Whether travel costs, accommodation or tuition fees: studying abroad is associated with additional costs. What many students don’t realize, however, is that these costs, as well as spending on studying domestically, have an impact on taxable income. This means that under certain conditions it may be possible to deduct studying abroad in the USA, Canada, Great Britain or Australia from tax.
Requirements for the tax deductibility of studying abroad
Whether a semester abroad or a summer session can be claimed for tax purposes depends on several factors. According to the University Framework Act § 20 HRG, the university of choice must meet the following criterion: The location of the university must be in a member state of the EU, the EEA, Switzerland or another country that has been proven to entitle the holder to use a foreign academic degree. In addition, this qualification must be verifiably recognized in Germany.
The student must prove to the tax office that the study and examination performance at foreign universities is equivalent to the performance at domestic universities. When and how students can benefit from their studies abroad for tax purposes is explained in the following sections.
Tax deductibility of a Bachelor’s degree abroad
In the bachelor’s program, a stay abroad can currently only be retrospectively tax-deductible under certain conditions. The decisive factor is whether the first degree is the first training after school or a professional qualification has been obtained beforehand.
Bachelor’s degree without completed vocational training
Only a few taxpayers are currently able to recoup their costs for studying abroad in the bachelor’s degree. Tax law evaluates the expenses for a first degree as the cost of private life. As a result, only special costs of a maximum of 6,000 euros and these can only be taken into account as a tax advantage in the same calendar year.
A tax effect of the special cost deduction comes into effect under the following conditions:
- Income taxes were paid during the calendar year in which the stay abroad took place.
- The income taxes paid, even after deduction of the special expenses (study costs), are still well above the current basic tax allowance. For 2016, the basic tax credit is 8,652 euros.
Deductible study costs
It should also be noted that the special expenses are only deductible to a limited extent. It is not possible to give a presentation for later years. The deductible special expenses for studying abroad in the first degree include, among other things:
- Course, school or study fees, work equipment, specialist literature
- Trips between home and training location
- Additional expenses for meals
- Additional expenses due to external accommodation
The study costs for studying abroad are only tax-deductible during a first degree as special costs and to a limited extent. For this reason, a full course of study completed abroad cannot or only partially be tax-deductible.
Special cases: Bachelor’s degree with vocational training
The tax deductibility of costs for a stay abroad during the bachelor’s degree is treated differently if the first degree is not the initial vocational training.
- Anyone who has successfully completed vocational training prior to their first degree.
- Anyone completing their first degree as part of an apprenticeship contract, for example as a dual study course in Germany and abroad.
Attention: The type of initial training is precisely defined in tax law. Before January 1, 2015, there was no requirement for the duration of initial training. Since the change in the tax deductibility of initial training must meet the following criteria:
- be full-time (at least 20 hours per week)
- be completed in a period of at least twelve months
- the training must be completed
No courses for professional orientation or preparation or, for example, basic training in the armed forces are recognized.
Still unclear: Tax deductibility of the costs for studying abroad in the first degree
The different tax treatment of first and second training is currently being challenged in a lawsuit. The lawsuits against the tax treatment of initial training costs were originally filed with the Federal Fiscal Court for the subject areas of first degree medicine and professional training as a commercial aircraft pilot (pilot). The Federal Fiscal Court has declared this regulation unconstitutional in a current judgment.
The Federal Constitutional Court will now decide in the last instance in the current year on the tax regulation of initial training costs. A decision is expected in summer 2016 at the earliest.
Tax deductibility for a master’s degree abroad
On the other hand, there are good chances to claim a semester abroad in the master’s program or a master’s abroad as a tax loss. The master’s course abroad must be a postgraduate course. This means that the knowledge already gained in the previous initial vocational training is expanded through the second degree and can therefore be deducted from tax.
As a second degree in Germany and abroad, in addition to a university degree following a completed (technical) university degree, the following postgraduate courses are also defined:
- Additional studies
- Supplementary studies
- Postgraduate studies
In the case of costs for further training abroad, the tax office checks very carefully whether the professional chances are improved or that there is no tourism activity. If you want to count your stay abroad as training costs, you should be enrolled as a full-time student and be able to show a regular semester schedule.
Attention: If the second degree takes longer than a year abroad, the study costs can no longer be claimed as income-related expenses because the unlimited tax liability is no longer applicable.
Explanation of terms: advertising costs and loss determination
According to the Income Tax Act (Section 10 (1) No. 7), further training measures that arise during a second degree or a first degree after previous, completed professional training in Germany and abroad may, under certain conditions, be deducted from the tax as business expenses (or business expenses).
If negative income (= losses) occurs during a calendar year in the form of training costs or income- related expenses, these are taken into account regardless of the income generated. The loss is not taken into account in the same calendar year, but can be carried forward in full as a loss carryforward into the following calendar years. The following overview shows which business expenses can be taken into account for studying abroad:
- Application costs
- Language tests such as TOEFL or IELTS
- Tuition fees abroad
- Writing materials, specialist literature
- Interest on student loans
- Work equipment
- Travel expenses (costs for a student visa)
- Accommodation costs
- Flat rate additional meal expenses for the first 3 months. The cost of meals abroad is not always recognized by the tax office. The point of contention is the question of whether the study abroad takes place at a regular workplace and whether the student’s center of life is in Germany.
The advertising costs can be claimed without restriction. It should be noted, however, that the tax office can prove that the examinations and study achievements or the academic degree can be credited in Germany. There is also no guarantee that a two-degree course abroad can be deducted from tax in the form of income-related expenses if it lasts for more than one year.
However, a tax advantage only arises if the losses in a calendar year were higher than the income. Then it comes to the loss determination. The loss carried forward must always be determined separately at the responsible tax office. Anyone who earns an income above the basic tax allowance in the following year will benefit from this loss carryforward. Then the loss carryforward lowers the tax in what is known as horizontal loss compensation.