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If you are a U.S. citizen working in Berlin and paying German income tax, you will not be double-taxed on the income. The USA will give you credit for the tax paid in Germany. See Form 1116. Others have mentioned the Foreign Earned Income Exclusion. See Form 2555.

You will, however, pay two metric shit-tonnes in professional fees getting your U.S. tax returns prepared because the international tax rules are so ridiculous. The operating principle in U.S. tax law is "If you are doing something abroad, you must be Mafia ^H^H^H^H^H a drug lord ^H^H^H^H^H a thieving bastard tax cheat ^H^H^H^H^H^H terrorist." (The Poster Child of Evil has changed over the years, but the pig-headedness has remained constant).

Disclaimer: I am an international tax lawyer.

> You will, however, pay two metric shit-tonnes in professional fees getting your U.S. tax returns prepared because the international tax rules are so ridiculous.

Really? All I did in my tax returns was say "I made this much outside of the US and paid this much in taxes". As long as the percentage is higher than you would have paid in the US, than you owe nothing. In the case that you don't...well then you might want to hire an accountant to "get creative".

Did you make sure to file the FBAR report on all your foreign bank accounts and other financial accounts such as any mandatory retirement accounts? I believe the basic part of filing taxes (such as that) is pretty easy, the hard part is when you have to disclose every account that you may be considered to have control over and in some cases pay taxes on it. I think I saw somewhere else that you may have to pay US income tax on the gains in your German retirement account, even though its similar to social security and you have no access to it.

> Did you make sure to file the FBAR report on all your foreign bank accounts and other financial accounts such as any mandatory retirement accounts?

Yes. That's even easier than a tax return. You simply put in "This account exists from this bank in this country, and holds X amount"

It's interesting that you've found it so easy, first hand antecedents are always useful. Everything I've read about living in another country and having any sort of investments or tax deferred retirement accounts in that country seems like it turns into a paperwork nightmare, especially if you invest in foreign mutual funds.

When you are done backspacing, take a look at international tax rules in Brazil, specially regarding the taxes you must pay if you are an employee working for a foreign company.

Oh wait, you won't find any, because you are not allowed to. The way to do it is to create a company, even if it just you. Then you'll be able to receive international transfers from foreign companies, provided you have signed a contract.

And, after that, we can start talking about taxes. Considering that brazilian companies spend, on average, 2600 hours per year dealing with (domestic!) taxes, as opposed to 325h on average in the US, well...

> Disclaimer: I am an international tax lawyer.

Alright, I'll take your word for it then.

> You will, however, pay two metric shit-tonnes in professional fees getting your U.S. tax returns prepared because the international tax rules are so ridiculous

So, instead of getting shafted by paying Uncle Sam, I'll get shafted by paying a tax attorney. :)

Either way, there is a financial disincentive to working abroad, and that's not taking into account the fact that this is a disincentive to look for jobs abroad (speaking for myself, I'd want to figure out the financial implications before seeking employment abroad, and this creates yet one more hurdle).

There is an extreme financial disincentive for Americans to work abroad. If you travel frequently to Dubai (as an example) as I do, it will astonish* you to discover very few Americans working there, but tons of British, Australian, South African, etc. people busily making a living, building a business, etc.

The reason is taxation. Americans working in Dubai (no income tax there) must still pay U.S. income tax and pay a ton to get the tax returns done correctly. A British citizen working in Dubai pays nothing to Inland Revenue and does not file a U.K. income tax return.

Question: who is cheaper to hire, if you are an employer in Dubai?

Hint: that's why all of the international bankers are NOT American.

-------

* Sarcasm.

EDIT: this is one reason why our law firm has a booming business in expatriation -- people giving up U.S. citizenship/green cards.

This effect is biggest in low tax countries because of the credit US citizens end up paying the HIGHER of US and local income taxes (more or less - rules are complex).

Also see relatively few Americans in Hong Kong and Singapore which have low tax rates like Dubai. Unlike almost everyone else in the world there is no benefit for Americans to work in low tax countries because they still end up paying US tax rates. If a company hires an Austrailian and an American in Hong Kong the American ends up with less after tax income. So the draw to these places is much less for US citizens.

There is still a benefit, because you pay only federal income taxes, but not state taxes and you do not pay various other taxes such as medicare surcharge on investment income. So if you are from a high tax state in the U.S. ( California or NY ), it may still make sense.

>there is a financial disincentive to working abroad, and that's not taking into account the fact that this is a disincentive to look for jobs abroad

If you don't want to do something, you can always rationalize it. If really wanted to work in Berlin or elsewhere, you'd do it, and it wouldn't be a big deal.

> If really wanted to work in Berlin or elsewhere, you'd do it, and it wouldn't be a big deal.

This is simply getting at the notion of the premium - how much I value working abroad.

