Many emigrants hope that by moving abroad they will not only gain sunshine and a new quality of life, but also leave German taxes behind them. In reality, however, the tax office often remains a silent companion. Whether and to what extent pensions are still taxed in Germany after moving away depends on several factors.
Tax liability after moving away
Anyone who has their place of residence or habitual abode in Germany is subject to unlimited tax liability. This means: All income worldwide is recorded in this country, as rosepartner.de explains. If the residence is completely relocated abroad and the German registration address is given up, the limited tax liability usually applies. Then only income that comes from German sources, such as the statutory pension, is taxable.
However, there is a special feature: in some cases an extended limited tax liability applies for up to ten years. This applies, for example, to people who move to a country with low taxation and still have economic ties to Germany. Certain foreign income can also be taxable here, according to ecovis-rts.de.
Taxation of pensions abroad
Since 2005, a clear rule has applied to pension payments from Germany abroad: They are generally taxed in Germany – from the first euro, unless a double taxation agreement (DTA) provides otherwise. The agreements between states determine whether Germany or the country of residence levies the tax. Germany remains responsible in countries such as Austria, Italy and Poland. In others, such as the USA or Greece, the right to tax lies with the country of residence, according to wohnsitzausland.com. In some cases both states are allowed to tax; In order to avoid double burdens, crediting or exemption procedures apply.
Within the EU, the EEA and Switzerland, the pension is paid in full. The respective DBA decides which taxes apply, according to deutsche-rentenversicherung.de. In countries without social security agreements or outside the EU, the payment may be reduced; the tax requirements there are often much more complicated.
Disadvantages of limited tax liability
The limited tax liability sounds harmless at first, but it has clear disadvantages. The basic allowance no longer applies, as does the spouse splitting. Allowances for children or special expenses are no longer available. Business expenses and special expenses can only be deducted to a very limited extent. Even smaller pensions can become fully taxable.
Return to unlimited tax liability
Under certain conditions, unlimited tax liability can be applied for again. According to kanzleimauss.de, this is possible if your place of residence is in the EU, EEA or Switzerland and either at least 90 percent of your income comes from Germany or your foreign income remains below the basic tax allowance. A successful application brings back all tax benefits – from the basic allowance to spousal splitting.
Exit tax for shareholders
The rules for shareholders are particularly strict. Anyone who holds at least one percent of a corporation and moves their residence abroad often has to pay so-called exit tax. The tax authorities treat the shares as if they had been sold and tax the fictitious profit immediately. Those who return within seven years – in some cases 12 – can avoid this burden, according to wise.com.
Tax planning before emigration
Before moving permanently abroad, thorough tax preparation is advisable. Deregistering your place of residence should be combined with a precise analysis of the tax consequences, recommends schildhorn-steuerberater.de. The last tax return in Germany must also contain all relevant income – including income from abroad that may be relevant for the progression proviso, according to ecovis-rts.de. It is worth checking the contents of the double taxation agreement with the new country of residence, as finanzamt-rente-im-ausland.de advises. In many cases, an early application for unlimited tax liability can secure advantages, according to kanzleimauss.de. Shareholders should clarify in advance whether there is a risk of exit taxation and, if necessary, consider tax arrangements, according to wise.com.
Editorial team finanzen.net