host of benefits:

Increased travel freedom
Residency rights in multiple countries
Access to consular protection
Tax optimization potential
Job and career advancement options
More banking access
More investment opportunities

It also provides a sense of security. If one country becomes unfavorable for any reason, you have the option to relocate to another country where you hold citizenship. This is particularly important for those seeking greater sovereignty and freedom from government control.

And you have several options to obtain citizenship:

Citizenship by investment

Five Caribbean countries offer citizenship by investment programs, where a person can invest $200,000 or more and receive a second passport within months. The Turkish passport program is similar. Typically, you can include your children, spouse, and sometimes even your parents in this application as well.

Birth tourism, citizenship by marriage, and naturalization

One can get dual nationality and foreign citizenship by having a child born in a foreign country, by marrying a spouse from another country, or the “old fashioned way” – by naturalization (immigrating according to the law and meeting residency requirements over a certain period).

Citizenship by preferred nationality

In the case of Latin American countries and a few European countries, one can gain other citizenship in a country just by virtue of their current nationality and a few years’ residence in the new country. For example, a Colombian citizen can become a dual national of Spain in just two years of residence while others must reside in the country for up to ten years before qualifying.

Citizenship by descent

The lowest hanging fruit in the industry is your ancestry. Several European countries offer citizenship by descent programs whereby you can acquire citizenship in their country by proving your lineage of a former citizen (up to your great grandparent in some cases). Dual national status, here you come!

Citizenship by exception

If you’re an extraordinary individual in your field, you can qualify as a dual national in many countries. For unique contributions to their society, almost all countries offer citizenship by exception in rare circumstances.

One nationality is limiting. Multiple nationalities provide options. Millions of Germans now realize this.

Relocating to a foreign country is not as difficult as it once was.

By leaving Germany’s tax net, establishing tax residency in a low-tax country, and obtaining dual citizenship, you can create a more flexible, free life. Whether it’s Costa Rica, Malta, Cyprus, Panama, Dubai, or any other countries, countless countries incentivize dual nationality and will offer you pathways to obtain citizenship there. There are numerous methods to live a higher quality life.

We’ve helped hundreds of Germans apply for and secure their residency in another country and obtain citizenship (dual nationality in many cases) for themselves, their children, and their family’s future generations. And we’d love to help you get dual citizenship as well.

If you’re ready to explore your options for permanent residency or dual nationality, contact us and we’ll discuss your specific needs and goals as a German citizen and we can provide a path to success.