A more formal way of asking this question, assuming for simplicity a $100K/year salary:

"How attractive (measured in dollars) is the idea of working in Berlin?"

If it's worth $30,000/year, you'll do it as long as you can make 70% of your US salary or more. Otherwise, it's not worth it.

It's not a matter of "not wanting to do something" - it's a matter of the opportunity cost. In this case, the opportunity cost of working abroad for US citizens is high (see philiphogden's comments), so the only people who will do it are the people who can rationalize taking a financial hit.

So yes, the answer is "you want it, just not enough". But the following question is, "how much should someone have to want to work abroad in order to do it?"

Berlin is 3 times cheaper in terms of rent & food than San Francisco.

I don't know if it's 3 times, but I could easily bet on a "at least twice".

well, that's true but you only get ~30% to 50% of the salary (amount in EURO) compared to SV and you have to pay around 48% taxes on your income.

You have to pay taxes of 48% for everything above 52k€ salary. If you earn 60k€, you have to "only" approx pay 30% taxes.

Berlin is a relatively cheap place to live. So depending on where you live now you might actually need much less money when living in Berlin.

Most of the US (not NYC, DC, SF) is far cheaper than Europe in general. Even Seattle is cheaper on average.

> Even Seattle is cheaper on average.

Unless you mean "cheaper than Europe in general", I guess these sites could use your input:

http://www.numbeo.com/cost-of-living/compare_cities.jsp?coun...

http://www.expatistan.com/cost-of-living/comparison/seattle/...

Berlin is much cheaper than most of western europe or germany because of the long term economic effects of being part of east germany. A more apt comparison then would be frankfurt vs seattle or detroit vs berlin. Also expatistan just uses the expensive part of town

Don't forget you will be building up an German pension as well.

I considered going for some dutch jobs one of the reasons woudl be I that I have the max no of qualifying years in the UK pension scheme.

Is it so just because tax rates are higher in Germany, or for other reasons?

> US taxation laws deter US-based talent from leaving the country

They do? I know Americans still have to pay taxes while living abroad, but they can exclude up to $97600 per year from their US taxable income which is a nice start. (And that "Earned Income Exclusion" is rising every year: http://taxes.about.com/od/taxhelp/a/ForeignIncome_3.htm)

Isn't there a tax treaty between Germany and the United States to avoid double taxation?

Mind you that the cost of living in Berlin is nowhere near the cost of living in the Valley. A 40 square meter flat here costs just around 500€ ( less than 700$). I hear it's about three times as expensive in the valley.

You get plenty of restaurants around for less than 10€. Other note: medical insurance is mandatory and covered by your taxes. It just doesn't make sense to compare salaries like this, you need to compare what you get for it.

Note: I'm working for a young startup in Berlin, my girlfriend might have to refuse a postdoc in the states as I wouldn't be allowed to follow her because of VISAs problems.

NYC & SF are silly compared to the rest of the USA. I can go live in Seattle for that rent when I was there 3 years ago. I don't get state income tax either, which further increases my income. I have cheap, quick, direct flights to NYC & SF from Seattle too. Austin is probably a similar situation.

Medical insurance is not covered by taxes.

It is propertinal to your income up to a limit (Beitragsbemessungsgrenze 2014: 48.600 EUR). It is capped there around 600€ per month. Half of it is payed by the employer and not deducted from your income before taxes. If you reach that limit you may also apply for a cheaper so called private insurance.

> I'd have to be paid about 30% just to offset the cost of paying double taxes (both to the US, and to Germany)

This is plain wrong. The US and most (all?) EU states have agreements for the avoidance of double taxation in place. I live and work in Ireland as a German and US citizen. I pay my taxes here, and have to file in the US, but can deduct all my Irish taxes as "foreign taxation credits" or some such, effectively paying nothing to Uncle Sam.

Here's the US-Irish agreement: http://www.revenue.ie/en/practitioner/law/double/usaprot.htm.... I'm sure you can find one for Germany.

Are you sure you'll be paying taxes twice? AFAIK, countries signed on mutual tax treaties only tax you for the difference between the domestic tax rate and what you paid in the other country. Being that US has a lower tax level than Germany, this difference will be negative, so effectively zero US tax.

I think the problem with US tax codes is that as a citizen you need to pay tax for any revenue you collected regardless of where you are physically located, but taxes you paid in treaty countries are subtracted from the total.

The first ~$97K earned in a foreign country is not taxable on your U.S. return.

http://www.irs.gov/Individuals/International-Taxpayers/Forei...

That may be the case; but the documentation aspect (where you have to document every bank account, every investment, every property ownership, etc.) is a royal PITA from what I've heard.

Any taxes you pay out of the US are credited against your US tax liability.

http://www.irs.gov/Individuals/International-Taxpayers/Forei...

and (eventually) the estate tax

This depends on how much money you're leaving behind. The estate tax only kicks in above $5,250,000.