Progressionsvorbehalt
Exempt income that still raises the tax rate on the rest of your income.
Progressionsvorbehalt (exemption with progression) means an income is not taxed itself, but it is counted when the tax rate on your other income is set. For a non-resident landlord it usually appears on the home-country side: several treaty partners exempt German rental profit and use it only to find the rate that applies to the income they do tax. The German side works differently. A standard non-resident return under §50 EStG taxes the German income on its own, without the Grundfreibetrag and without looking at your worldwide income. Foreign income only enters the German rate if you opt for treatment as a resident under §1 Abs. 3 EStG, where §32b EStG then applies. Practical consequence: a German rental loss or profit can change your tax in the home country even when no tax is levied there on the rent itself.
Last reviewed: by Yann Lephay.