The foreign university basically needs to be an institution that has been recognised in Germany (so-called equivalence within the meaning of the German Framework Act for Higher Education). At the same time, there has to be an identifiable link with a (where applicable, subsequently intended) business or professional activity and not merely a realisation of personal motives and interests. Furthermore, what matters is whether the course of study is a first degree or a postgraduate/second degree and whether or not it is taking place within the scope of the employment relationship. Moreover, the student has to be subject to income tax liability in Germany, thus, be domiciled, or ordinarily resident in Germany. Many of the costs of education abroad can be offset against tax, irrespective of whether an entire course of study is completed abroad or just a semester (if certain conditions have been met).
Limited special expenses deduction
Outlay costs for your own first degree when there is no employment relationship may only be deducted to a limited extent as special expenses. The special expenses deduction for the costs of initial vocational training is up to an amount of €6,000 annually and is only permitted in the year in which they were paid. If, at the same time, no taxable income is generated then the costs would be irrelevant for tax purposes.
Deduction of work-related costs particularly for a second degree
According to the Federal Fiscal Court (Bundesfinanzhof, BFH), in its ruling of 14.5.2020 (case reference: VI R 3/18), studying abroad can give rise to (anticipated) work-related costs in Germany. The crucial factor here is, most notably, that the stay abroad has to take place not during the first degree course but, instead, during the advanced second degree. This includes, for example, a master’s degree course or a bachelor’s degree course following the completion of vocational training or some other completed course of study.
Please note: In the case of a first degree course, the deduction of work-related costs would only be permitted if such a programme had been completed within the framework of an employment relationship, for example, as a ‘dual’ course of study [the combination of company training and studying at the same time]. Here, there is no blanket maximum amount that can be deducted to reduce the tax liability.
Besides tuition fees and the costs for the accompanying course materials, other costs incurred in connection with studying abroad can also be deducted as anticipated work-related costs. However, they may be subject to specific limits on deductibility, for example, travel to the foreign country as well as the costs of travelling within it, accommodation costs and the fees for visas and language tests. Any subsidies, scholarships and grants that are paid for that purpose would have to be offset against the costs.
Please note: If such costs can be considered as anticipated work-related costs then this would have to be claimed within the scope of the submission of a tax return so that the local tax office could make the respective assessment of the losses to be carried forward.
Business expense deduction solely in exceptional cases
The tax courts have rejected, on a number of occasions, the recognition of studying costs as business expenses. The studying costs of own children cannot be deducted as business expenses even if the children undertake to work at their parents’ company for a certain period of time following the completion of their courses of study (Münster tax court, ruling of 15.1.2016, case reference: 4 K 2091/13, EFG 2016 S. 551). Moreover, deducting the expenses as own (anticipated) special business expenses, later on, as a member of a partnership would also be ruled out if this circumstance had not been the case during the course of study.
Third parties – and also parents – could only bear the costs of studying and vocational training and deduct these as business expenses under very strict conditions, namely, if they were able to demonstrate that these costs were entirely, or to a predominant extent, related to business activities. Care must be taken, in particular, when making the respective contractual arrangements (arm’s length principles, repayment clause, implementation).
Extraordinary burdens only for parents with maintenance obligations
When certain costs are taken into account as extraordinary burdens there is always a presumption that they are inevitable. According to a landmark decision by the BFH, of 21.7.1987, the costs of a taxpayer’s own vocational training do not inevitably arise because, ultimately, a taxpayer is able to freely determine which type of vocational training they choose. Consequently, the tuition fees for attending a (private/foreign) university cannot be deducted as their own extraordinary burdens. However, in the context of maintenance payments, parents with maintenance obligations may, potentially, deduct the vocational training costs (e.g. tuition fees) of their dependent children up to the maximum amount allowed, as an extraordinary burden. This would nevertheless be on condition that the recipients of the maintenance payments require support, i.e. they would not be allowed to have any assets or only a very small amount and could not have sufficient income.
Please note: You can find more information [in German] on equivalent classifications for and recognition of foreign universities as well as courses of study and exam services in the ‘anabin’ database of the Central Office for Foreign Education of the Standing Conference of the Ministers of Education and Cultural Affairs at www.anabin.de.