Anyone who works internationally often deals with two states: the state where they live and the state the income comes from. So that the same income is not taxed twice in full, there are double taxation treaties. Used well, they are a useful tool, especially after a move.
Using the OECD Model Convention, the template for most treaties, this article explains what a treaty does for you. And it shows how to use it: with a clear residence and a structure that fits.
What a treaty does: allocating taxing rights
A double taxation treaty is a contract between two states. For each type of income it sets out which state may tax and how the other state avoids a double burden. In Germany it takes precedence over domestic tax law (section 2 AO).
A treaty creates no new tax. It limits what the two states levy under their own law. The Federal Ministry of Finance publishes the status of Germany’s treaties each year with the texts by country, most recently as at 1 January 2026. Treaties are in force with Georgia and the United States (as of 09/2026).
In short: a treaty sorts out which state taxes which income.
Residence: the key to the treaty
A treaty is available to anyone resident in one of the two states. You are resident where you have unlimited tax liability under domestic law, for example through a home or habitual abode. In Germany those are your residence and your habitual abode.
If both states regard you as resident, the treaty sets a clear order, the tie-breaker. First comes the permanent home, then the centre of vital interests, then the habitual abode, then nationality (Article 4 OECD Model). It is simplest if the question never arises. If you give up your German home and move your centre of life, you are clearly resident in the new state (Moving your residence properly).
The 183-day rule, by the way, is not part of residence. It sits in a different article and concerns employees’ salaries.
In short: once you clearly live in the new state, you can use the treaty there.
Business profits: the state where the business is run
Business profits are taxed by the state in which the business is resident. The other state may only step in if there is a permanent establishment there, such as an office, a workshop or a dependent agent (Articles 5 and 7 OECD Model). Construction projects only count if they last more than twelve months.
For companies, residence usually follows the place where they are run. A company run from your new home therefore belongs there (Place of management). If you leave neither an office nor an agent in Germany, you have no permanent establishment there either.
In short: business profits belong to the state in which the business is resident and run.
Dividends, interest, royalties: capped withholding tax
For investment income the states share the right. The state the payment comes from may levy a capped withholding tax. The recipient’s state of residence taxes the income and credits the withholding tax. The OECD Model provides 5% on dividends for larger shareholdings and 15% otherwise, 10% on interest and 0% on royalties (Articles 10 to 12 OECD Model). Individual treaties deviate from this.
| Income | Source state | Recipient’s state of residence |
|---|---|---|
| Business profit without permanent establishment | no taxing right | taxes |
| Profit of a permanent establishment | taxes that profit | exempts or credits |
| Dividend | capped withholding tax | taxes, credits |
| Royalty | no or capped withholding tax | taxes, credits |
In short: for investment income the source state may take little and the state of residence the rest.
Credit or exemption
The state of residence avoids the double burden in one of two ways. Under exemption, it leaves the income out of its tax base. Under credit, it taxes the income and deducts the foreign tax. Which method applies is set out in the methods article of each treaty. Without a treaty, Germany credits foreign tax under domestic law (section 34c EStG).
In short: the treaty says whether income is exempted or credited, and after the move the treaty of the new state of residence applies.
The US LLC and treaties
For US income tax, the US LLC is usually transparent. Without US business activity, a foreign owner mostly pays no US federal income tax (USA country page). Taxation follows residence. For typical LLC income there is therefore often no double taxation for a treaty to resolve.
That is why the LLC suits entrepreneurs without a fixed tax residence and those resident in countries without income tax on this income so well. If you later want to reduce withholding tax on dividends or interest under a treaty, you need residence in a treaty state. That can be built into your residence plan.
In short: the LLC often needs no treaty because it is taxed where you live, and residence in a treaty state helps with withholding taxes.
Germany, Austria, Switzerland
Austria and Switzerland also base their treaties on the OECD Model. The logic is therefore the same: settle residence, then look up the type of income. A tax adviser in the relevant country reviews the specific treaty.
In short: in Austria and Switzerland treaties work on the same pattern.
Our recommendation
For location-independent entrepreneurs we recommend the US LLC from €1,800. It fits especially well if you have no fixed tax residence or live in a country without income tax on this income. Because it is taxed where you live, the structure stays simple.
If you are planning an EU corporation, the order is: move your residence first, then incorporate. Once you are resident in the destination country, the treaty works for you. The residence models are listed under /residency: Cyprus with non-dom status, Italy with its flat tax, Greece and Bulgaria (as of 09/2026). Germany has a treaty with all four. You form the company at your new home, for example the Cypriot Ltd from €4,500 or the OÜ from €650. All countries are listed under /jurisdictions.
When you move, exit taxation on existing shares and, for German nationals with larger interests in Germany, extended limited tax liability belong in the plan. GCS plans the sequence, obtains the certificate of residence and coordinates the tax advisers in both states.
What to do now
First, settle where you will be resident in future. If you live location-independently or in a country without income tax, the US LLC is usually the direct solution. If you move to a treaty state, look up the applicable treaty in the Ministry’s list; GCS plans the move of residence itself with you. Then give your tax adviser the income that will arise after the move: business profit, dividends, royalties and any remaining German income.