US LLC and taxes: what really applies between Germany and the US

Up front: this is information, not advice

Tax law is the part of this series where half-knowledge is most expensive. We explain the terms and link the original sources so you know what to ask. What applies in your case only a tax adviser can judge — the German-American constellation is among the most demanding areas of international tax law.

The starting point: where are you tax-resident?

Everything hinges on one question: are you tax-resident in Germany? Anyone with a residence or habitual abode in Germany is subject to unlimited tax liability here — on worldwide income. Forming a US LLC does not move your residence. As long as you live in Germany, the LLC’s income lands in your German tax return. This is the core that dubious providers like to leave out.

Even after leaving, Germany can under certain conditions still reach you (extended limited tax liability, exit taxation — see below).

How Germany classifies an LLC: the type comparison

The LLC is a US hybrid: usually “pass-through” for tax in the US, liability-limited in civil law. German tax law does not know this form and therefore assigns it to a German legal form via a type comparison. The basis is a letter from the Federal Ministry of Finance of 19 March 2004 (the “LLC decree”, reproduced in full as Annex 10 of the official Corporate Income Tax Handbook), whose approach the Federal Fiscal Court has confirmed.

Examined are features such as management and representation, member liability, transferability of shares, profit distribution, the nature of the capital contribution, and lifespan. Depending on the overall picture, the LLC counts in Germany as:

• a corporation (opaque) — like a GmbH; the company’s profits are taxed at the corporate level first, and the member is taxed only on distributions, or
• a partnership (transparent) — profits are attributed directly to the member, or
• a permanent establishment of a member.

This classification has consequences — and it can come out differently in the US than in Germany (qualification conflict). In the worst case this threatens double taxation or unexpected attribution.

The permanent-establishment trap when managing from Germany

A particularly underestimated point: if the LLC is effectively run from the living room of a manager resident in Germany, a permanent establishment or even the place of management can arise in Germany. The German Fiscal Code is explicit about this: § 10 AO defines the place of management as the centre of commercial top-level direction, and § 12 AO lists the place of management as the first example of a permanent establishment. Then profits become taxable in Germany — regardless of the company “being in Wyoming.” Mere US registration does not shield you from German tax.

The double taxation treaty (DTT)

Germany and the US have a double taxation treaty (signed 29 August 1989, amended by the protocol of 1 June 2006; the Federal Ministry of Finance files its country page under 23 January 1991, the promulgation date — it is the same treaty). It is meant to prevent the same income from being fully taxed twice — allocating taxing rights and providing credit or exemption. But the treaty is no free pass: it presupposes a clean classification, and precisely with the LLC a qualification conflict can complicate relief. The treaty text is published by the Federal Ministry of Finance.

Exit taxation (§ 6 AStG)

Anyone holding a significant stake in a corporation who leaves Germany can trigger exit taxation under § 6 of the Foreign Tax Act: the treasury treats departure as if you had sold your shares — and taxes the built-in gains, even though not a cent has flowed. “Significant” follows § 17 of the Income Tax Act, which mirrors the statute’s own wording: it covers anyone who, at any time during the five years before the (deemed) disposal, held a direct or indirect stake of at least 1% of the company’s capital (the so-called wesentliche Beteiligung). § 17 attaches further conditions, and how a specific holding is classified depends on the individual case. Since the ATAD Implementation Act, in force for departures from 2022, payment can on application be spread over seven equal annual installments — regardless of the destination country and, per § 6(4) AStG, as a rule against security; the earlier open-ended deferral for moves within the EU/EEA was abolished. Whether exit taxation captures an LLC classified as a corporation is case-specific — and a classic reason to plan the departure with an adviser beforehand, not afterwards.

CFC add-back taxation (§§ 7 ff. AStG)

If the LLC is treated as a corporation in Germany, CFC add-back taxation (“Hinzurechnungsbesteuerung”) can apply: if a low-taxed foreign entity earns predominantly “passive” income, German law attributes that income directly to the member resident in Germany — even without a distribution. “Low-taxed” has a fixed statutory meaning: under § 8(5) of the Foreign Tax Act it covers income bearing a profit-tax burden of less than 15%, a threshold that applies for the first time to fiscal years of the foreign company ending after 31 December 2023. The further details (active/passive catalogue, attribution mechanics) are governed by the Foreign Tax Act; the tax authority has published an extensive application decree.

First-hand: what the formation did not change

One documented data point, not a pattern: the publisher of this magazine formed his own Wyoming LLC in July 2026 through a specialist formation service for roughly 599 euros — paid on a Wednesday, formation documents in the inbox a few days later, banking solved separately through Revolut Business after a notably strict verification that required a written account of how the business actually sells. What none of that speed changed, at any point, was the tax picture: the formation service registers a company; it does not move a tax residence. Every question in this article — type comparison, permanent establishment, treaty access — remained exactly as open the day after the formation as the day before. That is the honest lesson of the experience, and it is the opposite of what the sales videos imply.

What this means in practice

The honest summary: for people resident in Germany a US LLC is not a tax-saving vehicle, but first of all an additional structure with additional duties on both sides of the Atlantic. It can make sense in cleanly planned setups — usually alongside an actual shift of your center of life. Whether that applies to you is settled by individual advice, not an article.

For the US side of the reporting duties (Form 5472, BOI/FinCEN) see Bookkeeping and compliance. How dubious providers exploit exactly this complexity is shown in Common mistakes and scams.

Continue in the guide

This article is part of our series. Back to the overview: US LLC guide for German emigrants.